Human Resources: Executive Summary:Offshoring

The practice of moving jobs out of the U.S. to cut costs has undergone transition, moving from a little-used, unheard-of strategy to a much-debated topic of cable news shows, even becoming a focal point of a U.S. presidential election. The single term "outsourcing" has birthed the more accurate "offshoring," with variations such as "nearshoring," "homeshoring" and "insourcing" now part of the corporate vernacular. Even the type of work moved overseas is changing. The practice of offshoring, which in its early days was mostly confined to the manufacturing industry, has broadened to encompass customer service, information technology, research and development, financial services and even legal services.

While the term "offshoring" may bring India to mind, offshored work is migrating all over the globe. It is true that India is host to about 44% of the world's offshoring business, but countries such as Mexico, China, Thailand, the Philippines, Vietnam and nations in Eastern Europe are also home to offshored work. Developing nations are clamoring to gain a piece of the offshoring industry. And even developed nations like Canada are destinations for outsourced work from other countries, as their healthcare costs are often lower than those of other developed countries.

The most obvious reason for offshoring is the cost savings. But companies also recognize the vast, educated talent pool in nations like India, where workers can handle complex tasks and still provide cost savings. While senior engineers in the U.S. may command salaries from $150,000 to $200,000 a year, senior engineers in India earn, on average, about $30,000 to $40,000 annually. Many U.S. companies that have offshored call centers as cost-saving measures have found that the quality of the work is actually better, since offshore call-center employees are more likely to have college degrees, in contrast to most U.S.-based call-center workers.

Offshoring has not been seamless for some corporations, though. In addition to the negative PR associated with the practice, many firms are not realizing the cost savings they expected. Unforeseen costs that accompany offshoring endeavors, in combination with dissatisfied U.S. customers, have led some companies to move offshored operations back in-house.

India's economy has boomed as a result of offshoring. Its once-closed economy is now grappling with the difficulties of such rapid growth. The talent pool is beginning to dry up as more and more companies set up shop in India, creating talent wars that have led to a shortage of skilled workers and a steady rise in wages. The country also struggles with the influences of Western culture that come with the work.

U.S. public opinion has taken a somewhat dim view of offshoring, primarily because of concern that U.S. jobs are being lost. Unions are staunchly against the practice, and some legislators have been exploring ways to penalize companies that send jobs overseas. Proponents of the practice say that the cost savings allow companies to create even better jobs in the U.S., and they look at the change as an inevitable cultural shift similar to that of the Industrial Revolution.

Most experts agree that offshoring will continue to grow and evolve as corporations figure out what works and what doesn't. As economies like India's begin to rise on the tide of offshoring, new, cheaper destinations will emerge and the cycle will continue. The U.S. economy will not be untouched by the phenomenon, but whether the lasting effect will be negative or positive is yet to be seen.

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The Institute for Corporate Productivity (i4cp, inc.) improves corporate productivity through a combination of research, community, tools and technology focused on the management of human capital. With more than 100 leading organizations as members, including many of the best-known companies in the world, i4cp draws upon one of the industry’s largest and most-experienced research teams and Executives-in-Residence to produce more than 10,000 pages annually of rapid, reliable and respected research and analysis surrounding all facets of the management of people in organizations. Additionally, i4cp identifies and analyzes the upcoming major issues and future trends that are expected to influence workforce productivity and provides member clients with tools and technology to execute leading-edge strategies and "next" practices on these issues and trends. i4cp is a for-profit company with offices in St. Petersburg, Florida.