When considering the impact of offshore outsourcing, examine the real facts and you will find benefits for both domestic and overseas markets.
In this column and the one that follows next month, I’ll discuss 10 of the most common myths surrounding the globalization of services, including HRO. While the trend toward offshoring HR and other business processes has plenty of momentum on its own, nevertheless it’s important for future growth to dispel the misperceptions that many people still hold about offshoring.
Myth 1: Offshoring is bad for the economy.
Reality: For many people, offshoring is a four-letter word. For those whose most direct experience with offshoring is at the receiving end of a pink slip, the misperception that offshoring is bad for the economy is understandable because, for a while, offshoring is bad for them. But in the long run, it’s actually the opposite that’s true: Offshoring benefits our economy on the whole, because it allows companies to be more profitable, it makes the things we buy less expensive, it fuels competition, and over time it leads to net job creation in both the buyer and the provider countries. While the myth—and the negative public perceptions that perpetuate it—leads some companies to avoid offshoring, others stand firm. British Telecom, for example, has been successful in its straightforward strategy: the company publicly announced offshoring plans and explained how the move will enable consumers to keep more money in its pockets.
Myth 2: Services globalization adds risk to your organization.
Reality: Certainly offshoring can present a company with new risks and challenges, but done with the appropriate location, operating model, and a service supplier that has HRO experience, domain knowledge, and a highquality infrastructure, the additional risks associated with offshoring can be minimized. Globalization actually cuts risks in the operations of a company by diluting the country risk. It also reduces the risk of not being able to find an appropriate level of talent at an appropriate price point. It improves bandwidth and operations options because it gives companies access to a much larger resource pool. GE leverages more than 15 countries across the globe for its services globalization and has found some to be centers of excellence for specific processes.
Myth 3: The infrastructure is poor at offshore centers.
Reality: Suppliers in the most successful offshore outsourcing destinations (India, for example) have information and communications technology (ICT) infrastructure that rivals that of their onshore counterparts. Offshore providers know that speed and processing capability (as well as reliability) are key to winning— and keeping—clients. Many centers have triple redundancy for power and communications. In some offshore locations, the ICT infrastructure is superior to that of the United States. Ranjan Sinha, chairman of Summit HR, found evidence of that fact following recent storms in Mumbai, which he said caused minimal interruptions in offshore services delivery—a stark contrast to the disruption caused by Hurricane Katrina in the Gulf Coast.
Myth 4: Only large companies offshore.
Reality: In the beginning, only large companies outsourced business processes to offshore locations. But as the industry has evolved, small and mid-sized firms have jumped on the bandwagon, too. In the past two years, offshore adoption by startups and mid-market firms grew by more than 50 percent. It is now difficult to find a startup in Silicon Valley that is not leveraging offshore resources.
Myth 5: Services globalization will always save you money.
Reality: It’s probably true that you could always find someone somewhere to perform a given business process for less, but a lower price tag does not by itself equate to a bigger savings. To really reap the benefits of an offshore arrangement, a company must transfer its free resources to an activity that will add even greater value to the company’s portfolio or it should terminate the resource. Additionally, inadequate knowledge, the lack of a road map, and poor governance affect outcomes. So, in about 25 percent of firms, offshoring is not yielding optimal results.
Next month we’ll discuss five more myths that, if not dispelled, could hamper the future growth of the outsourcing industry, so stay tuned.