The survey found that offshore outsourcing is limited, but that those companies that have opted for it are committed to the practice long term.
Posted Jul 12, 2004
Offshore outsourcing is neither as widespread nor as cost-effective as mass media would lead the public to believe, according to a recent survey in CFO magazine.
The survey, which polled 275 CFOs and financial executives at a wide range of companies, found that offshore outsourcing is limited, but that those companies that have opted for it are, for the most part, committed to the practice long term.
Only 18 percent of respondents said they were currently outsourcing, but 64 percent of those companies said they planned to expand their outsourcing efforts in the next two years. An additional 10 percent of the surveyed companies said they plan to consider offshore outsourcing.
Even those companies that are offshoring may simply be dipping a collective toe in the pool, having dispatched, on average, just 6 percent of their workforce overseas.
And the benefits claimed by companies in the survey are underwhelming. Ten percent of the companies that have already outsourced abroad said they saw no cost savings whatsoever, and 38 percent saw savings of less than 15 percent. Only 42 percent of companies said that offshoring had resulted in savings of more than 20 percent.
That rate of success--or lack of it--may be a matter of not following best practices, according to industry experts. Stephanie Moore, an analyst at Forrester Research, says her firm's clients typically see benefits of between 25 percent to 40 percent when they move offshore. Amit Shankardass, senior vice president for solution planning at contact center specialist ClientLogic, says that his company's customers see between 20 percent and 40 percent savings. Shankardass says that the expectation of savings solely due to labor costs is one of the fallacies of moving offshore.
Of the 10 percent showing no savings, Shakardass says there's one likely explanation: "They're screwing up--plain and simple."
Moore agrees, and has other theories, as well: "Companies that don't see any savings at all are probably running very loose projects with their offshore outsourcers. The savings that people expect are only possible if you have improved your processes and learned how to deal with an outsourcer."
So what motivates these outsourcers to continue? One factor may be the type of work being sent overseas. As expected, programming-related IT work and manufacturing were the top-two processes sent abroad, but a surprising 31 percent of companies with offshore efforts stated that their projects included customer relations or contact centers.
That may not seem like a large slice of the pie, but Tim Reason, CFO senior writer, who spearheaded the survey, says the figure reflects a serious uptick. "Contact centers seem...to be pretty well established [in the offshore marketplace]," he says. "Especially when you consider the dominance that IT [work] has had."
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