Offshoring Without Guilt

The new hot topic being debated in board-rooms, at meetings and in Internet discussion groups is “offshoring,” the practice among U.S. and European companies of migrating business processes overseas to India, the Philippines, Ireland, China and elsewhere to lower costs without significantly sacrificing quality. At first blush this would seem like nothing new, but the development of a powerful communication infrastructure is making offshoring an increasingly viable and commonly taken option: Nearly two out of three software companies are already involved, and in a number of industries, IT-enabled back-office business processes are prime candidates for such a shift.

At the heart of the debate is the issue of jobs and wages. As networking technologies have enabled companies to tap into the global marketplace for talent more easily, offshoring has put downward pressure on domestic salaries. What’s more, we seem to be emerging from the current recession with no net increase in professional, higher-wage jobs, because many of these have migrated overseas. Unlike layoffs triggered by poor performance, these job shifts are mainly due to the availability of comparable talent elsewhere at lower cost. The public outcry about this practice has engendered so much corporate guilt that very few companies are keen to go on record publicly in this arena. This guilt, however, is misguided. Offshoring should be seen for what it is — a key element of the next-generation business model.

The Third Wave

The shifting geography of business processes is, in fact, the third wave of geography-related change in the design and operation of corporations. During the first wave, the improving transportation infrastructure of the 20th century enabled corporations to seek effective production capabilities in increasingly far-flung locations that provided access to new markets and tangible resources — land, local factories, mines and production workers. During the second wave, as capital markets became global and interconnected in the latter half of the 20th century, corporations began to capitalize on vibrant global financial markets for both debt and equity.

Now we are in the midst of the third wave — in which digitized business processes like order processing, billing, customer service, accounts and payroll processing, and design and development can be carried out without regard to physical location. As with the first two waves, the only relevant question for companies now is how to deliver maximum value to customers and shareholders.

Global realignment of jobs across different skill levels is continuous and dynamic.