The Growth Allure

Lewin and Peters, researchers at Duke University, in their annual offshoring survey, found that offshoring is increasingly motivating firms to seek opportunities for growth. In an article in the March 2006 issue of the Harvard Business Review, the researchers point out that the realization that a large and very able talent bank resides overseas is informing more decisions about what to do there: Seventy percent of respondents cited access to qualied personnel as a major driver of their initiatives, up from 54% a year ago. So, although a firm may initially use overseas talent to save costs and free up high-cost U.S. talent to pursue growth, it is not long before the overseas talent come up with better ways of working and ideas for process improvement. As the company gains confidence in their performance and becomes comfortable managing the relationship, it gives them increasingly complex jobs. Ultimately, the offshore talent is empowered to develop ideas and growth strategies for the local market.

The article offers some interesting statistics to support its case:

During the first wave of offshoring, which centered on contact centers and IT, the ratio of jobs created offshore to jobs eliminated in the United States was 1:1 – consistent with a strategy of taking out cost. In the current wave of offshoring, which includes far more innovation and product development than the first wave did, the ratio of jobs created offshore to jobs eliminated in the United States is 13:1 – consistent with growth. Follow-up interviews and several case studies suggest that offshoring allows companies to increase the number of engineers and researchers while keeping constant the cost of product development as a percentage of sales.

So, companies must not view offshoring as a narrow palliative for the bottom line. As the offshore workforce becomes more skilled, companies that leverage it to increase growth will find it an integral component of firm competitiveness.

So, is this also a shift from third party service providers to captive outsourcing? That's the subject of another post.