Financial crisis not to melt down offshoring

MUMBAI, INDIA: In the time of global economic meltdown, American companies feel it is better to continue their current strategies of outsourcing some functions, says a recent study.

According to a research by the Center for International Business Education and Research’s Offshoring Research Network (ORN) at The Fuqua School of Business, Duke University and PricewaterhouseCoopers. The ongoing study mainly focuses on the effects of offshoring trends on American competitiveness.

It says that the financial downturn may even accelerate outsourcing plans. The survey, designed to capture business managers’ sentiments in the midst of the economic crisis and the presidential election, was conducted during the first two weeks of November and queried nearly 100 firms from the US and Europe about their plans to source some job functions and business processes offshore, said a press release.

The survey on offshoring trends suggests that while cutting labour costs is the most significant factor driving offshoring decisions since the worldwide financial crisis gained momentum this quarter, many survey participants noted an increased urgency to improve efficiencies.

“Our research shows as companies grow the scale and scope of sourcing programs, average efficiency decreases,” said Arie Lewin, professor of strategy and international business and executive director of CIBER. “Enhancing efficiencies has become more urgent in recent months as pressure on margins forces companies to increase productivity while spending less.”

To cope with the slumping economy, companies plan to enhance efficiencies through business process redesign and by improving coordination and integration of offshoring processes, the study said.

“Redesigning business processes is not equivalent to end-to-end process re-engineering, which requires a significant commitment of resources and time,” added Hari Rajagopalachari, executive director, PricewaterhouseCoopers.

“Our findings indicate companies can’t wait that long and can’t spare those resources; they want to improve their existing organizational capabilities for managing their offshoring strategies.”

Forty-one percent of respondents report increasing speed to market is becoming a more important driver of offshoring. Meanwhile, access to qualified personnel has not increased in importance, partly because rising unemployment is widening domestic employment pools.

As a result of the global economic crisis, renegotiating current contracts with service providers is emerging as a growing concern among companies.

Forty percent of companies said they have pressured or plan to pressure providers to offer more favorable contract terms in order to trim costs, the release said.