Back to offshoring.

Since the late eighties and continuing in the nineties, offshoring work to low cost countries has been quite popular. Callcenters, software programming, entire production sites. In the run for decreasing cost, many companies followed the trail towards the Far East. But many projects stranded. According the Erasmus University, 85% of the offshore activities failed to succeed.

The economic slowdown at the beginning of the present era and the recent depression, lowered the attention for offshoring, although there has no real decline. The observed downturn appeared to be in line with economic developments. Still the former ‘success’ stories dried up. One of the reasons is that offshoring entails more then just the physical movement of processes. It requires a thorough preparation, investments and a detailed cost calculation.

During the nineties too many companies were more or less blinded by the apparent success stories. Everybody went into offshoring and if a company wanted to sustain it’s marketshare, it had no alternative then to follow the trend. So it seemed. However, 85% failed in a successful offshore project. The expected lower cost on labor were met, but cost on transport, culture differences, languages barriers proved to be major setbacks. Also the quality of work was much lower.

Confronted with these setbacks, the expected results were quit disappointing. Surprisingly, not many companies turned back the clock on the projects. They just stumbled ahead for many years to reach more or less the expected results. Although in the United States quite some companies went into backshoring of their activities. NCR, the ATM manufacturer recalled the offshoring due to problems with suppliers, backfall of itś innovative strength, high cost of transport and rising wages.

In Europe, especially callcenters were backshored to the home land. Client engagement activities are quite sensitive and can quickly ruin the reputation of a company. The different pronunciation can easily scare of your customers. Customers preferred to speak with people to which they can relay.

Experts still believe that offshoring is here to stay. There are too many opportunities such as in Vietnam, Turkey and Bangladesh. In time, when these companies show a rise in economic welfare and due to that the rise of wages, the advantage of offshoring will slowly come to a halt as the cost of transport will take a bigger part of the pie. It will be then no longer cost effective. On the other side. Those local developing economies are the new markets of tomorrow. So even for that reason it is wise to consider offshoring. Only, good preparation is half the work. Invest in good relationships with local companies and partners. Appreciate the need for investing in people, innovation and environment. And remember that in a different culture, you cannot blindly implement your own way of working. You will have to find the best of both worlds together with a reliable local partner.