Most companies say offshoring of jobs has not resulted in higher unemployment domestically. Firms shifting jobs overseas may be responding to a shortage of skilled domestic employees
The sixth annual study on corporations’ offshoring trends was released today by the Center for International Business Education and Research’s (CIBER) Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business and The Conference Board.
The study is part of ongoing research into the effects of offshoring trends on American competitiveness and reflects the sentiments of business managers as regional economies around the world continue to recover from the global recession and economic upheaval in Europe and Asia.
“Over half of the participants in our survey say offshoring has resulted in no change in the number of domestic jobs in most functions,” said Fuqua Professor of Strategy and International Business Arie Lewin. “The finding that the U.S. software sector has the highest ratio of offshore to domestic employees – almost 13 offshored jobs per 100 domestic jobs – may be a reflection of a scarcity of domestic science and engineering graduates in the U.S.”
In addition, survey respondents are broadening the range of factors that influence their selection of an offshore location to include the location of the best service provider and the quality of infrastructure, e.g., telecommunications, power and transportation. In spite of placing a high priority on cost savings and labor arbitrage, the survey finds average achieved cost savings offshore have declined for functions at many companies. For example, IT services and software development have experienced consistent declines over the past five years while average achieved savings have increased for administrative and innovative functions.
According to the researchers, survey participants have lower expectations than previous respondents for average cost savings in several offshoring functions. Contact center, information technology and software development offshoring have seen the largest declines among all offshoring functions as companies new to offshoring discover a number of hidden costs involved, including expenses for training, staff recruitment and retention, and government and vendor relations.
“The potential for cost reduction alone is no longer reason enough to move operations,” said Ton Heijmen, Senior Advisor to The Conference Board. “One survey respondent noted it has taken his company several years to discover that the impact of labor arbitrage disappears in fewer than three years. Companies are now shifting from cost-driven offshoring implementations to a multidimensional value proposition in creating a global footprint.”
As companies expand offshoring activities by increasing scale or by offshoring more diverse and complex functions, most firms see a decline in the overall efficiency of their offshoring processes as measured by average cost savings across offshored functions. This may be partially attributed to a loss of managerial control as offshoring operations are expanded, requiring companies to improve coordination and management of their global sourcing.