I’ve lately witnessed a curious phenomenon: Some of my clients and friends are pulling back from foreign outsourcing.
Even a year ago I never thought I would see this happening. I don’t know if it’s a permanent trend, but there is an increasing chorus of caveats from businesses that outsource overseas.
For example, Lee Coulter, VP of Business Processes at Ascension Healthcare, reports that Ascension reduced outsourcing over 50% in the past two years for its 84 hospitals and 400 healthcare centers. He has gone instead to shared service centers, particularly for his back office processes, for which he is efficiently deploying Oracle’s PeopleSoft with greater control and less cost. (WSJ blog-Joel Schechtman-4/27/12)
Tom Chenault, CEO of Chenault Systems in Dallas, relates the following annecdote in an article in the Dallas Business Journal to illustrate his reason for rethinking outsourcing . Says Chenault:
“The other night I decided to stop at a fast-food drive-in. I ordered the No. 1 hamburger and medium-size limeade over the intercom. While I was trying to explain that I did not want too much ice in the limeade, I detected a foreign accent. The carhop, who was also foreign, brought me a No. 1 hamburger and a large bag of ice instead of my low-ice drink. In spite of everything, along with some good humor, I gave the embarrassed carhop a good tip.”
So what are the problems of offshore outsourcing for the entrepreneur?
Well, here are a few that are widely bruited about.
- Overseas labor seems much less expensive initially. However, it is often much more expensive for the long hauls particularly with regard to design, detailing, specification, and customization.
- Language and culture make precise and effective communication overseas undependable.
- Security of proprietary information becomes problematic.
- Low wages may go up quickly, somewhat obviating the original reason for outsourcing.
- There are none of the non-quantifiable advantages of collegiality, proximity, and communal creativity.
- Expenses can be great to supervise overseas operations and manage complex foreign tax issues.
- Outsourced workers have no incentive to look for efficiency.
- Legal documents won’t protect you. NDAs mean nothing overseas according to the FBI.
Atul Vashistha, Chairman of the Neo Group, which advises corporations on outsourcing, says simply, “Companies are realizing now they might have outsourced jobs they never should have.”