THEORY 74

OFFSHORING CORE FUNCTIONS

Use when you wish to move a substantial part of your core business overseas for strategic reasons.

The terms ‘outsourcing’ and ‘offshoring’ are often confused or used interchangeably. Outsourcing refers to the transfer of non-core activities such as cleaning or maintenance services to an organisation that specialises in that function. Offshoring is the transfer of core activities such as production or IT support to another country.

HOW TO USE IT

  • Recognise that any decision to offshore is a major strategic decision that will require the careful assessment of advantages and disadvantages and careful implementation.
  • As a manager you may assist in developing the case for offshoring or ‘run the show’ dependant on your seniority. Either way, step one in the process is identifying clearly the reasons for the potential move. These will normally include:
    • Improved economy (reducing costs while maintaining or improving existing quality).
    • Increased efficiency (increasing the number of outputs from the same level of input while maintaining or improving existing quality).
    • Access to a more productive/better qualified/cheaper workforce.
    • Extend the organisation’s presence internationally, especially in quickly growing markets.
    • Reaction to competitors’ reduction in cost base.
    • Access to new markets.
  • Step two is to identify potential oversea partners/destinations and assess their suitability for partnership working. For example:
    • What is the political and business culture in each country you are considering? Will you be able to operate in such a culture? What will be the reaction of your customers and other stake holders to you moving work to the country?
    • Will the indigenous labour market be able to supply your needs?
    • What is the cost profile associated with the country and what transport costs will you incur?
    • Are there any political or security issues to be considered?
    • What effect will the change have on the quality of your product?
  • Step three is concerned with confirming which products or processes you will offshore. This requires a detailed analysis of the costs and benefits associated with each offshoring product. Pay particular attention to the reaction of your stakeholders (see Theories 60 and 65).
  • Step four involves a meticulous assessment of the case for moving to each country. As indicated above, this is by no means limited to financial factors alone. Political stability, culture, attitudes to foreigners’ and foreign investment, prevalence of corruption and many more issues must be taken into account.
  • If your job or those of your staff are at risk as a result of offshoring and you don’t have a cast iron guarantee of a job after the transfer, think about moving. Use the work you do on the transfer to enhance your CV.

QUESTIONS

  • What’s my likely role going to be in any offshoring decision?
  • How much time have I and other managers spent on the ground in the country they are thinking of offshoring to?
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