Offshoring v Onshoring - Which Way is the Pendulum Swinging?
by Adrian Guttridge, EMEA Head of BPO, HP Enterprise Services.
In recent years, we have seen UK businesses moving away from the tendency to outsource business functions overseas and once again seeking delivery of these services within their borders. However, have national pride and political sentiment now become the drivers of the onshoring vs offshoring debate? Or do cost-consideration and expertise still determine where a business locates its services? Adrian Guttridge, EMEA Head of BPO, HP Enterprise Services investigates the importance of these factors and the role of vendors in this decision process.
Since late 2007, most of Western Europe has been in the shadow of economic uncertainty. Large numbers of reputable business institutions have struggled to survive and for some, the impact of the debt crisis has been overwhelming. The UK banking sector witnessed the nationalisation of Northern Rock and saw both the Royal Bank of Scotland and Lloyds TSB receive an injection of public funds to shore them up. One might think that such developments would, if anything, strengthen the allure of offshore cost-savings. However, cost was no longer the only consideration.
Alongside a renewed cost-cutting imperative, the economic downturn also ushered in the politics of protectionism. Sending business abroad to create jobs, infrastructure, and skills overseas when these are needed so desperately at home has a negative impact on companies and political goodwill, another valuable asset, already in extremely limited supply.
The past 12 months have also been characterised by social and political unrest, particularly in many developing markets. This has demonstrated the geopolitical risk of locating business services abroad and alerted corporate decision-makers to the fact that while offshoring delivered benefits to the balance sheet, it also brought with it the very real possibility of denial of service and the business challenges that come with this. Such cost-savings, it suddenly seemed, could have a significant cost in themselves.
These factors have indisputably shifted the context of a CFO’s thinking when grappling with the offshoring vs onshoring debate. In HP’s experience, what will ultimately remain the most pressing consideration, and the easiest sell internally, is cost. While the events of 2011 have demonstrated that the analysis cannot stop here, the essential savings to be made from offshoring through, for example, labour arbitrage, have not lost their allure.
As such, businesses have had to find the middle ground. At HP, we are finding that organisations are increasingly seeking to get the best of both worlds by adopting a hybrid model with the core business at home and selected services strategically outsourced overseas. HP’s Best Shore delivery strategy caters to this dual requirement by giving the customer the advantage of a global infrastructure and balanced global footprint. This enables the business to react quickly to any uncertainly, but capitalising on the cost benefits of offshoring.
Individual customers may have specific reasons for wishing to keep certain services onshore – such as data-protection and security – but it is more than likely that for other services, location choices will depend largely on the vendor’s judgment that conditions are suitable. Moreover, what will ultimately determine a market’s viability as a centre for, for example, the provision of BPO services is the expertise, the people, the processes, the tools and the infrastructure available. This is what a vendor will look for when deciding where to establish itself.
HP’s approach is to develop centres of excellence for specific services in broad based key global hubs supported by regional language centres. What delivers value to customers is our investment in people, technology and modern facilities; it means they get more time to spend on managing their core business and don’t need to worry about their location strategy.
As ever, advancing technology will continuously shift the goalposts of this debate. Connectivity has created a global village in which individuals and communities everywhere can contribute in the outsourcing market. As this trend moves towards its logical conclusion, the particular resources or characteristics of a specific market will lose their significance and a location-based outsourcing proposal will become less relevant.
For now, the pendulum on the “onshore vs offshore” debate will continue to swing back and forth, impelled by transitory political, social and economic exigencies. Cost is still what the CFO will have front of mind when tackling this dilemma, but the growing sophistication of technology may make it a headache of the past.