The Pros and Cons of Offshore Outsourcing

Martyn Hart, chairman of the National Outsourcing Association, points out that despite a bad press, offshore outsourcing business processes has benefits for many parties other than the organisation making the move.

When the NOA’s board of directors released their outsourcing predictions for 2007, it was widely felt that Business Process Outsourcing (BPO) was going to rapidly catch up with Information Technology Outsourcing (ITO). All the evidence of deals done in 2007 suggests that this trend is coming to fruition – and the print and document management industry is one that will be affected by BPO.

The outsourcing and offshoring of document management and printing is not a new discipline, but one that will benefit from the increased understanding and proliferation of BPO. Firms are now more comfortable than ever to outsource non-core processes, and this is a position of strength for this industry. However, questions remain about the difference between outsourcing and offshoring, as well as the pros and cons of outsourcing and offshoring.

Clearing the confusion that fogs the outsourcing market is probably the first step. Outsourcing, by definition, refers to a process where an end user engages the services of an outsourcing supplier to conduct one or more of its business processes.

This could be anything from marketing to printing. Outsourcing has been part of the business landscape for as long as business has been conducted, as companies have always formed partnerships with other companies.

For the last few years, outsourcing, and offshoring in particular, have started to mature and become a more widely accepted and recognised business practice. There has been a mix of successes and disasters, but as time passes firms learn from their mistakes and move forward with increased knowledge and constant improvements being made to conduct and standards within offshoring. As offshore outsourcing becomes more widely recognised and more popular, a wider array of companies are considering offshore outsourcing as an option.

Offshore outsourcing is not suitable for every company though and careful consideration needs to be taken before any decision is made. Some organisations are just not suitable for offshore outsourcing; aspects such as staffing and company culture may pose such a big obstacle that offshore outsourcing may cause more harm than good. So firstly you need to look at the benefits and balance those against the negatives. At times offshore staff will simply not have the level of skill required to complete the necessary tasks. Offshore outsourcing is not the answer to every problem, but in many cases it is beneficial.

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Firms need to assess the skills slippage that can result from outsourcing and offshoring agreements. To retain core competencies in-house is vital, as employees’ skills are a factor that is crucial to a firm’s success. When choosing an outsourced supplier it is vital not to outsource the knowledge that gives the company a competitive advantage. Outsourcing relationships have in the past broken down because suppliers have not been able to offer the skills necessary for the end user organisation, whilst other relationships have also been brought into question because of security issues relating to intellectual property.

Offshore outsourcing is definitely increasing in popularity for a number of reasons. Organisations wishing to get their call centre work or back office accountancy work done in a much cheaper location may look to offshore outsourcing as the answer to cutting costs.

With advances in technology and improvements in infrastructure in many formerly third world countries like India, being able to conduct a process such as answering UK calls for National Rail Enquiries in Bangalore, has become a lot easier. Cost isn’t the only driver. Many companies cite offshore outsourcing as a way to heal the skills gap that will become a greater and greater problem in the UK as the population ages.

Offshore outsourcing is an integral part of the rising tide of globalisation. Whereas in the past, many developing countries could only really compete in global agricultural markets, the ability to provide services, such as IT, accounting, call centre work etc. is having a real impact on these countries’ economies. India’s recent huge economic growth is not solely down to offshore outsourcing, but it is an essential factor.

The worry in the UK has been that developing countries will benefit to the detriment of European economies. But this shouldn’t be the case. European countries will be using these offshore locations to conduct lower level work – much of the higher-level operations will be retained in-house or on-shore at least. In turn, this should boost these companies’ revenues, which will be ploughed back into the home nation. If the future rolls out as predicted, globalisation will have a positive impact on all countries competing on the world stage – every country will benefit, meaning jobs for all.

But it’s not just economic benefits. There is evidence that globalisation and offshore outsourcing are instrumental where it comes to ironing out political difficulties. Look at India and Pakistan. Historic rivals, until recently they were on the brink of a possible nuclear war. But Western companies have cited political instability as one of the major barriers to offshore outsourcing.

Many companies froze offshore outsourcing plans, when political tension in the area began to look as if it might bubble over. India and Pakistan must have realized the potential economic benefits they were in danger of losing out on (Pakistan is trying to establish itself as a major player too) and this must have been significant when it came to the decision to accelerate the peace process.

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