Should You Offshore Your Services?

Companies have been taking their manufacturing operations offshore for quite some time, but only in the past decade have companies started regularly sending their service jobs to countries like India and China. I recently spoke about the benefits and risks involved in service offshoring with Dr. Robert Kennedy (pictured), a professor at the Ross School of Business at the University of Michigan, and author of the recently released book The Services Shift: Seizing the Ultimate Offshore Opportunity.

The benefits
Kennedy identifies three main benefits to service offshoring:

• 1. Saving money: According to Kennedy, companies can save between 40 and 70 percent on operation totals through service offshoring.
• 2. Improved processes: Offshore vendors focus on keeping their clients happy, and one way they do so is by having what Kennedy calls the "best-in-class stuff." He explains, "Companies going off shore have to re-engineer their processes. So they'll go from a manual processing system with stacks of paper and people in cubicles working on it, to [their vendor's] centralized, state-of-the-art IT platform."
• 3. Access to talent: Some jobs require expertise not found in high numbers in the U.S. Kennedy points to pharmaceuticals research, where the need for genomics engineers cannot be filled exclusively in the U.S. Companies can find more genomics engineers in China and India.

• 1. Geographic risk: These are the dangers associated with the specific country in which a company conducts business, such as war breaking out or regulations changing.
• 2. Migration risk: "Once you decide to do this, then you have the consultants come in to review your processes, and they start moving things offshore. A lot of times things can go wrong during that migration process," says Kennedy.
• 3. Operational risk: Once a business is operating offshore, risks include declining quality levels or operational difficulties such as power outages.
• 4. Customer or employee pushback: Because of the controversy surrounding service offshoring, companies must consider the possibility of offending their customers. "For functions such as customer care and call centers, some customers really push back when they recognize a foreign accent," Kennedy says.

Despite occasional bad press, most businesses seem pleased with their offshoring efforts. Kennedy worked with 40 companies while writing his book, and only two or three are pausing their offshoring efforts; most are accelerating.

In conclusion, Kennedy calls service offshoring a "megatrend" that is just beginning:

The last section of the last chapter of my book is called 'Offshoring: A tough game you have to play.' Managers today have options available for going offshore that did not exist five or ten years ago. The world has really changed in a way that it's easier to do business offshore, and doing so creates economic value. That's what a manager's job is: creating economic value, and if this option is sitting out there, they have to go after it. If they don't, their rivals will.