The Hidden Costs Of Offshoring

from the not-so-wonderful dept

Mike Hostetler writes in with a link to a story about all the hidden costs of outsourcing (some of which aren’t really so hidden). While I’ve been fairly vocal about not putting place reactionary protectionist policies, I’ve also said repeatedly that many companies engaged in offshoring are going to regret it. They’re not thinking through the real problems they’re facing and, instead, are just looking at the cost issue. It’s yet another result of managers only looking at the cost side of the “cost-benefit” equation, and not realizing what they lose when they cut costs. Many times, companies decide to outsource because the processes they’ve set up at home are a mess, and they seem to think that offshoring it, and pushing the issue away from headquarters will magically solve the problem. What they’re finding is that ignoring the real problems and targeting a “low cost” solution actually makes the problem worse. I just heard someone from a top research company say they’ve been looking to do a case study on companies doing offshoring, and no one will agree to be the study. However, she said that they’ve seen a large number of companies go with an offshoring strategy, only to bring the work back domestically less than a year later, realizing the additional problems that offshoring creates. For all those who have a knee-jerk reaction against offshoring, a much more productive course of action is to make this sort of information more widely known. Well thought-out, well executed offshoring can be a boost to the economy. Just trying to cut costs often ends up doing more damage.


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Comments on “The Hidden Costs Of Offshoring”

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5 Comments
dorpus says:

What about shipping jobs to the sea?

In the 1970s, some Japanese companies set up “programming ships” near San Francisco, just inside International Waters. This way, there were no time zone problems, programmers could come on-site as needed, and programmers were still paid non-US wages.

I imagine you could have supertankers squeezed full of thousands of Chinese or Indian programmers. We could have boatloads of cannon fodder… er, programmers constantly going in and out of the tanker, being prodded along by foremen with bull whips.

Ed Halley says:

No Subject Given

Let’s not name countries, in fairness.

The Elbonians may be very good at execution, but they’re completely LOUSY with initiative and competent design. It would be cost-effective to send work which is repetitive and easily trained. It is not cost-effective to send one-time projects, first-year projects, design projects, or experimental projects to Elbonia.

But management tends to see “more heads, less salary.” They hold competitions to see which department can offshore the most employees. Regardless of the TYPE of work. If Cheapovia undercuts Elbonia wages, move the effort there.

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