Focal point: Debate about the merits and/or ills incurred from offshore business process and IT outsourcing continues to grow. However, offshore outsourcing is a manifestation of an ongoing and long-term economic evolution. It will not go away and cannot effectively be outlawed. User organisations and their staff need to learn to live with and exploit it (albeit perhaps more "passionately"). Advocates must better quantify and tout its legitimate merits. Politicians must try to create a more intelligent dialogue around offshore outsourcing and identify meaningful and realistic policies to address its side effects.
META trend: Throughout 2004-06, the boundary will continue to blur between "domestic" and "offshore" business and IT service providers. Through acquisition and organic growth, the line between the two camps will largely disappear by 2006/07. The main challenge to all providers, however, will remain evolving into true global (versus multinational) service providers with global delivery, operating and resource management models. Geopolitical and protectionist backlash issues will grow and nip at offshore services, but overall do little to slow services globalisation.
Context
Arguments for, and mostly against, business process and IT offshore outsourcing continue to grow and become more passionate (or rabid, depending on one`s perspective). In the US, more than two-dozens bills have been submitted in federal and state legislatures to restrict or ban various types of offshore outsourcing. Minimally, anti-offshore forces want organisations that engage in offshore outsourcing to do so much more publicly (eg, have call centre agents inform callers where they are located at the start of each call) with the goal of "shaming" companies into reversing/limiting offshore activities.
Legislation and political pressure will likely somewhat curtail offshore outsourcing in the public sector, as will other legitimate concerns about data integrity, intellectual property theft and national security. Legislation aimed at the private sector, much of which rests on dubious grounds, will face greater challenges and have only nominal impact. Overall, META Group research has found, to date, that anti-offshore and related protectionist activities have not significantly affected offshore outsourcing, and we do not expect them to do so in the near-term. Although the anti-offshore debate highlights legitimate issues that need greater attention (eg, job training/retraining, education quality, levelling global trading playing-fields), the tone, form and forum for the debate on both sides are long on rhetoric and short on good ideas about how to realistically and better address this critical business issue.
The following are the two main points that most anti-offshore arguments miss:
* Offshore outsourcing represents a continuation of ongoing economic evolution.
* Multiple perspectives (not just laid-off workers) must be considered when assessing offshore outsourcing`s overall impact and value proposition.
Arguments also must better address other tactical/short-term (eg, job loss benefits) and strategic/long-term (eg, national competitiveness) elements. Offshore outsourcing advocates and benefactors, on the other hand, must do a better job articulating and rationalising its benefits and value propositions or else risk losing business, mind share and political battles, at least in the short-term.
Outsourcing in general and offshore outsourcing in particular are manifestations of a long-running shift in how organisations gain and maintain competitive advantage. They represent a transition from vertical to horizontal integration and specialisation.
Historically, companies were self-contained (eg, Ford made steel, The New York Times owned forests for pulp). Now organisations focus on a narrower range of specialised areas (eg, "core competencies") and rely on third-parties/outsourcers to perform other activities (eg, logistics/transportation, contract manufacturing, advertising, public relations, legal, payroll). This broader trend is not changing anytime soon, though questions exist about how narrow a focus can ultimately become.
The difference with offshore outsourcing, enabled by telecommunication and networking advances during the past 10 years (eg, Internet, broadband), is that the third-parties are potentially a long way "offshore" and the work they are doing is increasingly of a white-collar nature. The colour of one`s collar does not matter to the worker laid off; it matters (more) from the standpoint of where the high-value, or at least higher-paid, jobs reside. The "giant sucking sound" currently threatening the US white-collar economy is reminiscent of that "threatening" the manufacturing base as a result of NAFTA since the 1990s and Japanese economic prowess in the 1980s. The latter now seems a bit muted, especially given the success Japanese auto manufacturers have experienced using US workers in the US. The percentage of the US workforce employed in manufacturing has been declining for 60 years. Yet during that time, the overall services economy has grown and thrived. Similarly, the white collar/service economy must evolve to continue to thrive, and organisations/government must also do a better job managing the transition.
Defining offshore constituencies and broad-based benefits Two broad constituencies have considerations to account for when considering and debating offshore outsourcing (see Figure 1). One is the collective parts of the organisation considering or involved in offshore outsourcing. The second is comprised of those tasked with providing offshore services or addressing its larger impact. Each group has multiple individual constituencies, each with its own sets of issues, value propositions, concerns and needs.
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