Last decade witnessed more American business houses outsourcing to offshore nations, for business gains. Whether U.S economy is gaining or losing due to offshore outsourcing is a different question. PlanetMagpie, a leading IT Consulting firm, had researched on this and issued a white paper (titled ‘The Argument for ReShoring IT: The Risks of Outsourcing Offshore, and Why ‘IT ReShoring’ is Growing’) regarding the possible risks of offshore outsourcing and the emerging trend of ReShoring. The report claims that ReShoring IT jobs is good enough to tackle the pitfalls and risks associated with offshore outsourcing.
Offshoring IT services means to make contract with overseas firms for services like software development, tech support and supply chain management. The concept is employed by US firms mainly to cut down labor costs and to meet project deadlines. PlanetMagpie’s research found out that though offshore outsourcing seems to be cost saving in the short run, it is quite uneconomic in the long run. According to CIO magazine, 17-53% of companies in offshore outsourcing don’t even realize any return on investment.
Key Risks associated with Offshore Outsourcing
- Time zone differences
- Managerial problems
- Communication issues
- Minimal or no real cost savings
- Low productivity
- Unmet Deadlines
- Higher risk of data loss and IP/identity theft
Impacts of Offshoring on the U.S Economy & Business
The concept of offshoring services in America began in late 1990s and reached its boom in 2000s. Advanced IT techniques, availability of skilled resources, and large cost savings encouraged the U.S firms to continue with it. This eventually resulted in America losing out their technical superiority. Earlier times U.S acts as a technical leader, providing advanced R&D services to professionals of other nations like India, Philippines, and China. This trend reversed in the last decade.
Effects on U.S. Intellectual Property are also raising concerns. While offshoring IT projects, confidential R&D and customer related information need to be shared among contractors. This opened the door for cyber-theft of U.S corporate IP, trade secrets, customer information and even national security data.
Offshore Strategy had caused offshore workers to bring to U.S in worker visas. This adversely affected the employment of American locals, as over 1.5 million IT jobs have been mislaid to other offshoring nations.
When comes to national security, offshoring undermines the present and future pool of U.S IT talents. This can raise serious challenges to cyber-warfare, cyber-security, and in defending country’s infrastructure.
ReShoring otherwise insourcing or backsourcing is the process of recruiting local workers to perform the required IT services in-house. The trend had caused great impact on local job growth, profit margins, etc and proved to be much superior to IT offshoring. It can be a solution for all problems caused by offshore outsourcing. The profound benefits offered by ReShoring are
- Creates More Local Middle-Income Jobs
- Lower Privacy Risk
- Lower Risk of IP Theft
- Lowers Network Security Risk
- Direct Managerial Control
- High Worker Productivity
- Unified Teams (Encourages innovation & teamwork)
ReShoring proves to be worth both to business as well as U.S Economy. The white paper cites 28 sources to substantiate the statement and to show the risk associated with offshoring outsourcing.
Read more on PlanetMagpie’s Research Report