February/March 2009 / Features
Another Look at Offshoring
While it makes sense for manufacturers that produce items with large transportation costs to open factories where they do business, what about companies that offshore operations like human resources, IT services or customer call centers? Exchange rates, quality control, labor costs, data privacy, cost of oversight and the availability of local skilled managers are factors to consider when evaluating whether to offshore, outsource or keep operations in-house.
The risk of exchange rate fluctuations often is mitigated where the services being acquired are priced and performed in the country where the customer is using them. In many transactions the customer shifts the risk of exchange rate fluctuation to the supplier. But in long term relationships, the supplier will often come back to renegotiate, or simply underperform, in the event of significant shifts. When the supplier is benefitting, the customer will look to share the gain.
Personal injury liability may be an issue when manufacturing is outsourced. Outsourcing back office functions incurs other risks, such as breaches of personal data. Companies that offshore jobs may experience backlash in the press or among their target consumers in light of rising unemployment in the United States. Tax incentives for hiring U.S. workers, as promised by the incoming administration, will have an impact on labor costs and the decision to offshore or outsource domestically.
