Onshoring – A Politically Correct Alternative

There has been much brouhaha throughout the 2012 presidential debates about the loss of American jobs through outsourcing to lower-cost countries. China has been portrayed as the evil nation stealing jobs and intellectual property, and violating trade rules. However, outsourcing doesn’t necessarily mean the loss of jobs to other countries. It can simply be movement between US-based organizations.

There are numerous US-based outsourcers in all sectors of the industry: IBM, HP and Xerox are brands that the population recognizes as home grown IT providers; Aon Hewitt, Mercer and Fidelity are local entities that provide HR outsourcing; and Fiserv, Accenture, and Total System Services provide outsourcing services to the Financial industry, just to name a few.

In deciding to outsource a function or service, companies look at various considerations including cost reduction, service improvement and the ability to focus attention and resources on core lines of business. Using an offshore provider certainly provides a greater cost advantage, but the chances are that onshore service providers can also perform a function more cheaply than you are currently doing it in-house. Onshore service providers can generally provide service at a lower cost due to a number of factors:

• With a large population size servicing clients across the nation, they can take advantage of geographic differences in cost of living, taxes and government-provided incentives to base their employees in low-cost cities.
• They are able to leverage the volume of services provided across their employee base, using shared resources and facilities.
• Because of the higher volume of the services that they perform, they can more effectively manage resources and take advantages of economies of scale.
• To survive in the business of outsourcing, they have had to implement processes and procedures to streamline the way that they provide the services (dubbed “ruthless standardization” by one of the largest providers).
• Many onshore suppliers have started using the latest communication and workflow management technology, enabling them to implement work-from-home models. This has allowed them to move teams of people out of service centers, and reduce real estate costs and also to hire workers in low cost geographic areas.

In addition to the cost considerations involved in the decision to outsource, privacy concerns are also now often influencing the outsourcer that a company selects. In our practice, we see clients becoming more and more concerned about data being stored and accessed outside of the United States. Selecting an on-shore provider does not of itself guarantee that your data will remain in the US. Most of the large providers have offshore facilities from which they provide service components. You will also need to dictate in the terms of your agreement that data must not be stored or processed in other countries, but it is more likely that the onshore providers will have the local facilities to be able to meet that requirement.

Whichever way you lean politically, outsourcing still might be the right decision for your business, and it doesn’t necessarily mean sending US jobs to China. Keep in mind that there are plenty of onshore alternatives, and don’t forget to vote on November 6.