Too often large corporations assume that migrating operations offshore requires outsourcing them to another company. Global outsourcing is not always a better alternative to going it alone offshore or teaming up with a partner overseas. On the contrary, companies that set up their own operations in low‐cost regions increasingly generate returns comparable to or higher than companies that outsource. What’s more, the delivery risk of putting a viable operation in place may actually be lower than that of outsourcing. Often there are sound strategic, operational and economic arguments for going offshore yourself and retaining at least partial control and/or ownership of operations. The key challenge to making the right move is to separate the decision to offshore from the decision to outsource. Based on our experience with a number of multinationals that have faced this choice, we believe that managers must first decide which operations to shift offshore, and then identify the most effective means of taking action – for example, to own those operations outright, outsource them or set up something in between, like a joint venture. Only after rigorously evaluating alternative offshoring business models and understanding the true end‐to‐end economics of each alternative will managers arrive at the best answer for increasing their companies’ long‐term value. As offshoring has flourished, it has also become more manageable. The political and regulatory environments of host countries have eased considerably (most notably in India). At the same time, the flexibility and skill‐level of local labor markets have increased without losing cost competitiveness (again, India stands out). Finally, shareholders and lenders have become less nervous about major investments in remote emerging markets. This article reexamines the alternatives between outsourcing and offshoring and shows executives how to make better decisions about moving operations to lower‐cost countries.
Strategy & Leadership – Emerald Publishing
Published: Dec 1, 2004
Keywords: Outsourcing; Corporate strategy; Strategic evaluation
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