International Hrm
Offshoring: An Industry Insight into the Benefits and Challenges
By Greg Bacon. In collaboration with Ian Machan (Machan Consulting) and Dr Denyse Julien (Cranfield University).
Whilst offshoring can be an excellent strategy to reduce costs, particularly through lower labour costs, there are many other hidden costs which companies often fail to include in their business case. Research has found that offshoring is often carried out with little or no understanding of the true costs. Furthermore, companies tend to overestimate the benefits case, in particular their ability to get a well-performing plant operating offshore to the standards we would have in Western Europe. To accurately understand the impact of offshoring, companies need to analyse total costs and identify the challenges that will have to be overcome.
This article introduces some of the key challenges which offshoring companies have faced so that companies can make more accurate and informed decisions when constructing their business case for offshoring.
[pic]
Offshoring is very closely related to outsourcing; both represent a decision to move manufacturing away from the internal, domestic factory. However, where outsourcing involves externalising a process to a third party vendor, offshoring is the movement of the process to another country (usually a lower cost country), but not necessarily to a third party. Figure 1 illustrates the relationship between offshoring and outsourcing:
[pic] Figure 1: What is Offshoring?
This research is based on interviews and questionnaires with 13 companies; 9 blue chip manufacturers and 4 consultancy companies. This approach allowed the researcher to appreciate the industry and company specific issues, while also developing a wider understanding of the offshoring market.
Why Offshore?
All the organisations interviewed suggested that cost reduction was one of the primary drivers for offshoring. However, there were
By Greg Bacon. In collaboration with Ian Machan (Machan Consulting) and Dr Denyse Julien (Cranfield University).
Whilst offshoring can be an excellent strategy to reduce costs, particularly through lower labour costs, there are many other hidden costs which companies often fail to include in their business case. Research has found that offshoring is often carried out with little or no understanding of the true costs. Furthermore, companies tend to overestimate the benefits case, in particular their ability to get a well-performing plant operating offshore to the standards we would have in Western Europe. To accurately understand the impact of offshoring, companies need to analyse total costs and identify the challenges that will have to be overcome.
This article introduces some of the key challenges which offshoring companies have faced so that companies can make more accurate and informed decisions when constructing their business case for offshoring.
[pic]
Offshoring is very closely related to outsourcing; both represent a decision to move manufacturing away from the internal, domestic factory. However, where outsourcing involves externalising a process to a third party vendor, offshoring is the movement of the process to another country (usually a lower cost country), but not necessarily to a third party. Figure 1 illustrates the relationship between offshoring and outsourcing:
[pic] Figure 1: What is Offshoring?
This research is based on interviews and questionnaires with 13 companies; 9 blue chip manufacturers and 4 consultancy companies. This approach allowed the researcher to appreciate the industry and company specific issues, while also developing a wider understanding of the offshoring market.
Why Offshore?
All the organisations interviewed suggested that cost reduction was one of the primary drivers for offshoring. However, there were