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Backshoring Activities Don't Qualify as a Trend

Ann All

There is no question that interest in backshoring, companies moving some or all of their overseas operations back to the U.S., is growing, driven at least partly by shifting economics that make it as cost-effective to produce some goods in the U.S. as in other countries. We even see instances of Chinese companies opening U.S. operations in an effort to get closer to American customers, though admittedly this activity is dwarfed by the reverse flow of U.S. companies to China.

 

In addition, offshore services providers like India's Wipro and Tata Consultancy Services are expanding their operations in the U.S., and companies like AT&T, Apple and Dell have moved some service jobs back to the U.S. in recent years.

 

So, this is a trend, right? Not so much, say three folks from Booz & Company who authored a recent strategy+business article. Instead, it's the kind of "natural rebalancing" common in any industry as it matures. They write:

The U.S. will, no doubt, gain and lose some ground in the process. Indeed, companies have begun to rethink their offshoring decisions in a way that ultimately will render "offshore" and "onshore" no longer meaningful or relevant. Instead, companies are making choices about the best place to do a given piece of work -- be it offshore, onshore, or nearshore. As this transformation occurs, work is being spread throughout the world and companies are globalizing to keep up. But we're only at the beginning of that process, and we won't witness the full effects for quite some time. Traditional offshoring, as we know it, is by no means dead.

Backshoring decisions are still pretty unusual, note the authors. And indeed, I'd agree that the only reason we hear about instances of Chinese companies establishing outposts in America is because they are so unexpected. The America-to-China model is so common, in contrast, it simply doesn't merit special mention.

 

They cite a survey of more than 600 global companies conducted this year by Duke University, which found that three-quarters of U.S. businesses intend to offshore more customer service operations. This despite evidence that such moves can hurt customer satisfaction ratings. And they offer AT&T as an example of backshoring that didn't work out as planned. After AT&T found it harder than expected to find staff in the U.S., it had to introduce what the authors call "an unanticipated training program." And spend $100 million to do so, according to this bizjournals story.

 


While rising fuel costs do cause companies to re-evaluate offshoring -- -- especially those in industries that transport raw materials to countries like China and finished product back to the U.S. -- they may ultimately lead a broader cross section of companies to opt for offshoring, opine the authors. They write:

Soaring commodity prices will hit not just manufacturers but all industries, making it more important than ever for companies of all types to cut costs rapidly without significant new investments. For example, airlines will be especially harmed by fuel cost increases and will almost certainly conclude that one of the few ways to earn a respectable return with little capital outlay is to offshore service operations.

They also predict a continued movement of R&D activities offshore, as companies realize the need to offer products and services specifically developed for emerging markets. Certainly, that's driving U.S. companies to establish large stakes in those markets. Notable examples include Cisco in India and Dell in China

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