Anna Frazzetto's Blog

Digital Innovations and Technology Solutions

Arizona Offshoring Insights

Just a few weeks ago I was in Arizona for a CIO Forum hosted by the Arizona Technology Council, Harvey Nash and KPMG. These events always produce great debates because a panel of local CIOs is invited to discuss key points of the Harvey Nash-KPMG CIO Survey. The Arizona event was no exception, and for the last two weeks I have being mulling over one of the most interesting offshoring arguments from the event.

During the panel discussion, the idea was posited that using an offshoring provider is really not very different from a company choosing to open its own offshore facility. The company gains the benefit of cheaper labor while eliminating the risks of communications challenges and management issues. Very quickly the counterargument that offshoring is different and much more complicated than opening another location was presented.

While I very much understand the desire behind wanting to own and operate your own location (talent, cost, product and process control and oversight,) I agree that opening a location in a new country is a whole different and much bigger animal than offshoring. As the proprietor of an overseas location, it's your job to deal with employee issues (recruitment, hiring, turnover, retention), facility issues, (operations, utilities, real estate, security, insurance, etc.) and multinational business challenges (taxes, legal regulations, compliance etc.). In addition, you still have to manage the difficulties of being thousands of miles away from central business operations.

Offshoring is outsourcing but outsourcing a business function to a remote, lower cost country. Building your own operations in a new country is business expansion; it is not offshoring or outsourcing. With offshoring, as with outsourcing, there are risks. However, those risks are carefully managed without the bounds of business contracts and service level agreements (SLAs). A business looking to take advantage of low-cost, technically skilled labor pools in an offshore location is taking on an enormous burden of costs and risk by opening its own offshore location. In addition, it is locking itself into that location for years to come, no matter what economic, political and legal challenges may arise.

When I look back on that thoughtful debate in sunny Arizona, I realize that we were talking about two very different business approaches to addressing today's global marketplace. As more and more companies around the world consider how to tap into growing global skill pools, I believe that both multinational expansion and offshoring will be strategies used by businesses to take advantage of a worldwide pool of business resources.