Offshoring: A thing of the past?

Posted by: Mara Der Hovanesian on July 15

Steve Crosby, a senior managing director of the securities and investment practice at PricewaterhouseCoopers, says Corporate America’s massive wave of off-shoring could come to a grinding halt. Rather so-called “near-shoring” will regain vogue status in these tough economic times. Call it a more benign version of Buy American.

“People are making some hard-nosed decisions about what it costs to go to India when wages are up 30% in the last 18 months,” says Crosby. Crosby believes that companies are now waking up to the unforeseen burdens of off-shoring: namely hidden travel costs and new onerous taxes that some local tax authorities are levying on U.S. companies operating within their borders.

A near-shoring trend would be a major shift indeed: Gartner Research predicted business process outsourcing would grow 10.5% year over year between 2007-2012--reaching $55.9 billion in outsourced operations by 2012. And an IDC report shows that offshore outsourcing in financial services generated $30 billion in revenue and has grown by 25% over past two years. The same report estimates total worldwide business process outsourcing in all industries reached $168.5 billion in revenue.

Still there may be some nifty incentives to keeping stateside. Given the economic crisis, U.S. cities and states are resorting to rich statutory tax credits and negotiated economic incentives to induce corporate taxpayers to locate or expand operations in their backyard. As a result, Crosby bets that more companies will reconsider plans to expand back office or manufacturing overseas. “There’s a harder business case to make,” adds Crosby. “Local government is [trying] to keep jobs in the U.S. to regenerate the rustbelt, and so it’s no longer a linear exercise to move the business to India or Malaysia."

Crosby sites a report that notes the average U.S. worker is more productive than others around the globe: According to the Key Indicators of the Labor Market report from the International Labour Organization, a United Nations agency, the average U.S. worker adds $63,885 of value per year to corporations that employ them, ahead of Ireland, for instance, at $55,986 per year. Could be a selling point, he says.

A PWC report that Crosby co-authored discussing the near-shoring trend cites some examples: IBM’s plans for a new center in Iowa will employ up to 1,300 (their biggest new facility in a decade). Goldman Sachs’ expansion in Salt Lake City will create 700 jobs. The New York bank got a $20 million incentive as a tax rebate over 20 years to add 375 jobs paying higher than the city’s median annual income.

Reader Comments

Squeezebox

July 15, 2009 05:43 PM

Part of the equation will be public relations. News outlets and politicians will increasingly scrutinize these deals, especially innations losing tax dollars to foreign rivals.

gabe, san diego

July 15, 2009 07:17 PM

Thank God! it was about the time to stop bleeding great job to other countries. It is time to look inward and find true value!

Strategery

July 15, 2009 07:36 PM

Unfortunately, no. This recession has accelerated the pace of outsourcing, especially in the manufacturing sector. It has gotten to the point where we have fake shell companies where virtually every department has been outsourced, perhaps leaving behind a few executives. The profits of companies that outsource will be short lived. Eventually, no one will have jobs or money and the clients of the outsourcing companies will go bankrupt, then the outsourcing companies will follow. Outsourcing to nearby countries (like Mexico) will at least help to keep peace in the region, and outsourcing to other places within the USA is even better.

Lou

July 15, 2009 08:06 PM

I dont care whether its democrats or republicans...the US citizen is under enough pressure to demand that tax policies for offshoring and outsourcing and currency manipulation etc are revoked before raising taxes on individuals.

Anyone who looks at California can see that the US taxpayer will not shoulder the burdern of high unemployment and multi-trillion dollar debts.

there is a populism growing, it got obama elected but so far...obama has been focused on gender, race, apoligies, giving away nuclear arms and giving away healthcare and trillion dollar bailouts...rather than these tax policies.

But look to california...these policies are on their last legs...

Hanrod

July 15, 2009 08:21 PM

(1) Require all U.S. corporations to pay corporate taxes in U.S., as profits are earned; disallow all tax deductions for costs of labor in foreign jurisdictions; (2) severely reduce work visas for foreigners; (3) eliminate all MediCare, Social Security and all other social benefits for non-citizens; (4) drastically reform the campaign finance laws, so that corporate and organizational BRIBERY of our representatives is replaced by true democracy!

yaThink

July 16, 2009 12:22 AM

strategery or did you mean strategy? You are mistaken... I employ thousands and and have no intention of outsourcing in the long term. Take it easy.... times about to run 4 u all....

Skaziprivet

July 16, 2009 02:30 AM

A plunging dollar will take care of outsourcing. Unfortunately, it will also take care of the customers...

Ayo

July 16, 2009 10:46 AM

Near-shoring by definition means keeping the jobs physically closer and not necessarily within the US. This means that if PWC's Crosy is correct, Mexico will regain some of the jobs it lost to off-shore destinations.

What this article fails to account for is the cost of backsourcing. Bringing the work back to America comes with its own set of costs which when considered, might perpetuate the viability of the Indias of the world as offshore destinations. This is even more so when we consider high-end BPO and KPO work where the cost-cutting opportunities still abound.

Gabe from San Diego, what you call " ... bleeding great jobs to other countries" is just capitalism. These things are being done because they makes good economic sense. You wouldn't necessarily pay significantly more for a product just because you want to "buy American," would you? I know I wouldn't.

These jobs are don't belong to the citizens of any country. They belong where they can be done with the most efficiency (i.e. best quality per unit cost).

Ayo

July 16, 2009 10:46 AM

Near-shoring by definition means keeping the jobs physically closer and not necessarily within the US. This means that if PWC's Crosy is correct, Mexico will regain some of the jobs it lost to off-shore destinations.

What this article fails to account for is the cost of backsourcing. Bringing the work back to America comes with its own set of costs which when considered, might perpetuate the viability of the Indias of the world as offshore destinations. This is even more so when we consider high-end BPO and KPO work where the cost-cutting opportunities still abound.

Gabe from San Diego, what you call " ... bleeding great jobs to other countries" is just capitalism. These things are being done because they makes good economic sense. You wouldn't necessarily pay significantly more for a product just because you want to "buy American," would you? I know I wouldn't.

These jobs are don't belong to the citizens of any country. They belong where they can be done with the most efficiency (i.e. best quality per unit cost).

intelligent_1

July 16, 2009 12:21 PM

There are several good observations. But, one major factor that everybody fogets is "jobs will go to places where they are done better and at a lower cost". In short "QUALITY". Quality is "what you get for what you pay". In that sense, the US worker is of very low quality. Workers here are paid way too high for a marginal benefit that they create. Productivity in the US is higher because of the investments in technology and infrastructure. NOT becasue of the workers. Until people realize that fact, jobs will continue to move out.
That was the driving factor for companies to move jobs out of the US. Nothting else. Everything else is a losers argument. Like Lou Dobbs' theory.
US is the biggest exporter in the world because they produce goods at a lower cost(cheaper) than other countries can. China or India can produce their own planes but it will cost a lot more. Buying from Boeing is much cheaper. So, US is a low cost, high quality location for many products. China and India are in other products and services. It is that simple.
Americans need to realize that and start competing, rather than whining.

Remember "good paying job is not a birthright; you earn it"

intelligent_1

July 16, 2009 12:21 PM

There are several good observations. But, one major factor that everybody fogets is "jobs will go to places where they are done better and at a lower cost". In short "QUALITY". Quality is "what you get for what you pay". In that sense, the US worker is of very low quality. Workers here are paid way too high for a marginal benefit that they create. Productivity in the US is higher because of the investments in technology and infrastructure. NOT becasue of the workers. Until people realize that fact, jobs will continue to move out.
That was the driving factor for companies to move jobs out of the US. Nothting else. Everything else is a losers argument. Like Lou Dobbs' theory.
US is the biggest exporter in the world because they produce goods at a lower cost(cheaper) than other countries can. China or India can produce their own planes but it will cost a lot more. Buying from Boeing is much cheaper. So, US is a low cost, high quality location for many products. China and India are in other products and services. It is that simple.
Americans need to realize that and start competing, rather than whining.

Remember "good paying job is not a birthright; you earn it"

Rightthink

July 16, 2009 12:48 PM

I'll buy the good capitalism argument when the obscenely paid U.S executive jobs start outsourcing.

taptamus

July 16, 2009 02:30 PM

Very generic comments in the blog, any data to prove?

Prasad

July 16, 2009 03:16 PM

Average US worker is more productive? Not at all!! The benefit of offshoring over Tax breaks are huge, so offshoring is here to stay and grow bigger!

Bob

July 16, 2009 03:58 PM

"Remember "good paying job is not a birthright; you earn it""

You talk a big game, but just wait until the companies play labor arbitrage again and move jobs from India and China to even lower cost countries.

The US is rich in natural resources and technology. We didn't HAVE to play the "globalization" game and "compete" with 3rd world wages. We could've maintained a high standard of living without partaking. We would've had somewhat higher prices yes, but more good paying jobs as well. However, the politicians were paid off or duped into "free trade" and other junk by the globalists, and now the middle class pays the price. We gave away the farm.

intellingent_1

July 16, 2009 06:12 PM

This is in reference to Bob's comments:
Bob - I am sorry, you are sadly mistaken. The high standard of living people enjoy in the US is solely because of goods and services produced by India and China at such low costs. They accept your IOUs and give you products and services that you enjoy. On top of it, China funds the US deficits and in a way they act as a banker to the US.

If you try to produce your own goods, a 40" LCD TV would cost $5000 and a Ford Focus will cost you $50,000. You will be paid a good salary alrigt (100k+), but you can't buy much with that. Got it.

Americans surely need a dose of basic business & economics 101 and also exposure to what is going on around the world. Not just the bad things that you see on your TV or movies, but the good things that peope here are completely ignorant of. That will help clear up people's minds and save them from total failure.

The only people in this country with whom I can have intelligent conversations are in the Universities. The rest of the people are pretty pathetic. Sorry, but a fact. I blame your TV and media for your ignorance.

Compete..Don't whine.

walterbyrd

July 18, 2009 08:29 PM

>>The high standard of living people enjoy in the US is solely because of goods and services produced by India and China at such low costs.

Pure non-sense. The cheap - very often defective and hazardous - junk we get from China is a very small part of our overall expenses.

My major expenses are as follows: retirement, education, mortgage, health care, and the biggest of all - by far - income tax.

If I had to pay twice as much for toaster over, it would not affect me at all. And I do not get any worth-while services from India either.

walterbyrd

July 18, 2009 08:45 PM

>>Compete..Don't whine.

Impossible. How can a north American compete with people getting paid $2 an hour? In north America, that is not even a living wage.

If there are no good job prospects for US STEM (science, techonolgy, engineering, mathematics) workers, then obviously north Americans will no longer aspire to work in technology. The eventual result of US tech workers shunning STEM fields is that the US will lose it's technological edge - and that will be a complete disaster.

Buy_American_Made

July 22, 2009 07:01 PM

intellingent_1 - If a company moves out or out sources jobs - I will NOT support them. Why should I? I will pay more for products and services made in America. Why, in the long haul it will benefit everyone here.

'Compete..Don't whine.' I love comments like this by people who have not got a clue about the readers here. You don't know me - I will compete and whine and better than you!

Thank you for your interest. This blog is no longer active.

 

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