When it comes to outsourcing, research shows that the proximity of the talent pool is a critical success factor. In fact, a recent survey of almost 4,000 IT leaders and executives in more than 80 countries showed that 28 percent of IT leaders say they planned to increase their “on-shoring” spending in the next year. By contrast, only 17 percent say they plan to increase offshoring.
The recently completed KPMG/Harvey Nash 2018 CIO Survey found many of the respondents predicting a continuation in the trend of more onshore outsourcing delivery options for IT Support.
At KPMG, we have observed that both service providers and clients are moving to deliver more services on shore. We believe this is a confluence of several issues:
1. Difficultly of use of offshore resources
As hard as we have tried, there remain communication and other barriers to effectively use off shore resources–especially those with normal working days opposite of our own. Add to this cultural and dialect differences, and the resistance to use of these resources increases. However, there are many services that can be delivered with minimal communication or time zone issues. Use of offshore resources should be prioritized for those activities.
2. Regulatory concerns
Even without definitive answers to potential changes in regulation and tax codes, just the possibility of change is driving delays in offshoring and rethinking existing offshore programs. Each country involved needs to thoroughly review existing, proposed and recently enacted legislation to ensure compliance and optimal use of onshore and offshore resources.
Advantages of offshore “labor arbitrage” decreasing
3. Increased cost of offshore resources
Over the past 10 years, we’ve observed increases in the cost of offshore resources, which has reduced the value available from a pure labor arbitrage perspective.
4. Automation is eliminating the need for offshore/low-cost resources
While automation is not free and does require human interaction, the ability to automate transactional type activities (once the mainstay of offshore labor arbitrage) can reduce costs an additional 10 to 30 percent. Many of our clients and most service providers have active automation programs in place that are reducing the need for offshore resources.
5. Recognition of, and access to lower cost, highly educated regions within domestic borders
From work-at-home programs to a focus on low-cost regions within the United States, many clients and service providers are finding and developing an optimal mix of cost, education and language skills in the U.S. Effectively eliminating time zone issues is another advantage prompting the move to on-shore resources.
Demand for digital skills outstripping offshore supply
6. Unavailability of advanced skill sets by off shore providers
Demands for digital skills and other hot technology resources have outstripped the supply in some off-shore locations. Furthermore, resources that are available demand premium prices negating some of the benefit of the off-shore location and also tend to be highly mobile with higher rates of attrition than lower skilled resources.
7. High attrition of offshore resources
The increased cost of off shore resources is also impacted by attrition. In order to lower attrition, service providers need to increase the wages of their resources. This means a choice between higher costs or higher attrition.
8. Crowd-sourcing platforms
In another related trend we are seeing increased use of crowd sourcing platforms, which are largely indifferent to location. Crowdsourcing platforms also have the benefit of greater levels of highly skilled resources with capabilities to address new and leading-edge technology.
The trend to use more onshore resources is likely to continue but, like most outsourcing decisions, it is not a one-size-fits-all proposition. CIOs evaluating their service delivery models would do well to remain open to use of onshore employees and onshore resources from their service providers and be sure to build flexibility into their contracts.
If there is one thing you can count on it is that the mix and requirements for your on- and offshore resources will change in the next few years.