Offshoring: It’s the Skills, Not the Savings?

Okay, here’s one that I expect will rile some up. A new study has found that most companies that offshore do so because there’s a dearth of skilled workers here in the United States. What? You thought they were offshoring mainly to cut costs? Me too. And I feel your pain.

These findings aren’t coming from some yahoo. They’re from the sixth annual study on corporations’ offshoring trends by the Center for International Business Education and Research’s Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business and The Conference Board, an independent research association. The study is part of ongoing research into the effects of offshoring trends on American competitiveness and reflects the sentiments of business managers.

Another finding… the U.S. software sector has the highest ration of offshore to domestic employees with almost 13 offshored jobs per 100 domestic jobs. That stat, adds Arie Lewin, Fuqua professor of strategy and international business, in a press release on the study, “may be a reflection of a scarcity of domestic science and engineering graduates in the U.S.”

Aha. That is true. We’re constantly hearing how the United States has fallen behind several countries in terms of engineering graduates. I came across this blog on CNN by David Gergen just the other day discussing whether the United States can still compete, and Gergen writes:

“For most of the 20th century, we were No. 1 in the world in education; today, we are ninth in the proportion of young people with college degrees, 18th in high school graduation rates among industrialized nations and 27th in the proportion of science and engineering degrees. China now graduates more English-trained engineers than the U.S. and has become the world’s No. 1 exporter in high technology.”

So if U.S. companies have to go offshore to find the skills they need, you can see why offshoring doesn’t seem to be waning.

Furthermore, cutting costs via offshoring is apparently not only not the reason they’re offshoring, cutting costs via offshoring has apparently become a fallacy. The survey finds average achieved cost savings offshore have declined at many companies. For example, IT services and software development have experienced consistent declines over the past five years. (You can read more about that here, in CIO.com’s Stephanie Overby’s article.)

According to the researchers, survey participants have lower expectations than previous respondents for average cost savings in several offshoring functions. Contact center, IT and software development have seen the largest declines among all offshoring functions as companies new to offshoring discover a number of hidden costs involved, including expenses for training, staff recruitment and retention, and government and vendor relations. And, by the way, might that decline in cost savings be coming from the fact that *skilled workers* tend to cost more? *Skilled workers* that apparently are in shortage?

I’ll add that that survey respondents also added to the range of factors that influence their selection of an offshore site to include the location of the best service provider and the quality of infrastructure.

So, what’s your take on this? Is a shortage of skilled employees pushing companies to offshore? Is offshoring no longer the cost-cutting extravaganza it used to be? Is there more to the story? Are you riled up?