Offshoring’s Now Driven By Need for Talent, Rather Than Cost Cutting

My family is one of procrastinators. Every Mother's Day, dad and the kids run out on a not-so-secret mission, always on the day itself, to buy "the gift," which, I gratefully note, has never been a household appliance. So, stealing a few minutes to blog: Results of a recent survey on Offshoring, "The Globalization of Innovation," suggest that the reasons for outsourcing have changed substantially. Below, a brief excerpt: "Until recently, offshoring was almost entirely associated with locating and setting up IT services, call centers, and other business processes in lower-cost countries... Next-generation offshoring shifts the emphasis to product and process innovation. From 2005 to 2006, offshoring of product development projects increased by 40 to 50 percent from an already significant base. Over the next eighteen to thirty-six months, growth in offshoring of product-development projects is forecast to increase by 65 percent for R&D and by more than 80 percent for engineering services and product-design projects. These trends suggest that the globalization of innovation activities will be the focus of  offshoring. Surprisingly this is also evident for small technology-centered companies. Forty-eight percent of all small companies report that their first offshoring initiative involved product-development projects. Small companies discover that offshoring of innovation projects can significantly leverage limited investment dollars and greatly increase speed to market. Also, in contrast to large companies, small players make extensive use of Web-based technologies in coordinating and collaborating across the globe. A key driver for this new trend of globalizing innovation, however, is the looming shortage of highly skilled domestic talent in science and engineering which has forced companies to hunt for talent globally..."  Survey results also suggest that companies that turn to outsourcing merely to cut labor costs end up losing money, in the long term. Where financial services and consumer and media companies were focusing on labor arbitrage, the study says, life sciences were more focused on acquiring needed skill sets. Using the measure of "average number of offshore employees vs. percentage of offshoring projects leading to onshore job loss," pharma was way behind consumer and media, financial services and technology and telecom, scoring 62 vs. 151 ,92 and 79.  For respondents from pharma, top reasons for offshoring were, in order of importance, expertise (91%), labor cost savings (88%), quality of infrastructure, talent pool available. There was also a gap between achieved vs expected savings for most industrial sectors, including pharma.  India is the most popular outsourcing location for pharma, with China growing.  We'll summarize results from this survey in our next issue of Pharmaceutical Manufacturing. These trends were already seen in last year's survey. Download here:Outsourcing 2006