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A.T. Kearney: Offshore Facilities More Efficient than Facilities Onshore

By Kim G.

Offshoring helped firms stay afloat during the economic downturn by keeping costs within reach until such time the markets improve. Now that the world economy shows signs of recovery, the BPO industry should fear not on losing clients. As clients see them, now more than ever, as a partner.

Currently, with firms feeling less economic pressure it is inevitable that they will get back to the drawing board and identify the business strategies that helped them ride through the crisis. Companies are likely to retain the strategies that worked for them, one of which is outsourcing.

Market conditions are putting much pressure on Chief Information Officers (NYSE:CIO) to see to it that IT projects deliver value. And one of the areas that continues to receive significant attention is offshoring.

With the improving world economy corporate IT spending in Asia Pacific is increasing in the current quarter. According to Tata Consultancy Services’ (NYSE:TCS) head of Asia Pacific operations Girija Pande, “This increase in IT investment is due to signs of economic revival.. I think there is a generally positive view that Asian economies are coming back.. I can already see green shoots in many countries in Asia where the growth is starting to come back again.”

Although IT spending is on the increase, offshore providers should note that firms have learned some valuable lessons from the downturn. Budgetary allocation for IT projects were put on hold during the downturn but are now making a come back in the form of “dicretionary spending”.

Instead of launching projects simulationously, company executives are looking for fast growth in previously untapped locations. The downturn led executives to believe that moving into new territories will create business opportunities companies should address in order to remain competitive. Offshoring as a business model is often used to reduce costs, but organizations can also use outsourcing to exploit opportunities for overseas expansion.

According to Duke Offshoring Research Network’s (NYSE:ORN) fifth annual report on offshoring trends, between 2005 and 2008, the number of U.S. firms with an outsourcing strategy more than doubled. ORN’s report claims very few U.S. companies plan to relocate activities back to its native soil. The reason is because offshore facilities “tend to be more efficient because they are newer and lack years of inefficiencies often built up in onshore facilities”, as stated in A.T. Kearney’s 2009 Global Services Location Index research.

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