Is Offshoring Really the Best Option?
The term offshoring is now commonplace in American business. It's unclear how many jobs have moved abroad, but Bureau of Economic Analysis figures cited by USA Today estimate that "from 2000 to 2005, U.S. multinationals eliminated as many as 2.1 million jobs, while adding 784,000 abroad."
Offshoring's lure of cheap labor may be good for some businesses, but it's never been a fit for mine--a 400-seat call center dedicated to the U.S. health-care industry. Seventy-five percent of our costs is labor. Could we reduce work force and infrastructure expenses to increase profit? Maybe. But it goes against everything our company stands for. We put employees first, not profit, and that philosophy has helped lead us to profitability that's five to six times that of our competitors, even those that offshore.
Here are a few things a company should bear in mind before making the decision to offshore:
Your business may need to compete on quality, not price. When my brothers and I started our company, we decided we were not going to compete as a "commodity" company--a company that competes by setting low prices and tends to have equally low morale and margins. Instead we concentrated on our customers' chief goal, quality in service, and created an employee-focused culture that bred that level of service.
Today, our customers know we don't offer the lowest price. In fact, we charge much more than "commodity competitors," but we still maintain a 95 percent customer retention rate and a No. 1 industry ranking. So which do your customers want--a quality product or a low price?
Offshoring promises big savings but doesn't always deliver. As more companies' offshoring stories come in, many are not finding the savings they expected. Factors such as rising crude prices are affecting the cost to ship manufactured goods back to the U.S., and rising labor costs are mitigating work force savings.
A study by the AT Kearny consultancy shed light on this. It found that 34 percent of the companies it surveyed with operations offshore didn't earn the savings they expected. It also found that companies that moved operations overseas purely for savings fared worse than companies whose key motivation was improving performance. Even then, 60 percent of companies didn't reach their operational performance targets.
One surefire way to save money is high employee retention. When you consider that the American Management Association estimates that each employee turnover can cost a company as much as 200 percent of an employee's salary, savings from employee loyalty can rival what offshoring offers.
Customers value companies that value their employees. With the country's unemployment at record levels, the public's distaste for offshoring is becoming more pronounced, and many companies have pulled back from offshoring simply for their reputations' sake. But what do customers really say?
A 2007 survey found that the top two factors American consumers consider in defining a company's corporate social responsibility are its commitment to its employees and its community. Another survey found that nearly 70 percent of consumers consider it important to buy goods or services from companies that share their values.
The takeaway: When a business is loyal to its employees and community, customers often are, too.
I have no doubt that offshoring will continue to grow in certain industries. But if you've built your business for something more and you are committed to a level of quality that can only be delivered by controlling culture and value, keep those jobs right here, with people who are committed to helping you grow and prosper.
For reprints and licensing questions, click here.