Offshore Strategy Research Articles

Offshoring to India – realising savings and capturing value

PurposeThe paper aims to describe the drivers of offshoring to India and how savings and value can be generated by understanding and structuring the offshore journey as a lifecycle.Design/methodology/approachWhile offshoring is a contentious topic, more than 50 per cent of companies across the industries already offshore some of their functions. However, focussing on cost cutting alone can only lead to short‐term benefits while potentially putting at risk the mid‐ and long‐term position. Instead, successful offshoring is a multifaceted transformation, which includes industrialised approaches to service delivery. Levers for the business case not only comprise factor‐cost and effort savings, but also flexibility options and risk normalisation. An offshore delivery strategy can best be implemented by following a lifecycle approach ensuring stringent and informed governance decisions.FindingsThe paper finds that cost savings through offshoring are not only generated through factor cost savings, but increasingly through industrialisation and innovation engineering. To capture savings and value, corporations should actively manage the offshore lifecycle.Originality/valueValue creation through offshoring is neither inherent to the offshoring process nor to India as a target destination. Instead, a series of governance decisions in the offshore lifecycle lead to the desired result.

Role of Corporate-Wide Offshoring Strategy on Offshoring Drivers, Risks and Performance

In this study we investigate the role of corporate offshoring strategy on offshoring decisions and performance. Based on 876 offshoring projects from 226 companies obtained by means of surveys conducted in the USA and Europe, we examine the effect of offshoring strategy on factors influencing firms' views of offshoring, and the effect of offshoring strategy on offshoring performance. Separate analyses were conducted for US and European companies in order to explore any regional heterogeneity in offshoring. A comparative analysis between companies with and without an offshoring strategy reveals that when making offshoring decisions, the former consider a broader range of factors (drivers, risks and locations) as important compared to companies without an offshoring strategy, suggesting association between offshoring strategy and managerial attention. The results also indicate that the adoption of a corporate offshoring strategy has a significant positive effect on cost savings achieved from offshore implementations, and that innovation activities have a significant negative impact on cost savings, but only for European companies.

The role of international hubs in a fashion retailer's sourcing strategy

The purpose of this paper is to evaluate the role of international hubs in a fashion retailer's sourcing strategy. In order to compete more effectively in a dynamic fashion market, retailers have adopted a low cost, offshore sourcing model to supplying their domestic market. There are three approaches which have been used to implement an offshore sourcing strategy; direct sourcing from the HQ, the use of intermediaries and international hubs. The aims of the research were to understand the motives behind the development of international hubs, identify their stages of development and determine both their strategic and operational role within fashion companies' global strategies. Research was carried out through semi-structured interviews with the heads of 3 international hubs, one buying office and the head of merchandising at the HQ in the UK of a subsidiary of a major UK fashion chain. Results show that hubs evolve from buying offices to multifunctional units, specialising in supplying particular products to the market. Although hubs perform important operational functions, there was little intra hub coordination and the headquarters exerted considerable control over their hubs with regard to overall sourcing strategies.

The impact of offshoring on firm competitiveness

Offshoring strategies, in spite of their continuous growth, have not always delivered the expected results: cost savings are often much lower than expected, customers may be considerably upset, and relevant competences can be lost for the future. This article looks at the impacts of offshoring on firm competitiveness, in the short and in the long term. The analysis is based on two managerial theories (the contingency theory and the resource-based view of the firm) taking as reference two relevant offshoring business cases: the fashion industry and the information system management. It appears that offshoring, besides its short-term impacts on cost reduction and its long-term risks for core activities, is a comprehensive transformational process that only few companies can afford not to learn from.

The Design of an Efficient Offshoring Strategy: Some Reflections and Links to SNC-Lavalin

The objectives of this paper are threefold; First, to brush an overview of the underlying drivers of the offshoring phenomenon that have appeared on economic and public policy radar screens over the last 15 years; Second, to look at the recent offshoring experience of a large Canadian engineering firm (SNC-Lavalin) with significant international experience and exposure; Third, to draw from the analysis, the evidence and the case at hand some lessons for public policy aimed at defining winning offshoring strategies.

A US Client’s learning from outsourcing IT work offshore

Based on 45 interviews and significant documentation, we explore the offshore outsourcing experiences of a US-based biotechnology company. This company offshore outsourced 21 IT projects to six suppliers in India. Senior managers and the official documents from the Program Management Office consistently reported that offshore outsourcing was successful in reducing the company's IT costs. But interviews with knowledgeable participants actually managing the projects suggest that many projects were not successful in meeting cost, quality, and productivity objectives. We found evidence that this company's offshore strategy to simply replace domestic contractors with cheaper, offshore suppliers was a poor fit with its social and cultural contexts. Specifically, we found that strong social networks between the company's internal IT employees and domestic contractors were not easily replicated with offshore suppliers. Furthermore, the internal project management processes were often incompatible with offshore suppliers' processes. This paper also analyzes seven project characteristics that differentiate highly-rated projects from poorly-rated projects. These project characteristics are type of IT work, size of supplier firm, location of supplier employees (onsite/offshore), dollar value of the contract, duration of the project, timing of the project, and client unit managing the project. The paper concludes with four overall insights for clients and suppliers.

Managing the Knowledge Supply Chain: An Organizational Learning Model of Information Technology Offshore Outsourcing

In this paper, we present an economic learning model that helps to formalize the complex relationships among an offshoring firm's knowledge levels, production costs, and coordination costs. Specifically, we model a domestic firm's use of a selective offshore strategy (i.e., offshoring only a portion of its information technology activities) to exploit, through IT investments or contractual provisions, the foreign vendor's large, scale-driven repository of production knowledge. We illustrate the conditions under which knowledge transfers during offshoring may reduce a domestic firm's in-house production costs, leading to total cost savings in both the short term and the long term. Alternatively, when knowledge transfers are not sufficiently large, some short-lived offshoring projects may generate substantial cost savings to the domestic firm; however, long-lived offshoring projects may cause a disruption in the knowledge supply chain, resulting in substantial losses in the later stages of the project. A firm that fails to realize the costs associated with such a disruption soon enough in the project life may find itself locked into a disadvantageous offshoring agreement without any recourse. However, a domestic firm may be able to overcome a disruption in its knowledge supply chain by exploiting the learning-by-doing production knowledge generated by the foreign vendor's economies of scale. The managerial implications derived from our learning model may help guide firms as they consider the impacts of offshore contracts and knowledge management investments on firm knowledge, production costs, and coordination costs.

Evaluating offshore and domestic production in the apparel industry: The small firm’s perspective

This paper extends the existing literature on the potential advantages and drawbacks of domestic and offshore manufacturing strategies to a small firm perspective. The advantages of offshore production to the large corporation have received much attention in recent years, particularly with regards to the apparel industry. The key advantages of offshore production are obvious for the large firm: cost reductions and increased productivity through labour market differentials. Little is known however about the viability and attractiveness of this strategy for the small apparel firm. The high number of small apparel firms who continue to produce in their domestic market, despite labour market differentials, suggests that the cost advantages of producing offshore may not be as critical for the competitive advantage of many of these small firms. Four case studies of small New Zealand apparel firms are used to substantiate and expand on themes developed from the literature.

An Analysis of the Effects of Maquiladora Production on Performance

This study analyzes financial performance in firms that employ maquiladora production, a manufacturing arrangement utilizing Mexican labor. We argue that although accountants can readily identify and value the obvious benefits of labor savings, they have more difficulty identifying and valuing incremental costs from any frictions encountered. The result is that this offshore labor strategy may not be as cost-effective as it would initially appear. We cannot explicitly measure the costs associated with these frictions; we therefore compare performance of a sample of firms that implemented maquiladora production (treatment firms) with performance of similar firms (control firms), examining median return on assets (ROAs) during periods before and after implementation. Results for the median difference tests suggest that although treatment firms benefit from lower committed costs and lower labor costs, there is no corresponding increase in ROA. Results from the regression models are similar and indicate no differences in ROA after implementation, and no differences in committed costs and labor costs. To identify those firms that could have more difficulty estimating costs and benefits, we partition the maquiladora firms on variance of profits, assuming that high-variance firms may be more cautious in their decision making. We find that compared with the low-variance sample firms, high-variance firms experience increases in ROA after implementing maquiladora production. The production process is another firm characteristic that could influence maquiladora success. As expected, when we partition the maquiladora firms on production technology, we find that maquiladora implementation leads to higher ROAs for low-production technology firms.

Offshoring und Outsourcing in der deutschen Automobilindustrie

Dieser Beitrag analysiert die Wechselbeziehungen zwischen Auslandsinvestitionen und Ausenhandel der deutschen Automobilindustrie. In den vergangenen zehn Jahren sind in den mittel- und osteuropaischen und asiatischen Reformlandern mehr als 100.000 Arbeitsplatze deutscher Automobilhersteller entstanden. Im gleichen Zeitraum stieg der Handel mit Vorprodukten gegenuber diesen Landern geradezu dramatisch an — und zwar sowohl auf der Export- als auch auf der Importseite. Das lasst darauf schliesen, dass die Offshoring- und Outsourcing-Strategien der Automobilindustrie eng miteinander verwoben sind. Sie dienen vorrangig dem Aufbau globaler Wertschopfungsnetzwerke, in denen sich die Beschaftigungschancen auch fur deutsche Arbeitskrafte spurbar verbessern.

Managing plant diseases offshore

Managing exotic plant diseases and other potential pests imported into the United States (US) on incoming cargo is an on-going challenge for many countries including the US. The primary exclusionary strategy used by the US for exotic pathogens is inspection of arriving cargo and passengers at ports of entry. In spite of these efforts, introductions of many exotic pests have occurred through numerous ports of entry resulting in costly eradication efforts by Government and US industry. In an effort to moderate these risks, the US is focusing on offshore strategies. One offshore strategy developed first as a pilot project and currently as an ongoing project is known as the Offshore Pest Information System (OPIS). OPIS is a secure web-based information sharing tool that allows users to communicate in an organised manner about offshore plant and animal health events and issues. OPIS was designed to allow the US to quickly and effectively respond to offshore plant pests that could potentially threaten the US.

Offshore Strategies in Global Political Economy: Small Islands and the Case of the EU and OECD Harmful Tax Competition Initiatives

This article investigates how recent attempts by the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD) to clamp down on harmful tax competition will affect small island economies with offshore financial centres (OFCs). It argues that although there are legitimate concerns about the initiatives, the likelihood that small island OFCs will disappear is remote. A confluence of factors have forced the EU and OECD to dilute their original proposals to the extent that while some marginal OFCs may be driven out of existence, more sophisticated OFCs will be unharmed and may even benefit from this supposed regulatory offensive.

Project Management Issues in IT Offshore Outsourcing

Global partnerships are forming to take advantage of the cost savings associated with offshoring as well as other strategic benefits. Not all information technology offshoring projects, however, are successful. Cost overruns, increased complexity and defective code cause organizations to rethink their offshoring strategy and their methods for managing these projects. In this paper, project management issues associated with offshore information technology outsourcing projects are identified and specific recommendations for addressing these issues are presented.