Recession sparks sharp drop in offshoring

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The Financial Times this week released a report highlighting a sharp decline in the offshoring of jobs from Britain to cheaper locations in eastern Europe as a result of the recession.

The NOA predicted that 2009 would be the year where we see a drop in businesses offshoring, so the FT report into the reduction of offshoring comes as no surprise. There are a number of factors at play that have led to the drop in UK companies offshoring.

Despite the cost reductions associated with offshoring services to locations such India and China, the initial cost of setting up these relationships can be significant. As a result many companies aren’t willing to invest in offshoring in the current economic climate.

India has also suffered a backlash over the last 12 months. The appreciation of the rupee and the significant drop in value of the pound has driven the cost savings down for outsourcers. Team this with increased competition from other locations such as eastern Europe and there can be no surprise that their economy has taken a hit.

The high unemployment rate in both the UK and US is putting added pressure on the current governments to take a protectionist stance on offshoring. US President, Barack Obama has been very vocal about keeping jobs in the US and not offshoring to countries like India. It’s not just the US, earlier on in the year the French government announced that any car manufacturer that took a share of the £5.5bn bailout plan had to guarantee that the jobs and factories were kept on home soil.

In this global economy governments and organisations need to look beyond their own boundaries and avoid fencing off the outside world. Offshoring is an integral part of the rising tide of globalisation, the recession is a global issue and can only be overcome by businesses and governments working together.

Companies need to take a long hard look at their overall business strategy and avoid knee jerk reactions. Although bringing offshored operations back home may feel good, whether this is economically right entirely depends upon each situation. Companies still need to take their time and consider all their sourcing options before acting, otherwise they may end up with increased costs, poor processes and ultimately a worse situation.

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