The risk of bringing processes back home

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The National Outsourcing Association predicted that 2009 would be the year where we see a drop in businesses offshoring and possibly some organisations bringing already offshored processes back home.

It appears that this prediction is already coming to fruition. The French government has announced that any car manufacturer that takes a share of the £5.5bn bailout (announced this week and reported throughout the press) must guarantee to keep jobs and factories in France.

This strategy adopted by the French may be closely watched by the new U.S. administration. Addressing the issue of offshoring was certainly on the Obama agenda during the election process and we may see similar sanctions/incentives incorporated into any new economic strategy.

However, in this global economy governments need to look beyond their own boundaries and avoid knee jerk reactions to economic turbulence.

Offshoring is an integral part of the rising tide of globalisation and whereas in the past, many developing countries could only really compete in global agricultural markets, the ability to provide services such as IT, accounting and customer contact centres is allowing these countries to fully enter the global market. Hindering these markets may cause a backlash in the long term global economy.

The immediate local effect may be an increase in prices. If costs for a company go up, prices will increase in order to recover profit margins. During a recession we want consumers to keep spending money in order to revive the economy, any cost incurred by a business will almost certainly be transferred onto consumers that are already approaching expenditure with caution. Price hikes will only deter more potential customers.

Of course the issue of rising unemployment must be dealt with, however we have to look seriously at the backlash of reducing offshoring.

Surely French car prices will be on the up as labour costs rise due to production centres being brought back home. The Guardian reported that the ACEA predict car sales to slump by 20%. How much more will they slump if the prices rise during a recession?

I understand the pressures governments face. Unemployment must be curbed and jobs made available. However reducing offshoring is not a fix all answer. Any strategic measure that increases costs for a business during a downturn should be carefully scrutinised.

Bringing offshored projects back home may at first be praised as a noble move, however if the costs then rise so high that the business is in serious financial turmoil then no job will be safe and we could risk losing another contributor to the economy.