Offshoring vs Reshoring: The Great Debate

By Joli Skow | April 2012

It is not uncommon in the U.S. to hear about a factory, web design firm, quality assurance company, or other company or service that is operated here but partly or completely located outside our shores. Called offshoring or outsourcing, companies see it as beneficial to their bottom lines. Moving production or services to a country where it costs less to both run the facilities and pay workers seems like a great idea.

Just as there are two sides to every argument, there are people both for and against the offshoring or outsourcing of many U.S. businesses and jobs. The Reshoring Initiative, an organization founded in 2010 by Harry Moser, is currently working to bring offshore businesses back to the United States. His organization is focused mainly on the manufacturing side of things, but there are points made both by the Reshoring Initiative and many others who’ve weighed in on the subject that fit tech and service industries as well.

History

Offshoring took off in the late 1970s. It began with manufacturing giants who moved off of U.S. soil to countries where they could find cheaper labor costs. In the 1990s when the Internet showed up, tech jobs, call centers, and other such jobs began moving offshore as well. General Electric was one of the first large businesses to move its manufacturing overseas. According to The Week magazine, the CEO of General Electric at the time, Jack Welch, said “Ideally, you’d have every plant you own on a barge to move with currencies and changes in the economy.”

Today, the topic is widely debated. Some are finding out that the so-called benefits of offshoring are actually not benefits at all, and are hurting the business’s overall success.

Cheaper Cost of Labor

Although labor costs in outsourced countries, such as China, have been on the rise, it is still typically cheaper to employ a workforce there rather than in the U.S. This is the prime reason why companies choose to move offshore. According to the Offshoring Research Network at Duke University, 80% of large companies were offshoring in 2011. However, some companies are quickly finding out that offshoring for cheaper labor just isn’t worth it.

 

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The Issues

Quality and Competency

Employees hired in other countries may not have the same skill set as those in the U.S. Also, in countries like China where large companies, such as Apple, are outsourced, there’s competition within factories. For instance, the same factory might be making pieces for a well-known company or product, like the iPhone, as well as pieces for something that’s lesser-known, like a mid-sized company’s headphones. The factory gets backlogged. These two brands end up competing for the time and resources at that particular factory, and the iPhone wins. The headphones are now made too quickly and with less skill, and are therefore botched products. The factory may even subcontract the headphones to another factory, to workers with even less training about the product.

In the IT and tech industries, quality is a problem as well. It’s difficult to know what kind of training your contracted employees have, whether they have any customer service skills, and how they’re going to handle your business’s image.

Time

The time difference can make for some odd-hour phone calls and meetings. Also, meeting over the phone or over Skype is not the same as physically being in the building. There can be a language barrier, as well, between employers and contractors or employees. Because of these factors, those running the business in the U.S. have less control over the work being done offshore.

Laws

Running a business isn’t easy. While the U.S. has its own laws for businesses, other countries have laws as well. To run an offshore company, there are hoops to jump through and different laws to learn and obey. Tax laws, especially, may be difficult to navigate. Another person will probably have to be brought on board who knows about conducting offshore business.

Shipping and Traveling

The cost and impact on the environment of transferring goods and services from offshore is more than if the business was inside the U.S. border. Goods have to be shipped farther, executives have to take more plane rides, and office materials may need to be shipped from the U.S. to the offshore location. This culminates in both more money and time spent on shipping, as well as more pollution.

Patriotism and American Jobs

By offering jobs that could be in the U.S. to those offshore, companies are not helping the unemployment rate here. The money paid to foreign employees goes into foreign markets, instead of our own. Some might see this as unpatriotic and selfish. In a Huffington Post article, Paul Abrams writes, “What could be more un-American than promoting the offshoring of American jobs?”

Keeping it Local

Some companies have decided to make it a point to keep everything inside U.S. shores. For instance, software quality assurance is one of the most popular industries to be offshored. Minneapolis’s tap|QA decided to keep themselves local, and they describe their program, called tap|Lakeshore, as being “a proven alternative to offshore QA and testing that has several distinct advantages.” Those advantages include prices that are competitive with offshore QA testing services, they’re able to meet face-to-face with clients, the whole team works together without anything being lost in translation across oceans, and more.

The ideas of offshoring and outsourcing probably won’t be going away soon. There is a lot of discussion about the topic, far beyond the issues explained here. For more on the issue, visit the following resources.

Wired Magazine's "Made in America"
Duke University's Offshoring Research Network
The Week Magazine
The Reshoring Initiative
Wikipedia: Offshoring

Topics: Inside ArcStone, Digital Marketing

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