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Area Development - Site Selection, Facility Planning and Workforce Development

Lack of Skilled Labor — Not Costs — Top Reason for Offshoring

01/20/2011
In a study by the Center for International Business Education and Research's Offshoring Research Network, Duke University's Fuqua School of Business and the Conference Board find that most American companies say a shortage of skilled domestic employees is the top reason for moving some operations overseas. This reason displaced cost-cutting measures as the prime motive for offshoring.

"Over half of the participants in our survey say offshoring has resulted in no change in the number of domestic jobs in most functions," said Arie Lewin, Fuqua professor of strategy and international business. "The finding that the U.S. software sector has the highest ratio of offshore to domestic employees - almost 13 offshored jobs per 100 domestic jobs - may be a reflection of a scarcity of domestic science and engineering graduates in the U.S."

This year's survey respondents had lower expectations than previous respondents for average cost savings as a result of offshoring. Contact center, IT, and software development have witnessed the steepest drops among offshoring functions.

"The potential for cost reduction alone is no longer enough to justify moving operations," said Ton Heijmen, senior advisor to The Conference Board. "One survey respondent noted it has taken his company several years to discover the impact of labor arbitrage disappears in fewer than three years. Companies are now shifting from cost-driven offshoring to a multidimensional value proposition in creating a global footprint."

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