Onshore or Offshore:
What Makes Sense and What Doesn't

By Ahmed Refky

May 2010

Offshore outsourcing is a proven phenomenon that makes business sense in terms of cost and efficiency and is a reality in all mature economies.  However, there are varying degrees of success in achieving the balance between customer satisfaction, quality, and cost. 

The debate has always been whether to stay onshore or to go offshore; the reality is that neither offshore nor onshore are good for all service types.  Both can offer advantages and benefits based on the objectives and goals that a specific company is seeking.  Therefore, an ideal sourcing strategy is based on deploying a "global service delivery model" that capitalizes on the benefits of various geographies and ensures ultimate risk mitigation as well as an optimum balance between client satisfaction, quality, and cost. 

In his book The World Is Flat, New York Times feature columnist Thomas Friedman conceptualizes the significance of global service delivery models in IT-enabled services and the BPO industry.  According to Freidman, the boom of the "dot com" phenomena has virtualized human interactions across all facets and created a "flat" (or "connected") world.  Making talent, for the first time in history, is more important than geography in determining a person's opportunity in life - and thus where businesses are located.  With this in mind, looking into the IT and BPO industries, it is in the best interest of businesses in these sectors to segregate IT-enabled services/BPO activities into components, with each component performed in the geography that guarantees the most efficient outcome.  Certain types of services have to be outsourced onshore and some of the already offshore outsourced services need to be brought back, while other types of services need to stay offshore to get the optimum benefits. 

We believe that any market can be served domestically - specifically the U.S. market that is usually perceived as one of the largest markets outsourced offshore.  For some types of services or clients, an onshore model can provide an excellent value proposition that balances the relatively high cost of operation with quality and customer satisfaction.

Offshore outsourcing to labor-intensive markets like India, China, Philippines, and lately Northern Africa, with relatively competitive labor wage rates, is primarily justified for long-term projects that span several years and stipulate operation and human scalability.  Only in such scenarios can offshore economies-of-scale offset the costs incurred of high travel, labor training, and project management, which are the common costs associated with offshore development models.  However, cost is not the only driver of offshore outsourcing; the search for scalable pools of talents and skill sets has been fueling the offshoring industry. 

The onshoring model, on the other hand, depends on services that don't lend themselves to offshoring due to the sensitivity or complexity of the service components.  Additionally, there are small- to medium-scale projects that an offshore model does not provide an added dollar value.  Government agencies are another sector with a growing need to outsource certain functions in order to elevate national service levels as well as liberate resources to focus on core functions, yet are not able to adequately outsource offshore. 

The cost benefits of the onshore delivery model in the U.S. continue to increase after the U.S. broadband stimulus adopted in 2009.  Therefore, instead of setting up a contact center facility in New York or Washington, DC (where the cost of living is quite high), a contact center facility can be relocated to a rural area of Iowa that was initially underserved by broadband prior to the broadband stimulus program.

From a BPO service-provider perspective, research analysts firms like Gartner and IDC are vying for the sustainability of the pervasive offshore outsourcing models that rests on a "labor-intensive" approach.  With the continuous boom of technology platforms that automate and merge processes, the conventional outsourcing model could lead to futile human capital and scalability, thus reaching a critical point.  This reinforces the significance of creating "global service delivery models" that utilize geographies and technologies, mitigating the risk of reaching a complete halt of service delivery as technologies advancements reduce cost and human scalability factors.

The hybrid service delivery model is, in essence, the "ideal shore" model, with virtual platforms connecting all service delivery locations to guarantee maximum flexibility and seamless consolidation.  Deciding on what stays onshore versus what goes offshore and where is as important as the initial decision of whether to outsource or not.  Companies should strive to get the right mix of onshore and offshore strategies. 

Ahmed Refky is senior vice president of Xceed, a global provider of multilingual BPO services that offers integrated customer care, technical support, and associated back-office processing for commercial and governmental clients worldwide.  Since its inception, Xceed has had a proliferating record of certificates and industry recognition from different entities across the globe.  Refky serves on Xceed's executive team and is one of the founding members of Xceed.  He established Xceed as an organization built around synergy, innovation, and quality.