BPO and ITO outsourcing demand is generally growing, but the first half of 2007 will see a slower rate of growth than in previous years, according to EquaTerra's 4Q06 Outsourcing Pulse Surveys. EquaTerra believes this is the beginning of a "multipronged readjustment" in the overall BPO/ITO outsourcing market
This is from the EquaTerra "4Q06 Outsourcing Pulse Surveys" were conducted among its own advisors and a wide variety of leading service providers to reveal in-the-field insights into ITO and BPO activity during October through December 2006.Some more excerpts from the same:
A major take-away from the 4Q06 Pulse Surveys is that, contrary to popular views and portrayals, the prevalence of outsourcing contract renegotiations, recompetes and restructurings are not a widespread sign of "deals gone bad" or the demise of the outsourcing industry. Rather, buyers, service providers and outsourcing advisors alike view them, in most cases, as a catalyst and opportunity for improving the deal.
Outsourcing of non-traditional functions such as document and imaging services, legal processing, "knowledge process" outsourcing, and logistics services is on the rise, which signals an increase in both supply and demand
A continuing increase in multi-provider sourcing that can benefit buyers if it allows them to engage the best service providers for each of the processes being outsourced, but can also be more complicated and expensive to manage than sole-sourcing
Most buyers continue to underestimate the cost and complexity associated with performing Outsourcing Management and Governance (OM/G) activities, and shortcomings in: 1) the staffing of the governance organization; 2) costs associated with the use of third-party services such as lawyers, advisors and benchmarking firms; and 3) the costs for software tools to support OM/G efforts are often one of the root causes for problems with outsourcing transitions and dissatisfaction with ongoing outsourcing.
2/03/2007
Government IT Outsourcing Market to Soar
The market for outsourcing state and local government information technology functions, personnel and related services will grow by about 67 percent to $20 billion by 2011, according to a new report.
Market research firm Input, which released the report on Tuesday, said state and local governments will be motivated to consider outsourcing as a viable approach due to budgetary pressures, a need to modernize information systems and a drive for economic growth.
Michelle Miller, an Input senior analyst, noted that Northrop Grumman Corp. has been running Virginia's state technology operations since July, under a deal that could be potentially worth up to $2 billion over 10 years. The state also signed a separate agreement with CGI Group Inc. for software development and applications work.
She said there are a handful of other cities, such as San Diego and Falls Church, Va., and states including Indiana and Texas, that have wholly or in part outsourced technology-related functions.
Miller said Indiana recently signed a $1.16 billion, 10-year deal with an International Business Machines-led team to modernize and run the state's social-services eligibility system. The government said improving services and reducing waste and fraud could save its taxpayers a significant amount of money.
IBM also will build a data center that will generate 1,000 jobs. Miller said economic development is another factor state and local governments are considering in these deals.
However, Miller cautioned that state and local officials are still wary of outsourcing and are monitoring the outcomes of these projects before they move ahead.
Market research firm Input, which released the report on Tuesday, said state and local governments will be motivated to consider outsourcing as a viable approach due to budgetary pressures, a need to modernize information systems and a drive for economic growth.
Michelle Miller, an Input senior analyst, noted that Northrop Grumman Corp. has been running Virginia's state technology operations since July, under a deal that could be potentially worth up to $2 billion over 10 years. The state also signed a separate agreement with CGI Group Inc. for software development and applications work.
She said there are a handful of other cities, such as San Diego and Falls Church, Va., and states including Indiana and Texas, that have wholly or in part outsourced technology-related functions.
Miller said Indiana recently signed a $1.16 billion, 10-year deal with an International Business Machines-led team to modernize and run the state's social-services eligibility system. The government said improving services and reducing waste and fraud could save its taxpayers a significant amount of money.
IBM also will build a data center that will generate 1,000 jobs. Miller said economic development is another factor state and local governments are considering in these deals.
However, Miller cautioned that state and local officials are still wary of outsourcing and are monitoring the outcomes of these projects before they move ahead.
Between the Lines: Made in China
While eating lunch at my local Cracker Barrel over break, I found myself in the unavoidable situation in which most customers find themselves when they choose to visit a Cracker Barrel just after church time on a Sunday — I was forced into browsing through the trinket end of the “country store” while waiting on the next extended family group of church-goers to be seated. It was during this wait that I picked up some sort of odd-looking glass pig for the purposes of discovering just what, exactly, it was. As I turned the thing over in my hands, I discovered a big, fat “Made in China” sticker. My curiosity begged me to examine other random items whose purposes were likely just as difficult to determine, and what my search quickly led to was the assumption that nearly three quarters of the items in the store were made in East-Asian countries, with a majority being made in China. This country-style restaurant — with its assortment of early 20th-century farming equipment and household artifacts hanging from the ceiling — was having most of the items it sold in its “country store” produced in other countries.
This realization, among others, prompted me to pick up a book by North Dakota Sen. Byron Dorgan called “Take This Job and Ship It: How Corporate Greed and Brain-dead Politics are Selling Out America.” In the opening pages of the book, Dorgan makes the following remark: “We American consumers watch our Japanese television set, wearing our Chinese T-shirts, Taiwanese trousers, Mexican shorts and Italian shoes. We drive a Korean car to the store to pick up our Mexican vegetables, Australian beef and a six-pack of Heineken. And then we wonder what happened to all of the good jobs here at home.”
Dorgan has served six terms in the House of Representatives and is serving his third term as a senator. His book has received praise from the likes of Sen. Lindsey Graham, Tom Daschle and Lou Dobbs. Dorgan has worked for years to advance the interests of the American worker and taxpayer, and he has combated corporate outsourcing and tax evasion attempts time and time again. Insight and leadership such as his are in short supply for our economy and our government in the crucial years ahead.
In his book, Dorgan confronts the growing problem of America’s declining number of manufacturing jobs and increasing trade deficit. Despite the unique consumer economy created in America, Dorgan points out that the wealth of any economy is based more on production than consumption. In an era when private corporations — loyal only to their shareholders and the bottom line — often dominate the global economy and serve as the largest contributors to local and national politicians, the interests of the middle or lower-class worker are often swept aside.
In all fairness, there are many small businesses, and even some large U.S. corporations, that are proud to be American companies and treat their American employees accordingly. But a large number of multinational corporations that are chartered in the United States have increasingly resorted to the outsourcing of jobs to countries with little or no labor law enforcement and an abundance of hungry workers.
Dorgan points out in his book that Huffy, the company making bikes since we were kids, recently replaced 1,800 workers with Chinese workers pulling 12-hour days at 33 cents an hour. To make matters worse, Huffy has since filed for bankruptcy and refuses to pay out its pension plans, a burden the U.S. taxpayer will now have to shoulder.
Senator Dorgan also points out that General Motors, while interrupting every football game this fall with commercials about how their trucks are supposed to be our new American flag, has cut almost 30,000 American jobs between 2000 and 2005, and has plans to cut another 25 percent of the remaining workforce by 2008. And we’re supposed to say with them, “this is our country?”
The main point Dorgan makes is that regardless of what economic factors our nation is facing, we should have to face them together. Working Americans shouldn’t have to compete for jobs with citizens of poor countries that in the absence of any verifiable labor laws allow themselves to be exploited in order to survive. We pay into this system. Our parents and grandparents before us have worked, suffered and struggled to make this nation what it is today while insuring that we can have the same labor protections they worked so hard to gain. Middle-class consumers are the backbone of our economy, and with a savings rate below zero today, it’s about time U.S. corporations realize that if average Americans don’t have money to spend, the wealthiest Americans, spending enough money to keep our economy afloat, is easier said than done.
Dorgan provides a poignant symbol of the path down which our economy is heading. The last job those 1,800 Huffy workers were tasked with — replacing the American flag on each bike with a globe emblem.
This realization, among others, prompted me to pick up a book by North Dakota Sen. Byron Dorgan called “Take This Job and Ship It: How Corporate Greed and Brain-dead Politics are Selling Out America.” In the opening pages of the book, Dorgan makes the following remark: “We American consumers watch our Japanese television set, wearing our Chinese T-shirts, Taiwanese trousers, Mexican shorts and Italian shoes. We drive a Korean car to the store to pick up our Mexican vegetables, Australian beef and a six-pack of Heineken. And then we wonder what happened to all of the good jobs here at home.”
Dorgan has served six terms in the House of Representatives and is serving his third term as a senator. His book has received praise from the likes of Sen. Lindsey Graham, Tom Daschle and Lou Dobbs. Dorgan has worked for years to advance the interests of the American worker and taxpayer, and he has combated corporate outsourcing and tax evasion attempts time and time again. Insight and leadership such as his are in short supply for our economy and our government in the crucial years ahead.
In his book, Dorgan confronts the growing problem of America’s declining number of manufacturing jobs and increasing trade deficit. Despite the unique consumer economy created in America, Dorgan points out that the wealth of any economy is based more on production than consumption. In an era when private corporations — loyal only to their shareholders and the bottom line — often dominate the global economy and serve as the largest contributors to local and national politicians, the interests of the middle or lower-class worker are often swept aside.
In all fairness, there are many small businesses, and even some large U.S. corporations, that are proud to be American companies and treat their American employees accordingly. But a large number of multinational corporations that are chartered in the United States have increasingly resorted to the outsourcing of jobs to countries with little or no labor law enforcement and an abundance of hungry workers.
Dorgan points out in his book that Huffy, the company making bikes since we were kids, recently replaced 1,800 workers with Chinese workers pulling 12-hour days at 33 cents an hour. To make matters worse, Huffy has since filed for bankruptcy and refuses to pay out its pension plans, a burden the U.S. taxpayer will now have to shoulder.
Senator Dorgan also points out that General Motors, while interrupting every football game this fall with commercials about how their trucks are supposed to be our new American flag, has cut almost 30,000 American jobs between 2000 and 2005, and has plans to cut another 25 percent of the remaining workforce by 2008. And we’re supposed to say with them, “this is our country?”
The main point Dorgan makes is that regardless of what economic factors our nation is facing, we should have to face them together. Working Americans shouldn’t have to compete for jobs with citizens of poor countries that in the absence of any verifiable labor laws allow themselves to be exploited in order to survive. We pay into this system. Our parents and grandparents before us have worked, suffered and struggled to make this nation what it is today while insuring that we can have the same labor protections they worked so hard to gain. Middle-class consumers are the backbone of our economy, and with a savings rate below zero today, it’s about time U.S. corporations realize that if average Americans don’t have money to spend, the wealthiest Americans, spending enough money to keep our economy afloat, is easier said than done.
Dorgan provides a poignant symbol of the path down which our economy is heading. The last job those 1,800 Huffy workers were tasked with — replacing the American flag on each bike with a globe emblem.
Chinese outsourcing set for $1.3bn boom
China's share of the world's outsourcing market will be worth over $1.3bn next year, says a report from a leading US research firm.
In a paper examining the Chinese games market, Pearl Research in San Francisco has earmarked outsourcing in the region for a big boom by 2008 as publishers and developers look to offset the costs of game production by up to 20 to 40 per cent.
But while more money will be spent in the region, Pearl warns that the savings aren't as high as some expect as travel, training and project managment costs all eat away at the bottom line.
“The game development industry is relatively young in China, at less than five years old. Most companies outsourcing to China must develop training programs to ensure their staff is capable of handling outsourcing work. Intellectual property protection is also a concern,” says Allison Luon, MD of Pearl Research.
However, overall the report pinpoints China as a key region for games development given the growing cultural significance of the pasttime - casual games specifically have gained traction, says the report, and MMOs are more popular than ever.
In a paper examining the Chinese games market, Pearl Research in San Francisco has earmarked outsourcing in the region for a big boom by 2008 as publishers and developers look to offset the costs of game production by up to 20 to 40 per cent.
But while more money will be spent in the region, Pearl warns that the savings aren't as high as some expect as travel, training and project managment costs all eat away at the bottom line.
“The game development industry is relatively young in China, at less than five years old. Most companies outsourcing to China must develop training programs to ensure their staff is capable of handling outsourcing work. Intellectual property protection is also a concern,” says Allison Luon, MD of Pearl Research.
However, overall the report pinpoints China as a key region for games development given the growing cultural significance of the pasttime - casual games specifically have gained traction, says the report, and MMOs are more popular than ever.
IDC: Infrastructure outsourcing on the rise
Companies in the Asia-Pacific region, excluding Japan, are contracting out more work related to the management of IT infrastructure, according to a new study by research house IDC.
As companies mature in their use of IT, they progress from farming out just their hardware support to include network and desktop management as well, the IDC report noted. This movement is true across the entire region, it added.
IDC explained that the progression not only shows that organizations are seeking out "greater relationship depth offered by network and desktop outsourcing", but also signifies the general shift toward more sophisticated engagements with external IT service providers.
Findings from the report Support to Management: The Continuum of Infrastructure Services in Asia-Pacific, indicated that increase in infrastructure outsourcing activities will double the growth of hardware support services across the region. Countries covered in the study include Australia, China, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and Thailand.
IDC estimated that the network and desktop outsourcing market will grow from US$2.1 billion in 2005 to US$4.5 billion in 2010. This represents a compound annual growth rate (CAGR) of 15.8 percent over the forecast period.
The region's hardware deployment and support market will grow at a CAGR of 7.8 percent to reach US$6 billion by 2010 from US$4.1 billion in 2005, IDC said in a statement released Wednesday.
Richard Pirrit, research manager of support services at IDC Asia-Pacific, said: "As far as the infrastructure is concerned, this means a progression throughout the region from less-intensive hardware maintenance contracts to the outsourcing of the network and desktop environment."
Pirrit noted that organizations throughout the region are "maturing in their understanding of IT's role in driving business strategic functions, as opposed to merely sustaining operations".
"Businesses can achieve competitive advantages and increased efficiencies by leveraging IT, [and] as businesses begin to understand the potential value-add that IT can bring, they are increasingly looking toward service vendors for value-add services" he said.
In addition, the IDC said there will be an increase in the supply of outsourcing services as new players enter the market.
Eugene Wee, senior market analyst for IT services at IDC Asia-Pacific, said: "While the provision of outsourcing had previously belonged to the domain of IT giants like IBM, EDS and CSC, we are seeing an increase in the supply of these services as niche players and telecommunication service providers have begun to offer these services to compensate for the decline of their core business."
As companies mature in their use of IT, they progress from farming out just their hardware support to include network and desktop management as well, the IDC report noted. This movement is true across the entire region, it added.
IDC explained that the progression not only shows that organizations are seeking out "greater relationship depth offered by network and desktop outsourcing", but also signifies the general shift toward more sophisticated engagements with external IT service providers.
Findings from the report Support to Management: The Continuum of Infrastructure Services in Asia-Pacific, indicated that increase in infrastructure outsourcing activities will double the growth of hardware support services across the region. Countries covered in the study include Australia, China, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and Thailand.
IDC estimated that the network and desktop outsourcing market will grow from US$2.1 billion in 2005 to US$4.5 billion in 2010. This represents a compound annual growth rate (CAGR) of 15.8 percent over the forecast period.
The region's hardware deployment and support market will grow at a CAGR of 7.8 percent to reach US$6 billion by 2010 from US$4.1 billion in 2005, IDC said in a statement released Wednesday.
Richard Pirrit, research manager of support services at IDC Asia-Pacific, said: "As far as the infrastructure is concerned, this means a progression throughout the region from less-intensive hardware maintenance contracts to the outsourcing of the network and desktop environment."
Pirrit noted that organizations throughout the region are "maturing in their understanding of IT's role in driving business strategic functions, as opposed to merely sustaining operations".
"Businesses can achieve competitive advantages and increased efficiencies by leveraging IT, [and] as businesses begin to understand the potential value-add that IT can bring, they are increasingly looking toward service vendors for value-add services" he said.
In addition, the IDC said there will be an increase in the supply of outsourcing services as new players enter the market.
Eugene Wee, senior market analyst for IT services at IDC Asia-Pacific, said: "While the provision of outsourcing had previously belonged to the domain of IT giants like IBM, EDS and CSC, we are seeing an increase in the supply of these services as niche players and telecommunication service providers have begun to offer these services to compensate for the decline of their core business."
Trading Places: Why Outsourcing May Destroy your Business
As last quarter profit reports continue to pour in, an interesting trend emerges in the high tech industries and most notably in the handset phone segment: Long time American and European leaders like Motorola and Nokia are trailing in sales growth their Asian counterparts like Samsung Electronics. What makes this "changing places" trend interesting is that many of these Asian companies have been contract manufacturers of their American and European counterparts. First, they performed assembly operation for them. Then they performed component manufacturing. And eventually they performed everything, from product development, to manufacturing, and after sale services. In short, by outsourcing every piece of their business, American and European companies they gave it away to formidable competitors they created. Is this a good strategy? Hardly.
Economists are almost unanimous: Outsourcing is a good business strategy. It improves efficiency, cuts costs, speeds up product development, and allows companies to focus on their "core competencies."
And for the most part, they are right. Outsourcing has helped American companies deal with the destructive forces of globalization, that is; the intensification of competition and the price and profit erosion associated with it. For some companies, outsourcing has made the difference between staying in business and going out of business. But, as with every other business strategy, outsourcing has its own limitations and "unintended consequences" that if not addressed, can turn it into a bad business strategy.
Outsourcing is easy to be replicated by the competition; it leads to fragmentation and disintegration of the product supply chain, inviting new competitors into the industry. It also nurtures corporate complacency; and it undermines a company's relations with its labor, customers, and the domestic and local community.
Outsourcing is easy to be replicated, and therefore, it is not a source of sustainable competitive advantage. Outsourcing provides certain competitive advantages to early-movers--that is, to companies that adapt it first, but it isn't proprietary. It cannot be patented, preventing others from adapting it. For example, if outsourcing hardware manufacturing provides IBM a cost advantage, it al so does for its competitors, such as HP, Dell Computers, and Sun Microsystems that will follow suit. If outsourcing call centers cut costs for American Express, it also does for its credit card competitors. This means that outsourcing works only as long as some industry members have yet to adapt it. Once this happens, outsourcing is no longer a source of competitive advantage.
Outsourcing leads to the fragmentation and disintegration of the product supply chain, inviting new competitors into the industry, and undermining pricing power and profitability. Outsourcing of manufacturing, for instance, is feasible only if it can be separated from other supply chain activities: product development, branding, marketing, distribution, and after sales services. The same is true when it comes to outsourcing marketing or distribution and so on. This means that as more and more activities are outsourced, the supply chain turns from a single integrated process performed within the boundaries of traditional corporations to a fragmented and disintegrated process, a collection of separate and disjoint activities, performed across several independent subcontractors. And although such a fragmentation and disintegration of the value chain offers corporations a number of well publicized advantages, it has an unintended consequence: it makes entry of new competitors to the industry easier, intensifying competition, shortening product cycles, and squeezing return on invested capital.
To understand how this works, let us imagine a perfectly fragmented and disintegrated TV-supply chain: every activity from the new TV-concept development, to design, manufacturing, marketing, and so on can be performed by independent subcontractors. This means that any company that has no capabilities in making and selling TVs can enter the TV industry, as long as it comes up with the sufficient capital to pay the subcontractors handling the different value chain activities. The problem, though, is that once the product hits the market, nothing prevents another company from doing exactly the same thing, and then another, and another, until the TV industry becomes crowded with companies pitting against each other in a cut throat competition that eliminates industry profitability. What seemed to be a good strategy for each company in the beginning turned into a bad strategy for everyone at the end. By carrying outsourcing to the extreme, industry members open the door widely to competition, reversing whatever outsourcing's early positive effects, and then some.
But what if outsourcing isn't carried that far? What if companies outsource only their "non-core activities," and retain their "core
activities"-- the things they can do best inhouse? Certainly this strategy cuts costs and improves product quality, but it has another unintended consequence: it nurtures corporate complacency. By focusing on things that they can do best, company managers become complacent with their achievements, they think that what is a best product for their customers today will be the best product tomorrow. Corporate complacency, in turn, leads into corporate blindness, the failure of management to see that their markets reach saturation or is undermined by alternative products.
Outsourcing's unintended consequences for companies and industries that adapt it are not confined to the intensification of competition and corporate complacency. They extend to the relations of these companies with one of their partners--labor. If each and every activity of the product supply chain is gradually farmed out, what binds labor with management and stockholders? If company engineers and marketers who develop new product ideas can sense that their jobs will eventually be farmed out, why should they be loyal to the company? Wouldn't it be better to part from the company and pursue their own product supply chain by farming out the development, the manufacturing and so on, to outsourcing companies themselves?
Outsourcing unintended consequences extend to company relations with another partner--the customer. If each and every activity is outsourced, customers may feel betrayed. If I hire Sears or Home Depot to make certain improvements in my house because they have a reputation for reliable services, I would feel betrayed if I get services from strangers hired by the said companies, especially if they perform a sloppy job. And I would feel even more betrayed if I end up discussing my medical or financial records with some stranger in an overseas call center.
Outsourcing undermines relations with a third company partner--the domestic and local community. By shifting production and jobs overseas, outsourcing has a devastated impact on both levels that often unleash tidal ideological and political waves that may reverse all the gains from outsourcing, and then some. Let's not forget that people who live in these communities are not just workers, they are customers and citizens, too. As customers, they may end up boycotting the products of corporations shifting production from one location to another, just for the sake of profits. As citizens, people may end up supporting legislation that increases the cost of doing business in their community.
In short, what seems to be trendy in business strategy isn't always a good strategy. If carried to the extreme, outsourcing turns corporations into opportunistic institutions, without a vision in a collision course with its most valuable partners, labor, customers, and the community.
True, in a competitive world, it is hard to swim like a salmon against the current. Yet the salmons that swim hard always make it to their destination.
Economists are almost unanimous: Outsourcing is a good business strategy. It improves efficiency, cuts costs, speeds up product development, and allows companies to focus on their "core competencies."
And for the most part, they are right. Outsourcing has helped American companies deal with the destructive forces of globalization, that is; the intensification of competition and the price and profit erosion associated with it. For some companies, outsourcing has made the difference between staying in business and going out of business. But, as with every other business strategy, outsourcing has its own limitations and "unintended consequences" that if not addressed, can turn it into a bad business strategy.
Outsourcing is easy to be replicated by the competition; it leads to fragmentation and disintegration of the product supply chain, inviting new competitors into the industry. It also nurtures corporate complacency; and it undermines a company's relations with its labor, customers, and the domestic and local community.
Outsourcing is easy to be replicated, and therefore, it is not a source of sustainable competitive advantage. Outsourcing provides certain competitive advantages to early-movers--that is, to companies that adapt it first, but it isn't proprietary. It cannot be patented, preventing others from adapting it. For example, if outsourcing hardware manufacturing provides IBM a cost advantage, it al so does for its competitors, such as HP, Dell Computers, and Sun Microsystems that will follow suit. If outsourcing call centers cut costs for American Express, it also does for its credit card competitors. This means that outsourcing works only as long as some industry members have yet to adapt it. Once this happens, outsourcing is no longer a source of competitive advantage.
Outsourcing leads to the fragmentation and disintegration of the product supply chain, inviting new competitors into the industry, and undermining pricing power and profitability. Outsourcing of manufacturing, for instance, is feasible only if it can be separated from other supply chain activities: product development, branding, marketing, distribution, and after sales services. The same is true when it comes to outsourcing marketing or distribution and so on. This means that as more and more activities are outsourced, the supply chain turns from a single integrated process performed within the boundaries of traditional corporations to a fragmented and disintegrated process, a collection of separate and disjoint activities, performed across several independent subcontractors. And although such a fragmentation and disintegration of the value chain offers corporations a number of well publicized advantages, it has an unintended consequence: it makes entry of new competitors to the industry easier, intensifying competition, shortening product cycles, and squeezing return on invested capital.
To understand how this works, let us imagine a perfectly fragmented and disintegrated TV-supply chain: every activity from the new TV-concept development, to design, manufacturing, marketing, and so on can be performed by independent subcontractors. This means that any company that has no capabilities in making and selling TVs can enter the TV industry, as long as it comes up with the sufficient capital to pay the subcontractors handling the different value chain activities. The problem, though, is that once the product hits the market, nothing prevents another company from doing exactly the same thing, and then another, and another, until the TV industry becomes crowded with companies pitting against each other in a cut throat competition that eliminates industry profitability. What seemed to be a good strategy for each company in the beginning turned into a bad strategy for everyone at the end. By carrying outsourcing to the extreme, industry members open the door widely to competition, reversing whatever outsourcing's early positive effects, and then some.
But what if outsourcing isn't carried that far? What if companies outsource only their "non-core activities," and retain their "core
activities"-- the things they can do best inhouse? Certainly this strategy cuts costs and improves product quality, but it has another unintended consequence: it nurtures corporate complacency. By focusing on things that they can do best, company managers become complacent with their achievements, they think that what is a best product for their customers today will be the best product tomorrow. Corporate complacency, in turn, leads into corporate blindness, the failure of management to see that their markets reach saturation or is undermined by alternative products.
Outsourcing's unintended consequences for companies and industries that adapt it are not confined to the intensification of competition and corporate complacency. They extend to the relations of these companies with one of their partners--labor. If each and every activity of the product supply chain is gradually farmed out, what binds labor with management and stockholders? If company engineers and marketers who develop new product ideas can sense that their jobs will eventually be farmed out, why should they be loyal to the company? Wouldn't it be better to part from the company and pursue their own product supply chain by farming out the development, the manufacturing and so on, to outsourcing companies themselves?
Outsourcing unintended consequences extend to company relations with another partner--the customer. If each and every activity is outsourced, customers may feel betrayed. If I hire Sears or Home Depot to make certain improvements in my house because they have a reputation for reliable services, I would feel betrayed if I get services from strangers hired by the said companies, especially if they perform a sloppy job. And I would feel even more betrayed if I end up discussing my medical or financial records with some stranger in an overseas call center.
Outsourcing undermines relations with a third company partner--the domestic and local community. By shifting production and jobs overseas, outsourcing has a devastated impact on both levels that often unleash tidal ideological and political waves that may reverse all the gains from outsourcing, and then some. Let's not forget that people who live in these communities are not just workers, they are customers and citizens, too. As customers, they may end up boycotting the products of corporations shifting production from one location to another, just for the sake of profits. As citizens, people may end up supporting legislation that increases the cost of doing business in their community.
In short, what seems to be trendy in business strategy isn't always a good strategy. If carried to the extreme, outsourcing turns corporations into opportunistic institutions, without a vision in a collision course with its most valuable partners, labor, customers, and the community.
True, in a competitive world, it is hard to swim like a salmon against the current. Yet the salmons that swim hard always make it to their destination.
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