Study: Go Offshore to Find Talent

November 1, 2006 ( - A new study has found that companies are increasingly moving sophisticated critical functions to China, India and other offshore locations mostly because that is where they can get enough skilled scientific and engineering workers.

However, a news release said that the study, by Duke University and management consulting firm Booz Allen Hamilton, found that e ven though companies continue to offshore high-skilled work, they are more and more concerned about the loss of managerial control that can be an issue when outsourcing functions close to their core business.

On the plus side, according to the study, the need to get skilled workers overseas is being cited instead of a desire to use low-skilled, low-cost labor as the decisive factor in companies’ offshoring strategy.

Nearly three-quarters of the companies that have established or expanded product development offshore report that “access to qualified personnel” is the most important driver of their offshoring strategy Almost 70% of survey respondents select an offshoring location based on the availability of needed expertise.

But the search for new markets for finding talent doesn’t come without worries, the study found. Concerns about offshoring are shifting from external factors, such as political backlash, to internal factors, such as loss of managerial control and the impact on operating efficiency.

“Loss of managerial control” was cited by 48% of companies as a major risk of offshoring, an increase of 30% over 2005’s result. In contrast, “political backlash” and “political instability” have steadily declined in importance as noteworthy risks, with only 22% of respondents citing either them as “important” or “very important.” In all, companies cited greater concerns about their ability to manage their offshoring activities, while concerns about cultural differences, which ranked very high in the 2004 and 2005 surveys, dropped by 50%.

According to the study offshoring high-value tasks does not lead to major job losses at home, but to more net new jobs globally. In the US, offshoring projects that involved high-skilled functions such as research and development, sales and marketing, product design and engineering resulted in an average of one job created in the US per project. In contrast, domestic job loss for office and administrative functions averages 23 jobs per project offshored.

Significantly, survey respondents indicated that as they increased the offshoring of high-end functions, the number of overall jobs they are replacing in the US has dropped dramatically. In the 2006 survey the average number of US jobs lost per offshore project dropped by 71% from 2005 (38 jobs lost per project in 2005 vs. only 11 jobs lost per implementation in 2006). At the same time, the average number of offshore employees per project grew by 62% from between 2005 and 2006.

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