The real cost of outsourcing: the good and bad.(Communique)

What is the real cost of outsourcing? Conflicting reports from respected sources can heighten any company's anxiety over the decision to embark on an outsourcing initiative, particularly if it involves offshore outsourcing. On the one hand, there is tremendous pressure to use offshore outsourcing as a means to reduce costs and increase the firm's ability to compete globally. On the other hand, there is pressure both socially and politically to keep jobs in your home country. "While there are very real benefits to be gained from offshore outsourcing, there are many hidden costs that can easily reduce or even negate many of these expected benefits," says Scott Noble, Co-founder and Director of Global Sourcing Insights LLC (GSI).

"To be effective, offshore outsourcing should be very selectively focused on the specific activities and types of work that can be done more efficiently offshore; otherwise you're just playing a game of labor rate arbitrage and our experience indicates that, in the long run, this can backfire on you." Chasing cheap labor around the globe can result in many hidden costs that all too often are not adequately identified or measured and, subsequently, are not accurately reflected in the firm's ROI analysis of outsourcing but will surely be reflected in its long-term profitability. "Helping organizations identify true comparative advantages is one of the main reasons Ron and I started this company," Scott continues, referring to Ron Kreutzer his Partner and ...