Offshoring versus not offshoring

The offshoring industry has globalization to thank for a rapid growth. During the early 50s and
60s all the major corporations wanted to expand their market and continue growing at a rapid
pace. As a result of this, they started diversifying into other non-core areas of their business to
appease shareholders and bring in more revenue and profits.
By late 70s and early 80s corporations started realizing that to sustain the profit levels they had
to further widen their net and started building manufacturing and other down-stream capabilities
offshore. This went for another decade before offshoring became a critical business strategy for
MNCs. But it was different this time, corporations started offshoring non-core downstream
activities to countries with adequate resources and cheaper wages to support organization wide
cost saving measures.
The initial offshoring activities resolved around supporting core-business activities (company
owned IT support / call centers), which I believe is the right way to run a business as you dont
want to waste your resources to support activities which do not contribute to your organizations
bottom line. But this is a slippery slope and as we have seen the direction that American and
European corporations took i.e. offshoring activities which add value to their business and are
profit centers. Offshoring core business functions may bring in more profits in short-term but it is
detrimental to internal long-term growth.
As companies start offshoring their core business services they start ignoring in-house talent
development and after a while their workforce will neither have the knowledge, nor the skillset
necessary to render those services. The best example of this is the IT Hardware industry in
America, they started with being the innovators and leaders of the industry but ended up
offshoring everything from production to design and to finally R&D. Now, companies even if
they want to manufacture and design in America, they cant simply because they dont have
the necessary talent anymore.
To summarize this discussion, I would say that offshoring is a critical part of todays business
strategy and it cannot be avoided but at the same time we have be cautious about what functions
we offshore and how will it impact the organization in long-term. A companys downstream
manufacturers and support OEMs can become their competitors if offshoring is not done
judiciously. To this regards, the text book mentions an important concept of how companies
become OBM from ODM /OEM and how a company like HTC evolved from a partner of
telecom carriers to an industry big shot in smartphone arena.


Abhishek Vij