Part 2 - Small companies can't offshore jobs - or can they?

By Aaron Green, 10/22/2007

[Columnist's Note: My company, Professional Staffing Group, recently launched a new firm, PSG Offshore Resources. Offshore outsourcing, or offshoring, is currently a major growth area - and issue -- in the staffing world, hence this two-part column. In Part 1, I defined offshoring, its benefits and challenges. In Part 2, I take a look at how small- and mid-sized companies are now taking advantage of offshoring opportunities.]

Offshoring, or locating jobs in overseas countries where talent is more available and less expensive, is a trend that began as far back as the 1970s. Until recently, large multinational companies were the only ones able to take advantage of offshoring. Big companies have sent hundreds or even thousands of jobs overseas.

It is easy to see why offshoring was not an option for small- and medium-sized companies. Small companies may not have well-defined and documented processes or the infrastructure to make offshoring work. Furthermore, since small companies would be spending much less money than large companies, overseas vendors were not even interested in the business.

Offshoring matures and becomes viable for small- and medium-sized organizations

No one event alone is responsible for the proliferation of offshoring. Rather, a number of changes taking place concurrently have made it possible for small organizations to take advantage of offshoring:

• Telecommunications advances and cost reductions - Telecommunications costs have decreased to the point where overseas calls are virtually free. In addition, the management of telecommunications systems has been drastically simplified so that even small companies without a technical support staff can set up and manage telecomm systems.
• The Internet and data transfer advances - Since using the Internet is so ingrained in how we work now, it is easy to forget that it has only been within the past few years that virtually everyone began seamlessly passing information online.
• Low unemployment in the US - Necessity is the mother of invention. The United States as a whole has 4-5% unemployment. Unemployment is much lower for professional positions requiring a college degree, and in certain in-demand fields unemployment is practically zero. Offshoring became more popular simply because companies had to find a way to get the job done.
• Education levels overseas and spread of the English language - Overseas workers at all skill levels have become more educated and speak better English. Some countries look to the future and see offshoring as their growth industry. The governments and businesses of these countries are investing in preparing their workforces for jobs offshored from the United States and other western nations. For instance, it is no accident that Filipino call center representatives speak clear English; the government made this happen when they switched the language taught in their schools to English.
• Emergence of offshore vendors focused on servicing small companies - Until recently the providers of offshore services have focused on large companies that were looking to offshore hundreds or thousand of jobs. As the industry has matured new companies have emerged that are focused on serving the needs of smaller and medium-sized organizations.

Some examples

Let's look at three examples of small organizations using offshoring:

A design firm offshores website development work - A graphic designer at a design firm decided to move on to another company, citing the opportunity to take on higher level creative work. The design firm hired an offshore designer to perform their lower level production work and a replacement person in the US was brought on board to have more client interaction and perform higher level conceptual design. The net result was that not only did more work get done, employee job satisfaction was enhanced too.

An executive search firm offshores an accountant - A boutique executive search firm offshored their accountant. Offshoring fits their needs perfectly. Their accountant works in an overseas office with other accountants and he gets the support and backup that the search firm could not provide him. The search firm gets their accounting done for about 40% less than they would pay an in-house person and they never have to worry about vacation coverage since, as is typical in offshore work, the overseas solution has a backup person already trained.

A financial services company offshores a recruiting assistant - A growing financial services company hired an offshore recruiting assistant to support their Human Resources Director. The offshore recruiter performs the front end of the recruiting process. She sources applicants, screens them, conducts a phone interview, schedules online testing, and schedules qualified candidates for in-person interviews. The offshore recruiter has doubled the number of qualified applicants the company interviews and hires.

Drivers of offshoring: cost savings and access to talent

Since the inception of offshoring, cost savings has been the primary factor that has driven companies to take action. According to a Duke University/Booz Allen Hamilton research survey in 2006, 91% of companies cited labor costs as an important or very important factor in their decision to offshore work.

But access to talent is now becoming an increasingly important factor. The same survey in 2004 reported that less than 40% of companies cited access to qualified personnel as a driver for offshoring. That percentage rose to 77% by the 2006 survey.

Simply put, cost savings is typically what opens people's eyes to locating jobs offshore. But once their eyes are open, the availability of an unforeseen talent pool is what truly drives the business opportunity.

The future of offshoring

The trend toward offshoring is unlikely to stop. The International Association of Outsourcing Professionals says U.S. spending on outsourcing has gone up by almost a third in the last three years alone. Offshoring will continue to have a significant impact on the way America gets work done. Certain jobs will disappear almost entirely and go overseas. On the other hand, new positions that don't exist today will be created. Human resources professionals will need to consider the impact of offshoring on all aspects of their organization.