Off-shoring – is it time to drop the term?

Why are we still using the "offshore" term? The word is flat – and work is global. So does it really matter? A recent discussion on LinkedIn, and co-incidentally at Intellect –UK, asked the question "Why is the ICT industry continuing to use the offshore term?" It’s a good question to ask in this world of rapid globalisation. The term "offshore" has been in use for many years. Originally it referred to an installation or production facility in an ocean. Then the financial sector adopted the term to describe efficient financial products often associated with islands offering favourable tax regimes. In ICT and business process outsourcing circles, offshoring refers to a shifting of technical and clerical jobs to low cost countries like India. It is a tool CEOs might use to bring additional value to a business by leveraging the capabilities of suppliers and partners not available internally. Offshore in the ICT industry was probably first used in the 1990s in the run up to the Yr2000 when low cost IT capability was used to make low value changes to code where applications were at risk with the change of date. Having proved offshoring worked, we now have a host of derived terms: nearshoring, farshoring, valueshoring, and rightshoring. Being associated with the export of jobs and taking advantage of cheap labour, all these terms invoke unhelpful political and social reactions. In some case, this may have resulted in hostile union activity and brand damage. Interestingly, the term "offshore" persists in the ICT and business processing industry, yet, when a world class aircraft builder sources its components abroad, it is considered a normal business practice. Indeed, when buying strawberries from a supermarket out of season the shopper does not ask the supermarket manager for offshored strawberries! Why is it we persist in retaining this ugly term? Sourcing ICT service across an international boarder is now no more complicated than sourcing precision industrial components. Surely, by holding onto the term are we are damaging the ICT and business process outsourcing industry and holding back wealth generation. Globalisation of communication networks has meant it is inevitable that an industry which uses digital technology will harness cheaper, more efficient and flexible labour regimes. It is reported the recent unrest in the Middle East did not interrupt ICT services sourced from Egypt, the global provider just rerouted the service to another part of the world whilst the risk to service was under threat. It is interesting to note those businesses selling "offshored" services, notably the Indian majors, are moving away from the term, preferring to label themselves as "global IT providers"! Offshoring, with all its derivatives, is now just an option in the ICT and business process sourcing kit-bag. Globalisation and the worldwide communication systems mean CEOs and CIOs can be more strategic when assembling their businesses by drawing together the right capabilities from the right sources at the right time with the right commercial arrangements. This choice, and the option to offshore, should not necessary be a binary decision but an in-depth consideration in the context of the relative merits of all sourcing options. The buying business now accepts offshoring is in the mix. Key stakeholders are generally less concerned where the service comes. As the ICT industry matures, and globalisation deepens, so it will be the business requirements and value proposition which will determine where services are sourced. So, is it time to drop the term? Maybe! Offshoring is a useful term which encompasses additional procurement and on-going management responsibilities. Unlike manufacturing, where international trade has happened for many decades, international ICT trade has at best been around for just 15 years. Some would say it is difficult enough to contract in-country, so offshore brings additional complexity. Here are the eight key issues when considering ICT services sourced across international boundaries: Regulation – is there local expertise to advise on barriers and opportunities? Data protection – are the safeguards in place? Export control – will governments permit the export of knowledge and knowhow? Taxation – are there double taxation treaties in place? Jurisdiction – is there recourse? should there be disputes? Capability – can the installation be accessed for thorough due diligence? Risk – can continuity of service be assured? Performance – how will the supply be managed and monitored? Perhaps it is premature to discard the term. It remains a useful handle to ensure decision makers appreciate the implications of trading ICT services across the globe. As we move through this decade, so global ICT trade will become the norm and barriers will diminish. For the moment, offshore remains a helpful term on which to heap the addition due diligence responsibilities. However, as it still has the potential to damage global ICT trade, expect its use to diminish rapidly. [eventpdf]

Off-shoring – is it time to drop the term?

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