NEW YORK and DURHAM, N.C., Dec. 11, 2008 (GLOBE NEWSWIRE) -- U.S. companies plan to continue their current strategies for sourcing some functions overseas despite the current recession, and the worldwide economic downturn may even accelerate such plans, according to a study released today regarding the effects of offshoring trends on American competitiveness.
The research was conducted by PricewaterhouseCoopers and the Center for International Business Education and Research's (CIBER) Offshoring Research Network (ORN) at Duke University's Fuqua School of Business. The study is part of ongoing research into the effects of offshoring trends on American competitiveness.
The survey was designed to capture business managers' sentiments in the midst of the current global slump in financial markets and the U.S. presidential transition. It was conducted during the first two weeks of November and asked nearly 100 companies in the U.S. and Europe about their plans to ship some job functions and business processes overseas.
While cutting labor costs is the most significant factor driving offshoring decisions since the worldwide financial crisis gained momentum this fall, many survey participants noted an increased urgency to improve efficiencies through business process redesign and by improving offshoring processes.
"Our research shows as companies grow the scale and scope of sourcing programs, average efficiency decreases," said Arie Lewin, professor of strategy and international business at Duke and executive director of CIBER. "Enhancing efficiencies has become more urgent in recent months as firms squeeze more productivity out of every dollar."
"Redesigning business processes is not equivalent to end-to-end process re-engineering, which requires a significant commitment of resources and time," said Charles Aird, managing director with PricewaterhouseCoopers' Advisory practice, a founding member of ORN's Best Practices Institute. "Our findings indicate companies can't wait that long and can't spare those resources; they want to improve their existing organizational capabilities for managing their offshoring strategies. This will require developing the discipline and the metrics to capture the benefits of existing and planned projects."
Forty-one percent of respondents report increasing speed to market is becoming a more important driver of offshoring. Meanwhile, access to qualified personnel has not increased in importance, partly because rising unemployment is widening domestic employment pools.
As a result of the global economic crisis, renegotiating current contracts with service providers is emerging as a growing concern among companies. Forty percent of companies said they have pressured or plan to pressure providers to offer more favorable contract terms in order to trim costs.
Further cost-cutting options cited by respondents include delaying large-scale projects that require larger upfront investments and postponing some longer-term development initiatives. However, some companies noted providers could ease these pressures by offering to absorb some upfront costs. Companies said they may realize additional cost savings by lengthening implementation timelines or cancelling or postponing discretionary projects such as software development.
While efficiency enhancement and cost reduction are among companies' top priorities, 12 percent of respondents noted they are considering spinning off their captive operations -- facilities operated remotely while owned and controlled by the company -- to a provider or have already done so. Such an option would require significant time and effort to negotiate, and capital resources for financing acquisitions are likely to be scarce.
Earlier, in a paper titled "Strategic Discontinuities in the Global Economy (Part I)" presented in February 15, 2008, PricewaterhouseCoopers Executive Director Hari Rajagopalachari analyzed some fundamentals of the inter-linked global economy and indicated that the world was heading for a long downturn due to structural imbalances in the currency, energy and financial markets, with significant medium and long term implications for India in particular.
A comprehensive report on the research is scheduled to be published in February 2009 in Shared Services News, a publication of the Shared Services & Outsourcing Network.
Duke CIBER's fifth annual survey of buy-side companies, recognized as an authoritative examination of trends in offshoring business processes and innovation, will begin data collection in January 2009.
PricewaterhouseCoopers is a founding member of the Duke ORN Best Practices Institute, to conduct case studies by ORN SWAT case research teams of post doctoral researchers that research, document and distill best practices.
About Duke CIBER
Duke University's Center for International Business Education and Research http://faculty.fuqua.duke.edu/ciber/site2006/ was established in 1992 by The Fuqua School of Business and has been directed by Professor Arie Y. Lewin since 1995. The Offshoring Research Network (ORN) was conceived as a multi-year initiative focused on understanding the relationship between offshoring and American competitiveness.
There are 31 CIBERs located throughout the United States that are funded by the U.S. Department of Education under Title VI through a competitive bid process. Duke CIBER collaborates with other CIBERs to carry out projects and engages in outreach activities with other centers and departments at Duke as well as other colleges and universities, businesses and communities.
About PricewaterhouseCoopers' Advisory Practice
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Figure 1: Changes in the strategic drivers of offshoring decisions is available at http://media.primezone.com/cache/8105/file/6340.pdf
Figure 2: Financing options in consideration is available at http://media.primezone.com/cache/8105/file/6341.pdf