Having led a successful offshore project of GlaxoSmithKline's transactional procurement activity a few years back, I know a fair bit about what's involved from a technology, process/knowledge transfer, employee training and necessary new management structure needed to ensure a smooth transition. This offshore project was of course to an India-based BPO as was the fad at the time. I've been out of this space for a while but my eruditions were:
1. It takes a huge amount of detailed tactical planning to be successful. I was fortunate to a have Denise Bamford as part of my Global Systems and Operations organization leading the project. She was not only an expert in the transactional procurement space but a really strong project leader as well.
2. It's more costly than one might think. Straight one-to-one labor arbitrage looks attractive. But it doesn't work that way. The BPO's add layers of management to ensure their service offering works and this creates additional cost. There are savings, at least initially, but how long that remains the case is debatable.
3.You have to deal with very high employee turnover rates and accelerated salary inflation. Employee turnover rates of 30-40% were the expectation a couple of years back and this of course helped to accelerate salary inflation as BPO's attempted to stabilize their workforces. These high turnover rates drove higher costs and lower quality of services provided. Think of the upheaval caused in your own businesses if you were dealing with annual employee turnover of 40%.
The US has lost a considerable number of jobs to the "offshore" effort. Many argue it didn't have a detrimental effect on the US economy. I personally disagree as do those displaced from their former employment. I believe there are some good reasons for U.S. businesses to reconsider those off shore decisions and I don't consider myself to be a protectionist.
I have a great business colleague who has become a trusted advisor and friend. His name is Curtis Wynn and he was the first African American CEO of a rural electric cooperative power company (Roanoke Electric Co-Op) when he took the position in Roanoke Rapids, NC. in 1997. Roanoke Rapids has a long history of poverty. It is part of a group of towns and cities along the southeastern coast of the United States that lost most of their manufacturing base decades ago with the change in the textile industry.
Unfortunately, this entire area has a multitude of quality of life indicators that are statistically worse than the national average, including birth mortality rates, lower life expectancy, higher rates of cardio-vascular disease, and nutrition-related diseases such as type 2 diabetes and even rickets. Children fortunate enough to go to college almost always move away. Without a major intervention -- a real and lasting economic stimulus -- things will not change in Roanoke Rapids, or in the other terribly distressed areas along the southeastern seaboard and inland.
Now the great thing about Curtis Wynn is he's a tireless advocate for Roanoke Rapids, which is located in Halifax County. I first met Curtis in 2004 soon after he had purchased and was promoting "Roanoke On-line", a very cost effective solution for businesses to conduct electronic sourcing. More importantly, Curtis has worked diligently to identify and pre-approve minority, small and other disadvantaged businesses especially in the trades and construction categories. His latest effort is to create a "Who's Who" electronic listing of all minority, small and disadvantaged businesses as a way to help get qualified businesses better positioned and visible to Corporations making sourcing decisions. When combined with his company's on-line sourcing capability, he has the ability to quickly locate diverse businesses and get them competing in a fair, ethical and transparent way through online bidding. This is quite an impressive capability coming from such an impoverished area.
But isn't there more that corporations should be doing?
When I led the GlaxoSmithKline off shoring of transactional procurement, it was a company mandate that BPO's located in India would be used. I was concerned at the time about how long there would be real savings coming from off shoring activities in markets undergoing such rapid growth as India. I was even more concerned, also being responsible for GlaxoSmithKline's Supplier Diversity program, about the loss of U.S. jobs. I fully understood the need to save money and I also fully understood the advantages and efficiencies associated with outsourcing. I was so concerned that I asked Curtis Wynn to put together a proposal of what the cost would be to outsource the US portion of GSK's transactional purchasing activities to Roanoke Rapids, NC. You see, they have available infrastructure such as office space and a steady, reliable workforce. They also have access to government monies to stimulate new employment. I guess I wasn't that surprised when Curtis's proposal showed that he was competitive to the offshore BPO provider that was currently "on the table". I was, however, disappointed because I knew I wouldn't be able to change the decision that was underway. This took place in late 2006 and early 2007. Think of how things have changed since then. The rate of salary inflation in India versus the minimal salary inflation (0-2.5%/yr.) in North Carolina and other parts of the U.S. puts “our shore” in an even better position to compete.
I believe a number of things should happen:
1. Corporations need to re-assess the decisions made over the past few years related to business process off shoring.
2. Cities and States need to work harder to identify creative ways to make "on shore" more attractive.
3. The U.S. government needs to clearly identify this as another high profile example of real and lasting economic growth.
It's been reported that around a million jobs have been lost to off shoring over the past decade. When much of this was happening, the experts said "don't worry, the Baby Boomers are leaving the workforce ... they will more than make up for the loss ... the real problem is that we will have a shortage in the labor force." Well I'm long into the "Baby Boomer" generation and I do not see a time in the near future that I'll be able to leave the workforce. Have you noticed how many "older" Americans are still working or looking for work? Yes, many of them like working ... but many have no choice.
Of course the changes in global supply markets and the resulting economic dynamics are important. Of course we need to be a very active participant in global trade. But do we really need to keep off shoring transactional jobs when we can be competitive on "our shore"? Think of the difference it would make towards re-starting our domestic economy if just 50% of those "off shore" jobs came back to "our shore". It's potentially one of the many needed answers to the current economic mess in the U.S.
If anyone would like to continue this discussion, I can be contacted at email@example.com
Full Disclosure: I'm currently working on some potential projects with Curtis Wynn.