Offshoring: An Essential Element of Talent Management

If you expect to have a strategic impact in recruiting, you must begin to think and act like a talent manager. Talent management is a broad, business-like approach that expands the traditional role of recruiting into areas that increase the overall productivity of your firm’s workforce. One of the areas of talent management that most HR functions have underutilized is the high-impact strategy of moving hourly and professional-level work overseas, a strategy known as “offshoring.” Offshoring is the continuous process of moving work away from traditional U.S. operations to areas around the world where both high quality and low cost workers are available. There are three basic elements of offshoring:

1. Superstars. Letting the very best individuals work wherever they choose to live.

 

1. Low labor costs. Moving hourly (production and customer service) work to areas with very low labor costs.
2. Professional talent. Moving professional work to locations where the supply of talent more closely fits your demand.

The first two elements are more common practices, while the third element is gaining increasing popularity. This will be the focus of today’s article. “Offshoring is the process of putting a company’s work wherever the most cost-effective talent lives, as opposed to moving the talent to where the company has facilities.”What Is HR’s Role in Offshoring? Since the infrastructure required to power global business has been spreading, getting access to transportation and telecommunications in areas that were once remote is now much easier and cheaper. With the growth of talent pools in such areas, and their relatively low cost of labor, it has become commonplace for businesses to move operations to international locations based purely on global supply-and-demand economics. While most of the initial offshoring efforts involved moving production facilities from areas where skilled labor demands were relatively low to areas that afforded the lowest labor cost, leading-edge firms soon realized that offshoring could even work in roles where moderate and high educational levels are prerequisites for success. Since then, many organizations have taken customer service offshore and are currently evaluating prospects to offshore some professional level work. Instead of focusing on only hourly workers, “professional offshoring” involves moving higher-level work, such as research and development, product development, and even product design to international locations. In the past, senior managers have made these facility movement, or “work movement,” decisions. Only after the decision was made was HR notified about where and when a new international operation must be up and running. But a talent management offshoring strategy differs from the traditional approach, in that HR takes the first step in identifying geographic areas where high quality but low cost talent resides. HR then compares the labor costs and quality of existing operations to the new site and then proactively makes a recommendation to senior managers of the economic benefits of moving operations. By starting the process and by accepting ownership of the process, HR demonstrates that it is an expert in talent management and in increasing the firm’s workforce productivity. This shift in strategy is necessary, because in a fast-moving world labor must be treated like any other business resource, and HR must act like any other business unit would by taking advantage of low cost economic opportunities. In some cases that may mean moving a facility from one domestic location to another, or it might mean offshoring based on factors such as the availability of lower cost labor, lack of union involvement, or flexible labor laws. It is the role of talent managers to identify opportunities and act rapidly to take advantage of economic opportunities related to the supply of high quality, low cost talent. Why Has HR Resisted Offshoring? Many in HR have assumed the role of employee advocate and have attempted to preserve the jobs of existing employees. Thought-leaders call such HR practitioners “protectionists,” in that they seek to protect the status quo. Unfortunately the new economic realities presented by a global workforce, and the demographics of the domestic workforce demand an end to protectionist actions if you and your firm want to survive. Talent managers believe that HR’s loyalty needs to shift so that HR puts increasing shareholder value and maintaining firm sustainability first. HR must realize that its job is to increase workforce productivity and sustainability, and that offshoring is a valuable tool in that quest. Being a business partner means making decisions that give us a competitive advantage in a global business world, and as a result, the placing of jobs must become an economic, not an emotional or political, decision. If you take the shareholder’s perspective, you often believe that currently employed individuals have already received adequate compensation for their efforts, and as a result, any long-term loyalty to them must be weighed against the benefits that arise from moving work to where there is an oversupply of labor. U.S.-based businesses have already learned that in order to survive they must sell their products effectively around the world. So the next logical step is to place more than production or sales facilities around the world. Why Do Offshoring? It’s common for businesspeople to initially think that the best talent exists in their own home country. But once you travel and do business around the world, you come to the realization that many countries have good universities that develop a steady supply of professional talent. You also learn over time that many countries have professional level talent pools that are at least as capable as U.S. talent ó but that are also willing to work for significantly lower relative wages than their U.S. counterparts. If you look at offshoring in the same light as you do outsourcing, you will find some direct similarities. Rather than outsourcing the service to a vendor, you instead directly manage the facility yourself. In both cases, you lower labor costs. But with offshoring, you not only maintain more control, but more importantly, you also get to keep the employees, the best practices, and what you learned during the development process. When talent managers become experts in global labor markets, they learn that frequently when there is a shortage of talent in the U.S., there is a corresponding surplus of talent in other countries. By moving work to these surplus areas, a firm can gain a significant economic advantage over more conservative, U.S.-centric competitors. Some of the benefits of the global placement of work include:

• The same level of work can be completed for as low as 1/40 the U.S. cost.
• International labor laws make real-time staffing more feasible due to relaxed contractor usage and termination policies.
• Professionals from other countries bring different perspectives which can enhance product design.
• The same or similar workers that we regularly bring to the U.S. on visas are willing to work at home for significantly less money.
• The availability of global communications has made many international workers and managers familiar with American-style business and management practices. As a result, these workers can operate effectively under American or American-trained managers.
• The availability of cheap technology and communications allows the work of global workers to be closely monitored from afar.

Where Should the Work Be Placed? Talent managers must be knowledgeable in the factors that lead to successful offshoring. Frequently, the process begins by identifying the countries of origin of the many high-quality professional workers that we bring to the U.S. under visas. Although the entire process is too detailed to cover in this article, some of the key factors that should be used in identifying perspective sites are listed below:

• The cost of professional labor is low and it can be expected to remain low for at least five years.
• The site has a supply of highly educated workers.
• These workers have shown their reliability and the ability to innovate and think outside the box when they came to the U.S. on assignment.
• There are high quality universities in the region.
• The country has favorable labor laws that give management flexibility in pay, hiring, and firing.
• There are few laws restricting managers from rapidly closing the facility should economic conditions change.
• English is a common first or second language.
• There are tax benefits for placing jobs in the region or country.
• Professionals there frequently use technology.
• There is a stable political climate.
• There is available infrastructure.
• There are few other large international firms competing for talent.
• There are a number of retired U.S. professionals residing there.

Hot Sites Some of the countries and regions that appear frequently on offshoring lists include:

• Canada (customer service call centers, software development)
• India (software development, customer service call centers)
• Ireland (software development, customer service call centers)
• China (contract manufacturing)
• Philippines (customer service call centers, data centers)
• Romania (software development)
• Argentina (customer service, new media development)

Conclusion The key to offshoring is to put work where the talent is. This is the same talent management strategy that international firms like Shell, Coca-Cola, Microsoft, IBM, and Intel have used for years. Although a handful of U.S. firms have begun to identify top talent around the world, very few have taken the next step, which is realizing that it is not necessary (and often more expensive) to bring talent to the U.S. in order to take advantage of it. The downside is that talent manager’s must rapidly become experts in acquiring, retaining, and managing talent around the world. The difficulty is multiplied because most individuals in recruiting and HR are not currently knowledgeable in global human resource management. As a result, you will likely have to recruit HR professionals from around the world in order to develop this important capability. The upside is that, in addition to cutting costs in the production and customer service areas, your firm can now cut costs in other critical areas. A side benefit is that the products you develop are not only less expensive, but also more likely to have an increased global selling capability because they were developed by individuals with diverse perspectives.