US firms look beyond India, China as offshoring surges

US companies are increasingly turning to offshoring their functions to achieve cost savings with small companies looking for new talent clusters beyond India, China and Eastern Europe, according to a new survey.

The number of US companies with a corporate offshoring strategy in place more than doubled from 2005 to 2008, according to the fifth annual report on offshoring trends, published by Duke University in collaboration with the Conference Board, a nonprofit business research organisation Monday.

Speed to market and the domestic shortage of science and engineering talent are two key drivers for offshoring projects, says the annual survey noting very few of these companies plan to relocate activities back to the US.

Last year, more than 50 percent of companies had a corporate offshoring strategy in place, up from 22 percent in 2005. Sixty percent of companies currently offshoring say they have aggressive plans to expand existing activities.

The report also confirms that globalisation of innovation, defined as engineering, research and development (R&D), R&D support functions, product design, and software development, is accelerating.

Small and midsized companies are increasingly sourcing innovation offshore, it said noting many of these companies find it difficult to compete for highly qualified talent domestically.

Small companies are also more adept at identifying and accessing new geographical talent clusters like Brazil, Egypt, Sri Lanka, Russia and other locations outside of China, India and Eastern Europe.

Small companies are sophisticated users of web-based collaboration technologies and prefer specialized small providers.

Now, members of senior management are expressing a growing interest in existing offshoring initiatives and future opportunities in a variety of areas, including engineering, software development, marketing and sales and procurement.

Ton Heijmen, senior advisor for outsourcing and offshoring at The Conference Board, and one of the report's authors, said that companies that have implemented a corporate-wide offshoring strategy often report significantly better performance.

Such companies often have improvements in cost savings, meeting target service levels, improving relations with providers and overcoming internal resistance, he said.

"Outsourcing innovation in engineering, research and development, product and software development, and knowledge processes makes companies, whatever their country of origin, more competitive by increasing speed to market and compensating for domestic talent gaps," Heijmen said.

(Arun Kumar can be contacted at arun.kumar@ians.in)

Last updated on Aug 4^th, 2009 at 14:07 pm IST--IANS