research report
Taking Offshoring to the Next LevelThe 2009 Offshoring Research Network Corporate Client Survey Report
In collaboration with
Duke UniversityOffshoring Research Network
Taking Offshoring to the Next LevelThe 2009 Offshoring Research Network Corporate Client Survey ReportRESEARCH REPORT R-1473-11-RR
by Arie Y. Lewin, Nidthida Perm-Ajchariyawong, and Jeff Russell
contents
3 Executive Summary
5 Results from the 2009 Offshoring Research NetworkCorporate Client Survey
5 Has There Been a Shift away from Captive Operations?
7 The Puzzle of Declining Average Savings
9 Data Security and Internal Resistance Viewed as Increasingly Important Risks
12 New Influences at Work in Offshore Location Decisions
14 The Trickle-Down Effect of Offshoring Strategy
14 The Globalization of Innovation Services Continues
21 Domestic Employment and Global Sourcing
23 Looking Ahead: The Shifting Geography of Offshoring
26 Research Methodology
27 About the Offshoring Research Network (ORN)
28 The Duke Center for International Business Education and Research (CIBER)
29 About the Authors
29 Acknowledgments
The Global Offshoring Research Network (ORN) was establishedat Duke University’s Fuqua School of Business in 2004. ORN is anetwork of research partner universities, scholars, and practitionersthat has become the most recognized international research networktracking the globalization of services over time.
Executive Summary
The Current State of AffairsA change in service-delivery preferences The results
of the 2009 ORN survey indicate that manufacturers and
high-tech/telecommunication companies are less likely to
use captive entities for their initial offshoring ventures
than previous survey respondents from those sectors, and
2009 respondents from those industries are more likely
to use third-party vendors.
Risks influencing offshoring While “service quality” is
just as important for respondents to the 2009 survey as it
was for participants in the 2007/2008 survey, the former
also consider “data security” and “lack of acceptance
from internal clients” to be important offshoring risks.
Drivers differ by sector Financial services and manu-
facturing companies consider “labor cost savings” the
most important driver of their offshoring initiatives, while
retail and consumer goods companies view “organiza-
tional flexibility” as their most important driver.
The presence of providers in new locations areinfluencing offshore location choice Companies are
broadening the range of factors that influence their selection
of an offshore location to include such factors as “location
of the best service provider” and “quality of infrastructure”
(e.g., telecommunications, power, and transportation) at
offshore locations. These considerations are a reflection of
the entrance into the offshoring market of several emerging
economies that can actively compete with more established
destination countries.
Offshoring outcomes In spite of placing a high priority
on cost savings and labor arbitrage, findings from the
2009 ORN survey document that average achieved cost
savings offshore have declined for some functions.
For example, IT services and software development have
experienced consistent declines over the past five years.
On the other hand, average achieved savings have
increased for administrative and innovation services.
The impact of offshoring on domestic markets Survey
participants indicate that the offshoring of administrative
services and contact centers has had the highest impact on
the loss of domestic jobs. The ratios of offshoring employ-
ment to domestic employment for several functions are
much higher in the United States than they are in Europe.
The offshoring expansion will continue Over half of
the survey companies expect to expand their offshoring
initiatives over the next 18–36 months. European com-
panies in particular report aggressive plans to expand their
operations. Conversely, very few companies say they are
going to relocate or transfer existing operations during
the same time period. Both suppliers and providers are
expecting growth to be concentrated in information
technology, software development, and innovation.
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2009 Corporate Client Survey ProfileIn the 2009 corporate client survey, 44 percent of partici-pating companies are from North America, 35 percent fromEurope, 15 percent from Australia, and 6 percent fromother parts of the world (e.g., Asia and South America)(Chart 1). The survey was conducted across a significantrange of industries (Chart 2), allowing for observations oftrends and any heterogeneity of offshoring. (While the surveycovers the offshoring of a number of functions — contactcenters, finance and accounting, human resources, legalservices, procurement, and innovation work — it does notcover offshore outsourcing of manufacturing activities.)In terms of number of employees, the majority of partici-pating companies in the 2009 survey are either large or mid-size companies (Chart 3). For more information on themethodology used in this report, please see page 26.
Chart 1
Survey participants by company headquarters
020 40 60 80
100%
44% 35 15 6
North America Europe Australia Other
Chart 2
Survey participants by industry
0 20 40 60 80 100%
23% 12 12 9
Finance andinsurance OtherSoftware
Manufacturing
9
High techand
telecom
Retail andconsumer
goods
8
Professionaland technical
services
27
Note: Industries in the “other category” include wholesale, health care,
utilities, and oil and gas.
Chart 3
Survey participants by company size
020 40 60 80
100%
47% 32 21
Large(over 20,000employees)
Source: Duke University/The Conference Board
Offshoring Research Network 2009 Survey.
Midsize(500–20,000employees)
Small(under 500employees)
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Has There Been a Shift Awayfrom Captive Operations?The past few years have been a defining period for business.
In response to the global financial crisis, many companies
have had to tighten their belts and enhance their operational
efficiency. A reflection of these concerns may be glimpsed
in companies’ service delivery model preferences. For
example, when results for the launch of new offshoring
projects are cut by industry, there were far fewer captive
launches by manufacturing companies and high-tech and
telecommunications firms in 2007–2009 than during any
previous survey period (Chart 4). In both industries, there
has been some shift toward local providers, although the
high-tech/telecommunications sector is making greater
use of this option than manufacturing companies.
One possible explanation for this phenomenon is the
higher operational risks and costs associated with captive
offshoring. According to follow-up interviews with
participating executives, several companies have found it
extremely challenging to match the same economies of scale
and scope achieved by third-party service providers, who
are able to pull together demand from different clients and
develop synergies that create efficiencies in their operations.
One interviewee noted that, after three years of running a
captive, his company invited vendors to make presentations.
Through these meetings, the company recognized that
providers could offer significant benefits of scale as well
as the opportunity to “share best practices.”1
The turn away from captives may also be influenced
by the size of an organization. Most of the “successful”
captive operations in the ORN database, which includes
shared service centers, belong to large multinational
companies that have large transaction volumes and
international footprints.2
Companies with high transaction volumes can more easily
achieve economies of scale and shorten the payback period
on their captive investment. Nevertheless, as companies
steadily expand the scope of their offshoring, they face the
added challenge of efficiently managing geographically
dispersed units that have complex processes and require
a deep understanding of local cultures. As one executive
from a leading U.S. financial services company noted
in a follow-up interview, “We learned the hard way that
managing captive back office services in Costa Rica is
not our core competence.”
Results from the 2009 Offshoring ResearchNetwork Corporate Client Survey
Chart 4
Preference for service delivery model in initial offshoring: manufacturing and high tech/telecom(by launch year)
Sources: Duke University/The Conference Board Offshoring Research Network 2007/2008 Survey and Duke University/The Conference Board
Offshoring Research Network 2009 Survey.
20
40
60
8056% 52
61
27
3
157
3911
27
4
33
613
45
Pre-2001 2001–
2003
2004–
2006
2007–
2009
0
20
40
60
80
100%
Pre-2001 2001–
2003
2004–
2006
2007–
2009
High tech and telecomManufacturing
Captive
Domestic provider
International provider
Joint venture
Local provider
Other
66%
16
122
2
50
32
18
54
29
58
3
1
47
12
24
6
12
2
Due to rounding, percentages
may not add up to 100 percent.
2 For the purposes of this report, “successful” captive operations are those thathave achieved higher than average cost savings and have taken less time thanaverage to achieve target service levels.
1 The Offshoring Research Network guarantees confidentiality to all participants,which extends to follow-up interviews and roundtable workshops. Written permis-sion is required to mention a specific executive and/or company. The ORN veryrarely receives permission to attribute quotes to individual executives or companies.
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Another factor in the move toward third-party operations
is that the shift is part of a larger strategy. Several survey
companies revealed that they used captive offshoring as
an intermediate step toward full offshore outsourcing.
In particular, captive offshoring helps companies lessen fears
about the loss of managerial control, thereby establishing
a comfort level with offshoring.3 As one survey participant
said in a follow-up interview, the choice of a captive delivery
operation was initially made to “diffuse internal objections
to offshoring.” By starting with a captive, companies are
also able to build up their experience and capabilities.
The case for a shift in service delivery model preference is
supported by a series of major captive spinoffs that have
taken place since 2008 (Table 1). These spinoffs reflect the
priority that some companies have placed on monetizing their
captives. The declining preference for captive operations
may also be influenced by the diminishing effects of labor
arbitrage due to rising wage inflation in several destination
countries (e.g., salary increases in India are projected to be
10.6 percent in 2010).4 Under these conditions, a third-party
provider has much greater flexibility to take actions to keep
costs down (e.g., move operations from India to China).
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Date
April 8, 2008
April 10, 2008
July 10, 2008
October 7, 2008
October 8, 2008
November 3, 2008
November 13, 2008
November 17, 2008
December 23, 2008
July 7, 2009
October 1, 2009
October 15, 2009
March 1, 2010
Buyer
Capgemini
Quatrro
WNS
Nomura Holdings
TCS
Fiserv
Bravura Solution
SCM (Satyam)
Wipro
EXL Service Holdings
MphasiS
Cognizant Technology
Solutions
EXL Service Holdings
Seller
Unilever
RSM McGladrey
Aviva
Lehman Brothers
Citigroup
Compass Bank
Citigroup
Motorola
Citigroup
Schneider National
American International Group
UBS
American Express
Acquired Unit
Financial shared service
centers in Chile and Brazil
Indian accounting unit
Indian outsourcing units
(customer service and BPO)
Operational support
(BPO and IT) in India
Citigroup global services
in India
A data center based
in Texas
Information systems division
in Poland
Malaysian software
development unit
Citi technology services
Schneider logistics
AIG systems solutions (ITO)
in India
UBS India Service Centre
American Express’s Global
Travel Service Center
Size of Deal
Undisclosed
Undisclosed
$230 million
Undisclosed
$505 million
Undisclosed
$31.5 million
Undisclosed
$127 million
Undisclosed
Undisclosed
$75 million
$30 million
Table 1
Captive spinoff examples
3 Howard Gospel and Mari Sako, “The unbundling of corporate functions:the evolution of shared services and outsourcing in human resourcemanagement,” Industrial and Corporate Change, March 2010, pp. 1–30.
4 Source: “Hewitt Associates Salary Increase Study Reveals Double Digit Incrementsfor India Inc.” Hewitt Associates, March 4, 2010 (www.hewittassociates.com/Intl/NA/en-US/AboutHewitt/Newsroom/Press ReleaseDetail.aspx?cid=8198).
Sources: “Capgemini, Unilever Expand Relationship,” Consultingmag.com, April 8, 2008; “RSM McGladrey Sells BPO Unit,” Cpatrendlines.com, April 11, 2008; PP Thimmaya& Boby Kurian, “WNS acquires Aviva BPO for $230 mn,” Economic Times, July 10, 2008; Julia Werdigier, “In Wake of an Asian Deal, Nomura Acquires More LehmanBusinesses,” New York Times, September 23, 2008; “India’s TCS Buys Citigroup,” United Press International, October 9, 2008; Paul Gores, “Fiserv acquires the Data Centerfrom Compass Bank,” Milwaukee Journal Sentinel, November 3, 2008; John Ribeiro, “Satyam Acquires Motorola Development Center in Malaysia,” PCWorld.com, November10, 2008; “Bravura Solutions Expands with Polish Acquisition,” Smart Company (website), November 13, 2008; Paul McDougall, “Troubled Citigroup Sells IT Service’s Arm toIndia’s Wipro,” InformationWeek (website), December 23, 2008; Rupal Patel, “EXL Acquires Schneider Logistics’ Operations In Czech Republic,” Business Standard, July 8,2009; Pankaj Lakhotia, “Mphasis completes acquisition AIG Systems Solution,” Stock Watch, October 1, 2009; John Ribeiro, “Outsourcer Cognizant Acquiring UBS’ IndianSubsidiary,” PC World (website), October 15, 2009; and “EXL acquires AmEx’s travel services captive in India for $30 mn,” Economic Times, November 7, 2009.
The Puzzle of Declining Average SavingsThe effects of a changing business environment can also
be seen in the survey results for cost savings. Despite the
various approaches taken by companies to rein in costs
during the economic downturn, 2009 survey participants
have lower estimations of average achieved cost savings
in several offshoring functions, and especially those that
have been commoditized, than respondents to previous
surveys. Information technology and software develop-
ment offshoring have experienced the largest declines
among all offshoring functions (Chart 5). On the other hand,
survey participants reveal that administrative and innovation
offshoring operations launched during the 2007-2009
period achieved higher cost savings than those launched
during the 2004-2006 period.
Reasons for declining savings:hidden costs and high hopesCase studies and interviews conducted by ORN point to a
number of possible causes for the decline in cost savings.
Companies new to offshoring may not anticipate some
hidden costs, including sending executives to visit potential
providers, training boundary spanners, and establishing
a focal organization offshore (national or regional) to
coordinate a complex network of dispersed units and
functions, not to mention local recruitment, staff retention,
and government and vendor relations. Also, as the scope
of offshoring grows and the number of service providers
and offshore locations increases, the management of
provider selection and oversight becomes much more
complicated, requiring companies to acquire and develop
the organizational competencies needed to manage and
globally coordinate dispersed organizational units.
Another factor behind declining cost savings may be the
types of functions initially outsourced. ORN case studies,
analyses of initial offshoring initiatives, and interviews
with participants at the International Association of
Offshoring Professionals (IAOP) and The Conference
Board conferences reveal that both bottom-up initiatives
and top-down experiments almost always involve well-
documented, highly standardized functions (e.g., outsourcing
of stability studies). These initial implementations almost
always exceed expectations for cost savings.
While it is clear from both previous surveys and the latest
survey results that cost savings will most likely remain a
crucial driver of outsourcing and offshoring, the potential
for cost reduction alone is no longer enough to justify
moving operations. As one participant interviewed after
the survey said, “It has taken us several years to discover
that the impact of labor arbitrage disappears in less than
three years.” Comments from other interviewees and
the survey results strongly suggest that companies are
shifting from cost-driven offshoring to a multidimensional
value proposition for their offshore operations. For
example, the same interviewee pointed to factors other
than cost that drive offshoring, saying, “In Manila we
experience higher inbound call satisfaction scores and
much lower turnover.”
Chart 5
Savings achieved by launch year and function
Source: Duke University/The Conference Board Offshoring Research Network 2009 Survey.
0
0
0
0
40
0
60Pre 2001 2001 – 2003 2004 – 2006 2007 – 2009
34%
37
30
42
20
33 33
25
38
33
2927
35 34
43 42
31
3533
36 37 3735
27
Administrative
services
Contact
centers
Information
technology
Knowledge
services
Innovation Software
development
(average percentage reported)
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As companies continue to expand their offshoring activitiesby increasing scale and/or offshoring more diverse andcomplex functions, some organizations experience a declinein the overall efficiency of their offshoring processes asmeasured by average cost savings across all offshoredfunctions.a Discussions at Duke ORN Financial Servicesand Manufacturing Roundtables reveal that only a handfulof companies have put in place the corporate-wide offshoringstrategies and organizational capabilities that optimizeoffshoring processes and operations.b The over-the-counterdivision of one major pharmaceutical company shifted 105full-time employees working in R&D support functions toseveral providers in India. The immediate effect was asavings of 6 million pounds (or a 54 percent labor arbitragesavings). However, in the second year, when offshoringactivities had their own dedicated budget, “new” costs hadto be accounted for, such as travel to India by both seniorexecutives and staff assigned to various projects offshore,management of relationships with providers, and theestablishment of a coordination office in India. In the caseof one Midwestern manufacturing company, the majorsource of coordination failure was the “sink-or-swim”approach to the assignment of boundary spanners (e.g.,project coordinators). After several coordinators provedineffective in their new positions, the company created aselection and training program for new boundary spanners.
A comparison of the responses of high-experience companiesand low-experience companies reveals that low-experiencecompanies involved in manufacturing and professional/technical services express much greater concern about therisk of “loss of managerial control” than their high-experiencedcounterparts in those sectors (Chart 6).c Loss of managerialcontrol is an indicator of the extent to which companies havedeveloped and implemented the requisite organizationalcapabilities for coordinating and managing their globalsourcing, while also implementing new intellectual propertysafeguards associated with sourcing technological andinnovation work.
Does Experience Matter?
Chart 6
Loss of managerial control:high experience vs. low experience
Finance and
insurance
Manufacturing Professional
and technical
services
Software0000
6667
333
0000
6667
333
0000
53% 55
High experience Low experience
37
58
36
60
2925
Source: Duke University/The Conference Board Offshoring
Research Network 2009 Survey.
Note: Percentages represent combined responses for “important”
and “very important.”
a For another example of this “inefficiency trap,” see Ton Heijman, Arie Y. Lewin,Stephan Manning, NidthidaPerm-Ajchariyawong, and Jeff W. Russell, OffshoringReaches the C-Suite, The Conference Board, Research Report 1445, 2009, p. 26.
b Duke ORN Financial Services and Manufacturing Roundtables are hosted byDuke ORN and its member companies to provide an open opportunity formembers to network and discuss special topics of shared interest.
c “High-experience” companies are defined here as those having a scale andscope of 4 or higher on a scale used to rate all survey participants. A sampleof the scale can be seen in Chart 22 on page 20.
Data Security and Internal ResistanceViewed as Increasingly Important RisksAs companies’ expectations for offshoring change, so do their
perceptions of the risks they face. While “service quality”
retains its top position as the most important offshoring risk
from the 2007/2008 survey, respondents to the 2009 survey
give high ratings to “data security’ and “lack of acceptance
from internal clients” (Chart 7). The rating of the latter
risk is noteworthy because internal resistance was not
even in the top five risk results in the 2007/2008 survey.
In some instances, the lack of internal support has caught
offshoring executives off guard. One follow-up interviewee
said, “We were blindsided by tenacious resistance from
our accounting shared services group.”
What are the causes of this internal opposition to offshoring?
Follow-up interviews with executives reveal that the
perception of risks involving service quality and data
security reflected in the top two risks often fuel resistance
to sending a task offshore, especially to external service
providers. One interviewee contacted after the survey said,
“Internal groups use data security incidents and a recent
quality of service media account as reasons for questioning
offshoring initiatives.” Another interviewee said, “Our CFO
has asked for supporting documents on data security with
our current service provider.”
An additional source of internal resistance can be traced
to captive shared services operations onshore. The use of
captive shared services is often considered an intermediate
step toward offshoring or outsourcing of entire processes.
However, several CFOs indicated in follow-up interviews
with the Offshoring Research Network that the major
resistance to offshoring shared services centers to a
third-party service provider can come directly from the
internal shared services organization. One CFO said,
“[The] creation of [an] internal shared services group,
in retrospect, became the major obstacle to achieving
the next level of cost savings and process optimization.
The resistance to offshoring [by] the shared services
organization was fierce.” Despite these concerns, some
of the interviewees felt that internal anxieties could be
overcome if the provider is seen as competent to handle
the issues. One follow-up interviewee went so far as
to say, “It is all about selecting the right provider.”
Chart 7
Importance of offshoring risks
2007/2008
2009
Sources: Duke University/The Conference Board Offshoring
Research Network 2007/2008 and 2009 Surveys.
0.00 11.25 22.50 33.75 45.00 56.25 67.50 78.75 90
Incompatibility between
IT systems
Industrial relations/
trade unions at home
Increasing difficulty in finding
qualified personnel offshore
Wage inflation
Loss of synergy
across firm activities
High employee turnover
Lack of intellectual
property protection
Lack of acceptance
from customers
Political backlash at home
Political instability
Legal/contractual risks
Cultural differences
Loss of internal capabilities/
process knowledge
Lack of buy-in of offshoring
in corporate culture
Loss of managerial control
Operational efficiency
Lack of acceptance
from internal clients
Data security
Service quality65%
51%
5943
5137
4844
44
43
4334
4336
4032
3627
21
18
1814
4034
3635
3941
2727
2532
21
29
116
—12
Note: Percentages represent combined responses for “important”
and “very important.”
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A look at risks and drivers by industryIf the results for the questions about offshoring risks are
divided by the six specific industry types, only respondents
from finance and insurance companies consider “data
security” a significant threat (Chart 8). Given the importance
of keeping financial records secure and customer information
confidential, this is not a particularly surprising result. As for
the other industries, data security is an important concern
for less than half of the companies, and less than one-third of
software company respondents consider it a significant threat.
10 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Chart 8
Offshoring risks by industry
0.00 13.75 27.50 41.25 55.00 68.75 82.50 96.25 110.000.00 13.75 27.50 41.25 55.00 68.75 82.50 96.25 110.00
Industrial relations/
trade unions at home
Political backlash at home
Political instability
Increasing difficulty in finding
qualified personnel offshore
Loss of synergy
across firm activities
Wage inflation
Legal/contractual risks
Lack of intellectual
property protection
Lack of buy-in of offshoring
in corporate culture
Cultural differences
Lack of acceptance
from customers
Loss of internal capabilities/
process knowledge
High employee turnover
Loss of managerial control
Lack of acceptance
from internal clients
Operational efficiency
Data security
Service quality
0.00 13.75 27.50 41.25 55.00 68.75 82.50 96.25 110.000.00 13.75 27.50 41.25 55.00 68.75 82.50 96.20.00 13.75 27.5
42
70%
72
49
51
45
42
44
44
37
39
38
42
34
31
18
27
24
7
56%
47
47
46
44
42
38
43
50
42
24
22
37
24
30
22
26
25
54%
43
52
42
44
47
48
40
47
43
43
38
34
36
33
26
20
9
53%
36
42
42
42
33
38
43
32
29
25
25
25
32
28
13
16
8
35%
33
34
30
34
17
31
33
28
20
35
25
13
22
32
7
12
8
46%
31
36
34
33
42
29
26
26
30
28
16
25
18
26
14
10
1
Finance andinsurance High tech Manufacturing
Professionaland technical
services
Retail andconsumer
goods Software
Sources: Duke University/Archstone Consulting Offshoring Research Network 2005 U.S. Survey, Duke University/Booz Allen Hamilton
Offshoring Research Network 2006 Survey, Duke University/The Conference Board Offshoring Research Network 2007/2008 Survey,
and Duke University/The Conference Board Offshoring Research Network 2009 Survey.
Note: Percentages represent combined responses for “important” and “very important.”
In the industry segmentation of the drivers of offshoring,
“labor cost savings” is the number one driver for every
industry except retail and consumer goods, where the
category has the second-highest score. Instead of costs,
respondents from the retail industry consider “increase
organizational flexibility” their number one driver, and
this category is ranked second or third in most of the other
industry categories. The only exception is in the high-tech
sector, which considers offshoring as “part of a larger
global strategy” a more important concern.
As for the other categories, the comparison reveals
two industry-specific concerns of note:
Access to new markets This is primarily a concern for
manufacturing and retail/consumer goods companies.
Improved service levels Over half of the respondents
from the high-tech sector consider this an important
driver, while less than half of the respondents in the
other categories see this as a major consideration.
Chart 9
Offshoring drivers by industry
Enhance capacity
for innovation
Increase organi-
zational flexibility
Exploit location-
specific advantages
Domestic shortage of
qualified personnel
Part of a larger
global strategy
Increasing speed
to market
Access to
new markets
Accepted industry
practice
Competitive
pressure
Improved
service levels
Access to qual-
ified personnel
Growth strategy
Other cost savings
Labor cost savings
Business process
redesign
42
57%
92
74
56
67
43
56
44
16
42
55
31
39
70
48
48%
84
68
69
65
61
54
35
24
36
70
28
45
53
35
56%
78
70
69
61
44
64
36
41
50
68
21
44
77
48
43%
82
66
64
55
40
60
44
25
43
58
32
37
70
44
71%
78
74
74
53
40
56
35
33
58
67
29
40
85
80
31%
86
56
62
63
28
50
30
22
50
46
44
36
64
50
Finance andinsurance High tech Manufacturing
Professionaland technical
services
Retail andconsumer
goods Software
Sources: Duke University/Archstone Consulting Offshoring Research Network 2005 U.S. Survey, Duke University/Booz Allen Hamilton
Offshoring Research Network 2006 Survey, Duke University/The Conference Board Offshoring Research Network 2007/2008 Survey,
and Duke University/The Conference Board Offshoring Research Network 2009 Survey.
Note: Percentages represent combined responses for “important” and “very important.”
11 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
New Influences at Work inOffshore Location DecisionsWhile the right provider is definitely important, companies
also want to find the right location. When asked which
factors they considered “important” or “very important”
in considering offshore destinations, 49 percent of the
respondents in the 2009 survey indicate the “location
of the best service provider.” In the 2007/2008 survey,
only 36 percent of the respondents viewed this category
as important (Chart 10). As for the top location considera-
tions, 2009 survey respondents choose the same factors—
“low cost of labor” and “talent pool available”—that
respondents did in the 2007/2008 survey.
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Chart 10
Offshoring location factors by survey year
2007/2008
2009
Sources: Duke University/The Conference Board Offshoring Research Network
2007/2008 Survey and Duke University/The Conference Board Offshoring
Research Network 2009 Survey.
75%
68%
65
63
64
62
55
45
52
55
49
36
46
33
34
32
33
35
31
23
25
29
21
35
21
22
19
16
16
33
14
17
0.0 12.5 25.0 37.5 50.0 62.5 75.0 87.5 1
Collocating with existing
manufacturing plant offshore
Supporting existing
customers locally
Government incentives
Avoiding “hot spots”
Access to local market
Collocating with existing
BP facility offshore
Geographical proximity
Cultural proximity
Political stability
in host country
Quality of infrastructure
Location of the
best service provider
Low costs
(besides labor costs)
Matches language
requirements
High level of expertise
Talent pool available
Low cost of labor
Note: Percentages represent combined responses for “important”
and “very important.”
Chart 11
Service provider perspective:reasons why clients outsource
70
87%
73
74
Accessing new markets
for products and services
Accepted industry practice
Domestic shortage of
qualified personnel
Enhance capacity
for innovation
Part of a larger
global strategy
Exploit location-
specific advantages
Increasing speed to market
Increase organi-
zational flexibility
Need to improve
service levels
Growth strategy
Competitive pressure
Enhancing efficiency through
business process redesign
Access to qualified
personnel offshore
Other cost savings
Labor cost savings
65
62
60
59
57
55
54
51
47
42
41
Sources: Duke University/The Conference Board Offshoring Research Network
2007/2008 Survey and Duke University/The Conference Board Offshoring Research
Network 2009 Survey.
Note: Percentages represent combined responses for “important”
and “very important.”
Chart 12
Service provider perspective: important risksassociated with service offering
38
53%
45
45
Cultural conflicts with clients
Other
Transparency of charges
Need to make client-
specific investments
Penalties specified in contract
Proprietary information
held back by clients
Threat of new competitor
from another country
High employee turnover
Wage inflation
Client inability to
manage relationship
Competitors poaching clients
Availability of personnel
with management skills
Achieving expected cost savings
Increased difficulty in
finding qualified personnel
Currency fluctuation on dollar
denominated contracts
Satisfying quality expectations
Retaining talent
Pressure on margin
37
33
31
29
27
27
26
26
20
19
18
13
13
11
Sources: Duke University/The Conference Board Offshoring Research Network
2007/2008 Survey and Duke University/The Conference Board Offshoring Research
Network 2009 Survey.
Note: Percentages represent combined responses for “important”
and “very important.”
According to the results of the 2009 ORN Service Providersurvey, “cost savings” — both for labor and other expenses —and “access to qualified personnel” are, from the serviceprovider perspective, the top motivators of clients’ decisionsto offshore (Chart 11).
As for the risks in their own operating environment, 53 percentlist “pressure on margin,” making it the highest ranked challenge(Chart 12). In what is surely a reflection of the tough economicconditions of 2008 and 2009, the second and third mostimportant challenges are “retaining talent” and “satisfyingquality expectations.”
The View from the Other Side: Results from the Service Provider Survey
Source: Arie Y. Lewin, Nidthida Perm-Ajchariyawong, Derek Sappenfield, and Charles Aird, Is the Global Outsourcing Industry in for a No-Holds-Barred Competition?PricewaterhouseCoopers, 2009.
13 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
The Trickle-Down Effectof Offshoring StrategyMany companies, as noted previously, initiate their off-
shoring efforts with highly standardized, well-documented,
labor-intensive functions that yield spectacular savings
and create overly optimistic anticipations for future savings.
Companies that seek to achieve significant savings over
the long term should adopt a corporate-wide offshoring
strategy to guide their decisions at the business unit and
functional levels. The adoption of such a strategy not only
legitimizes offshoring initiatives, but also provides guidance
for the development of an offshoring operational plan
or a provider-selection model, reinforces the importance
of on-site visits to offshore locations, helps draft the
core elements of a master service agreement, assists in
obtaining crucial internal buy-in, and plays a role in
the establishment and staffing of corporate offshoring
resource centers. In addition, if these organizational
capabilities are already in place, an individual process
owner can focus primarily on transferring the process and
specifying appropriate metrics without the daunting tasks
of negotiating a contract, agreeing on labor and telephony
rates, and the many other details that need to be negotiated
in the absence of a strategy.
In Offshoring Reaches the C-Suite, the report based on
the ORN 2007/2008 survey, 53 percent of the respondents
said they had adopted a corporate-wide strategy for guiding
offshoring and outsourcing decisions at the business unit and
functional levels, up from 22 percent in the 2005 survey.5
In the 2009 survey, 59 percent of the respondents indicate
they have such a strategy. Moreover, 54 percent of companies
with such a strategy in the 2009 survey say the service quality
of their operations either “exceeded” or “far exceeded” their
expectations, while only 35 percent of those without a
strategy report the same level of satisfaction (Chart 13).
Also, based on the offshoring outcomes reported by ORN
participants, companies with an offshoring strategy report
average achieved cost savings of 34 percent, compared
with 26 percent average achieved cost savings for com-
panies without an offshoring strategy.
The Globalization of InnovationServices ContinuesIn the early days of offshoring, much of the growth came
from the huge volume of administrative transactions.
(For the purposes of the offshoring survey, “administrative
services” refer to back-office activities—finance and
accounting, human resources, procurement—that have
often been viewed as peripheral to core competencies.)
As a result, these functions have often been sourced from
specialized service providers who can perform the task
more efficiently and at a lower cost. During the past few
years, however, companies have started to seek global
sourcing for their innovation services (product design,
research and development, and engineering services).6
In the 2009 survey, 32 percent of the surveyed companies
indicate they offshore at least one administrative activity
(Chart 14). This is a surprising development because these
services were once viewed as critical competencies that
had to be kept in-house (see Chart 26 on page 23).
14 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Chart 13
Achieved service quality for companieswith and without a corporate strategy
With strategy
Without strategy
Sources: Duke University/The Conference Board Offshoring Research
Network 2007/2008 Survey and Duke University/The Conference Board
Offshoring Research Network 2009 Survey.
8%11%
2743
58
41
7
4
0
1
0 14 28 42 56 70
Far below
expectations
Below
expectations
Meets expectations
Exceeds
expectations
Far exceeds
expectations
5 Ton Heijman, Arie Y. Lewin, Stephan Manning, NidthidaPerm-Ajchariyawong,and Jeff W. Russell, Offshoring Reaches the C-Suite, The Conference Board,Research Report 1445, 2009, p. 6.
6 Production design services include prototype design, systems design, andapplication development. Research and development services includeresearch on new materials and processes, code development, and researchand development of new technologies. Engineering services include designautomation, tool design, simulating, drafting and modeling, engineeringanalysis (e.g., finite element analysis), embedded systems development,reengineering, and technical publications.
Chart 14
Company participation in offshoring functions
Source: Duke University/The Conference Board Offshoring Research
Network 2009 Survey.
40
54%
32
35
0 14 28 42 56 70
Legal services
Other functions
Marketing & sales
Knowledge &
analytical services
Innovation services
Contact center
Software development
IT infrastructure
Administrative services
30
7
11
52
16
While a desire for basic cost savings similar to those
received when administrative services were offshored
may have spurred the rapid growth of innovation services
offshoring, results from both the 2009 client provider
surveys reveal different motivations. When making a
decision to offshore administrative services, companies
are clearly looking for “cost savings” and “business process
redesign” (Chart 15). The offshoring of innovation services,
however, is driven more by concerns about the need
to “enhance capacity for innovation” and increase
“organizational flexibility” and “speed to market.”
The continuous development of new products and services
in a short time frame is critical to companies whose products
or services heavily rely on technology and innovation. In
terms of offshoring concerns, both sets of respondents select
“data security,” “service quality,” and “lack of acceptance
from internal clients” as their top three risks (Chart 16).
Offshorers of innovation services, however, are much more
concerned about “legal/contractual risks” and a “lack of
intellectual property protection” in offshore destinations.
0 15 30 45 60 75 90 105
Domestic shortage of
qualified personnel
Accepted industry practice
Business process redesign
Improved service levels
Access to new markets
Competitive pressure
Part of a larger
global strategy
Exploit location-
specific advantages
Labor cost savings
Other cost savings
Access to qualified personnel
Growth strategy
Increasing speed to market
Increase organi-
zational flexibility
Enhance capacity
for innovation
Chart 15
Drivers associated with the offshoring of innovation and administrative services
Innovation
Administrative services
31%83%
5978
1574
5274
5570
6369
87
67
3362
5852
3552
950
6533
Source: Duke University/The Conference Board Offshoring Research
Network 2009 Survey.
46
23
3810
3738
0 15 30 45 60 75 90 105
Political backlash at home
Industrial relations/
trade unions at home
Wage inflation
Political instability
Increasing difficulty in finding
qualified personnel ofshore
Operational efficiency
High employee turnover
Lack of acceptance
from customers
Loss of synergy across
firm activities
Lack of intellectual
property protection
Cultural differences
Loss of managerial control
Lack of buy-in of offshoring
in corporate culture
Loss of internal capabilities/
process knowledge
Legal/contractual risks
Lack of acceptance
from internal clients
Service quality
Data security
Chart 16
Risks associated with the offshoring of innovation and administrative services
Innovation
Administrative services
61%67%
7859
5759
2758
5158
4256
49
56
2956
2450
3448
3044
4041
Source: Duke University/The Conference Board Offshoring Research
Network 2009 Survey.
42
41
3320
2815
2026
1913
1511
15 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
The race for innovation talentChart 17 shows that factors related to the availability of
skill and talent are of great importance when companies
consider where to offshore their innovation services.
Finding a location with a “high level of expertise” is a
greater determinant for companies seeking to offshore
innovation services (87 percent) than it is for those who
offshore administrative services (64 percent). An even
wider gap is present in the responses for the influence
of the “location of the best service provider” (69 percent
for the innovation offshorers versus 32 percent for the
administrative service offshorers).
The emphasis on talent of those offshoring innovation
services may be a reflection of the growing shortage of
science and engineering workers in the United States.
From 1995 to 2003, for example, the United States
experienced a slow but steady decline in the number of
U.S. nationals earning master’s degrees in engineering.7
The lack of workers with higher degrees was exacerbated
in 2003 when the U.S. Congress reduced the quota for the
H1B visa, which is for workers engaged in “specialty
occupations” that require expertise and/or an advanced
degree, from 195,000 to 65,000 (Chart 18).
16 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
0 15 30 45 60 75 90 105
Cultural proximity
Government incentives
Low costs
(besides labor costs)
Avoiding “hot spots”
Political stability
in host country
Low cost of labor
Collocating with existing
BP facility offshore
Supporting existing
customers locally
Matches language
requirements
Access to local market
Collocating with existing
manufacturing plant offshore
Geographical proximity
Quality of infrastructure
Location of the best
service provider
Talent pool available
High level of expertise
Chart 17
Factors underlying location choicesfor the offshoring of innovation andadministrative services
Innovation
Administrative services
64%87%
6275
3269
5160
4150
947
1444
57
44
11
44
3540
Source: Duke University/The Conference Board Offshoring Research
Network 2009 Survey.
7839
3830
3822
3149
1930
1338
Chart 18
Shortage of science and engineering talent inthe United States and change in H1B visa policy
Source: Arie Y. Lewin, Silvia Massini, and Carine Peeters, “Why Are
Companies Offshoring Innovation? The Emerging Global Race for Talent?”
Journal of International Business Studies, Vol. 40, 2009, pp. 901–925.
0
50,000
100,000
150,000
200,000
6
8
10
$12
1990 1992 1994 1996 1998 2000 2002 2004 2006
H1B capScience andengineering
graduates
GDP [right scale, in $ trillions]
Data on master’s and PhD degrees in sciences and engineering comes
from the U.S. National Science Foundation. Data for H1B visa quotas are
from the U.S. Citizenship and Immigration Services.
7 See Science and Engineering Indicators 2010, National Science Board and theU.S. National Science Foundation, 2010 (www.nsf.gov/statistics/seind/start.htm).
If the results of the various ORN surveys are divided into
the period prior to 2003 and the period after 2003, there
is a significant difference in the responses of innovation
offshorers about the importance of the “domestic shortage
of qualified personnel” and the need to “gain access to
qualified personnel offshore” (Chart 19).
The rapid emergence of specialist service providers across
the world, especially in countries with an excess of skilled
and educated workers, has allowed companies to globally
source science and engineering workers to support their
domestic operations (Exhibit 1). Additionally, structural
changes in the labor market for science and engineering
professionals are influencing the decisions of individuals
to select careers in these fields. Empirical studies have
identified several trends that have long-term implications
for U.S. nationals entering science and engineering careers.
For example, many technical professionals have been
separating from organized employment for quite some time,
and by 2004, very few companies had workers involved
in encryption, data mining, network security, animation,
and gaming on their payrolls.8 This exodus of science and
technical workers is related to the larger trend of companies
increasingly using a “contingent workforce” rather than full-
time employees.9 In addition to changing the makeup of their
employee population, many companies are also diversifying
the geographic location of where their engineering and
scientific work is performed. These changes are being made
to access new markets (e.g., China and India) or to engage
the best talent from around the world for R&D and thereby
speed up the product development process. These trends
are growing at a time when unemployment rates in several
engineering subfields reached historical highs due to the
recession, although there are already signs of recovery.10
Chart 19
Availability of talent and skilled personnelhas become a critical issue for innovationwork among U.S. companies
Sources: Duke University/Archstone Consulting Offshoring Research
Network 2005 U.S. Survey, Duke University/Booz Allen Hamilton
Offshoring Research Network 2006 Survey, Duke University/
The Conference Board Offshoring Research Network 2007/2008
Survey, and Duke University/The Conference Board Offshoring
Research Network 2009 Survey.
Domestic shortage ofqualified personnel
Access to qualifiedpersonnel offshore
41%
30
73 69
31
44
88
62
50
6
78
47
Before 2003 After 2003
Overall
Innovation offshorers
Domestic shortage ofqualified personnel
Access to qualifiedpersonnel offshore
Administrative offshorers
Domestic shortage ofqualified personnel
Access to qualifiedpersonnel offshore
Note: “Before 2003” refers to the rationales survey participants provided
for offshoring implementations that were launched prior to 2003.
“After 2003” refers to rationales offered for offshoring implementations
that occurred after 2003.
Sources: Duke University Offshoring Research Network 2007/2008 Service Provider Survey
and Duke University Offshoring Research Network 2009 Service Provider Survey.
Exhibit 1
Distribution of service providers by HQ region
LatinAmerica
6%
WesternEurope
19%
EasternEurope
10%
Africa2%
India16%
China7%
Other Asia andAustralia
10%
NorthAmerica
30%
8 For more detail, see James A. Evans, Gideon Kunda, and Stephen R. Barley,“Beach Time, Bridge Time, and Billable Hours: The Temporal Structure of TechnicalContracting,” Administrative Science Quarterly, Vol. 49, No. 1, 2004, pp. 1–38.
9 For more detail, see Steven R. Barley and Gideon Kunda, “Contracting: A NewForm of Professional Practice,” Academy of Management Perspectives, Vol. 20,No. 1, 2006, pp. 45–66; and Howard Muson, “Treating Contingent Workers asa Strategic Resource,” The Conference Board, Executive Action 333, 2010.
17 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
10 Sources: Staffing industry analysts and U.S. Bureau of Labor Statistics; BartonReppert, “Employment Data Gives Cause for Optimism about EngineeringRebound,” IEEE-USA Today's Engineer Online, May 2010 (www.todaysengineer.org/2010/May/employment.asp).
In addition to the emergence of the contingent workforce,
companies now have access to new technologies that can
help them locate talent and expertise from around the world.
InnoCentive, to cite one example, is an open innovation
marketplace that connects companies, academic institutions,
and public sector institutions with a global network of
experts in a variety of domains. “Seeker” companies post
their research or engineering challenges on the InnoCentive
website. Each challenge carries a modest financial reward
for the individual or group who solves the puzzle first.
Companies that have used this platform have discovered that
the country of origin of the solvers spans the world, with the
many solutions coming from India, China, and Russia.11
Prior studies provide strong evidence that the ability to
invest in the improvement and expansion of the talent pool
is a critical component of the success of Asian countries
in attracting innovation offshoring.12 In China, both the
Ministry of Education and the Ministry of Commerce have
developed policies with the objective “of training 1.2 million
people in five years and creating one million new employ-
ment opportunities for college graduates.”13 Chart 20
compares the number of graduates with bachelor degrees
in engineering and computer science in the United States,
India, and China. While the results for China may appear
impressive, the focus on additional educational programs
for potential employees in the outsourcing services sector
may be a reflection of the unemployability of recent grad-
uates from Chinese universities and technical institutes.14
A 2006 survey of division representatives from U.S.-based
companies involved in engineering offshoring found that
46 percent of respondents said there was a “limited supply”
of well-qualified engineering candidates in China. When
asked to choose among reasons that Chinese engineers
failed to meet their needs, a “lack of communication skills”
received the highest rating.15 Nevertheless, the number
of individuals being trained and the ability of the Chinese
government to invest in science and engineering programs
have the potential to help make China an important location
for innovation work.
18 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Chart 20
Comparison of average number ofengineering and computer sciencebachelor graduates over time
1996 – 2000
India
United States
China
2000 – 2004
2004 – 2008
69,900
108,450
201,130
123,600
128,719
316,397
196,100
127,379
607,802
Sources: China Data: Ministry of Education of The People’s Republic
of China; United States: National Center for Education Statistics;
India Data: All India Council for Technical Education (AICTE).
11 Dwayne Spradlin, “The InnoCentive Top 10 Solver Countries,” Perspectives onInnovation (blog), March 2, 2009 (blog.innocentive.com/2009/03/02/the-innocentive-top-10-solver-countries).
12 See, for example, Dieter Ernst, Innovation Offshoring: Asia’s Emerging Role inGlobal Innovation Networks, East-West Center, Special Report 10, 2006.
13 See China Outsourcing Market Research 2009, Accenture and the ChinaCouncil of International Investment Promotion, 2010, p. 58. The report isavailable online (www.accenture.com/NR/rdonlyres/5039C2E8-1E5B-4916-A018-1D79E2B22623/0/252Accenture_China_Outsourcing_Market_Research.pdf).
14 China Outsourcing Market Research 2009, p. 59.
15 See Vivek Wadhwa, Ben Rissing, and Gary Gereffi, “Industry Trends inEngineering Offshoring,” Working Paper, 2006, p. 11 (papers.ssrn.com/sol3/ papers.cfm?abstract_id=1015839).
At the same time, many developing countries are encourag-
ing expatriate citizens with science and engineering degrees
to return home. Some of these countries have created
national policies and incentives, such as tax benefits and
guaranteed employment, to encourage these citizens to
repatriate. (See Exhibit 2 for examples of programs to
encourage the repatriation or social contributions of
skilled talent.)
A number of ORN case studies reveal that multinational
companies have also become involved in projects to
encourage the education of scientists and engineers in the
developing countries where they have offshore operations.
Six Fortune 500 companies have joined with Indian com-
panies to form “value-added innovation partnerships,”
which are R&D projects that are sponsored by U.S. or
European companies but executed in India. Other companies
are establishing their own academies to train graduates
below a certain educational level in the special skills the
companies need. For example, a multinational company
may enter into a joint venture with local engineering poly-
technic schools to develop engineering tracks for certain
technical specialties (e.g., electro-technical engineering,
material science, tire innovation). Those who pass certifi-
cation tests at the end of the training period are offered jobs.
The ORN has documented such arrangements in Brazil,
China, and Hungary.
Weighing the pros and cons of Chinaand IndiaChart 21 on page 20 offers a comparison of the location
motivations of those who offshore innovation services to
India and those who offshore them to China. The majority
of companies that offshore their innovation services to
India indicate that their decision is driven primarily by
the “talent pool available” and the “low cost of labor.”
Companies that source innovation services from China
place a greater importance on gaining “access to [the]
local market” than companies that source the same
services from India.
Several U.S. manufacturing companies are finding new
uses for factories in China that were initially established
to produce components to ship back to United States.
In one ORN case study, a large Midwestern diversified
manufacturer collocated an engineering group to a factory
in China to perform “low-level” work (e.g., specification
changes, three-dimensional designs), thereby freeing
engineers in the United States for higher-level work.
However, the Chinese engineers turned out to be very
experienced and were even able to design a product
specifically for the Chinese market. This experience helped
the company realize the importance of allowing new ideas
to emerge from engineering groups around the world.
Sources: Or Kashti, “Cabinet approves NIS 1.3b plan to reverse Israeli brain drain,” Haaretz, March 14, 2010 (www.haaretz.com/news/cabinet-approves-nis-1-3b-plan-to-
reverse-israeli-brain-drain-1.264731); The Development Marketplace for African Diaspora in Europe website (www.dmade.org); Tenth Malaysia Plan website (www.epu.gov.my/
html/themes/epu/html/RMKE10/rmke10_english.html); Myungsoo Park, “From Brain Drain to Brain Gain: Korea Diaspora Network,” APEC Science and Technology Network,
February 25, 2010 (astn.stepi.re.kr/art/2010/LectureNotes/From%20Brain%20Drain%20to%20Brain%20Circulation%28Korea%20Diaspora%20Network%29.pdf).
Exhibit 2
Examples of programs to encourage the contributions of expatriate talent
Mexico3x1 Program for migrants
provides matching funds
to support social projects
in Mexico AfricaGlobal networks of scholars (e.g.,
the Development Marketplace for
African Diaspora in Europe) mobilize
African scientists living abroad
to help their home countries
IsraelGovernment invests
1.3 billion shekels
to attract scientists
back home
MalaysiaAs part of the Tenth Malaysia
economic plan, the government
is reaching out to the Malaysian
diaspora for ideas and capital
South KoreaStarting in the 1960s,
programs have been created
to reverse the “brain drain”
of Korean scientists
19 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
In a similar manner, another ORN case study company
discovered the importance of having the right to direct
provider employees independent of provider management.
This second company now routinely implements its own
management philosophy and processes inside their providers.
One manager at the company says, “Once I was able to
directly evaluate, motivate, and reward provider staffs,
quality of service and attrition rates improved dramatically.”
Companies in other sectors that break their innovation
activities down into ever-smaller and specific tasks and
distribute them among geographically dispersed providers
can face complex coordination issues and, not surprisingly,
declining efficiency. As shown in Chart 22, diseconomies of
scale and scope seem to be worse for innovation offshoring
than they are for administrative work. This may be due
to innovation offshoring requiring new managerial and
organizational capabilities that substitute top-down control
for self-organizing processes that are guided by shared mind
sets, specific outcomes and milestones, and the flexibility
to continually fine tune the project’s direction.16
20 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Chart 21
India or China: criteria for selectinga location for innovation offshoring
India
China
Sources: Duke University/Archstone Consulting Offshoring Research Network
2005 U.S. Survey, Duke University/Booz Allen Hamilton Offshoring Research
Network 2006 Survey, Duke University/The Conference Board Offshoring Research
Network 2007/2008 Survey, and Duke University/The Conference Board Offshoring
Research Network 2009 Survey.
67%
80%
86
79
67
79
73
59
19
52
21
36
32
27
38
26
11
26
40
23
61
20
25
20
26
19
32
19
30
17
37
17
0.0 12.5 25.0 37.5 50.0 62.5 75.0 87.5 10
Supporting existing
customers locally
Avoiding hot spots
Government incentives
Geographical proximity
Cultural proximity
Access to local market
Collocating with existing
manufacturing plant offshore
Political stability
in host country
Collocating with
existing facility offshore
Quality of infrastructure
Location of the best
service provider
Matches language
requirements
Low costs
(besides labor costs)
High level of expertise
Low cost of labor
Talent pool available
Sources: Duke University/Archstone Consulting Offshoring Research Network
2005 U.S. Survey, Duke University/Booz Allen Hamilton Offshoring Research
Network 2006 Survey, Duke University/The Conference Board Offshoring
Research Network 2007/2008 Survey, and Duke University/The Conference
Board Offshoring Research Network 2009 Survey.
0
10
20
30
40%
9 or
higher
87654321
Knowledge/innovation offshoring
Administrative
Ach
ieve
d c
ost
savi
ngs
Scale and scope
Chart 22
What is the source of managerial inefficiencyin innovation offshoring?
16 For a discussion of the organizational capabilities needed for effectivemanagement of offshoring operations, see Heijman, Lewin, Manning, Perm-Ajchariyawong, and Russell, Offshoring Reaches the C-Suite, pp. 24–26.
Despite the fact that offshoring has been a business reality
for decades, there is little agreement or data about the effects
of offshoring on domestic employment. When participants
in the ORN survey were asked to estimate the impact of
offshoring on their domestic employment, participants
indicated that over half of their offshoring efforts had not
made a change in the number of domestic jobs in most
functions (Chart 23). The two exceptions to this result—
administrative services and contact center operations—
are the most labor-intensive activities. The innovation
services category, on the other hand, has the highest
“no change” score (68 percent). This finding would seem
to reinforce the hypothesis that innovation offshoring
is not driven by labor arbitrage or cost cutting but by
a need to respond to a domestic shortage of talent.
Table 2 compares differences in the effects of offshoring
on domestic employment across industries through the
use of ratios of offshore employment relative to domestic
employment.17 The overall ratios are below 11 percent,
with the highest ratios in financial services (approximately
10 jobs offshored per 100 domestic jobs) and the software
industry (almost 8 jobs offshored per 100 domestic jobs).
If the results are broken down by the location of a company’s
headquarters, U.S. companies have a much higher ratio of
offshore to domestic employment in these industries than
European companies. The finding that the U.S. software
sector has the highest ratio—almost 13 offshoring jobs
per 100 domestic jobs—may be another reflection of the
scarcity of domestic science and engineering graduates
in United States.
Chart 23
Estimates of offshoring’s impact on domesticjobs by function (percentage of implementations
leading to indicated result)
Sources: Duke University/Archstone Consulting Offshoring Research Network
2005 U.S. Survey, Duke University/Booz Allen Hamilton Offshoring Research
Network 2006 Survey, Duke University/The Conference Board Offshoring
Research Network 2007/2008 Survey, and Duke University/The Conference
Board Offshoring Research Network 2009 Survey.
0 100%
45 49 6
Administrative
47 39 13
Contact center
58 34 8
IT
55 14 31
Marketing and sales
68% 22% 10%
Innovation
63 23 14
Procurement
55 35 10
Software development
No change Decreased Increased
Note: Due to rounding, percentages may not add up to 100 percent.
Table 2
Ratio of offshoring employment to domestic employment(estimated from ORN sample)
United EuropeanOverall States Union
Finance & insurance 10.16% 11.64% 3.28%
High tech & telecom 2.17 2.23 2.01
Manufacturing 1.08 1.00 1.19
Professional & technical services 6.13 5.73 5.63
Retail & consumer goods 0.76 0.36 3.96
Software 7.55 12.93 1.76
Sources: Duke University/Archstone Consulting Offshoring Research Network2005 U.S. Survey, Duke University/Booz Allen Hamilton Offshoring ResearchNetwork 2006 Survey, Duke University/The Conference Board OffshoringResearch Network 2007/2008 Survey, and Duke University/The ConferenceBoard Offshoring Research Network 2009 Survey.
Domestic Employment and Global Sourcing
17 The offshore-to-domestic-employment ratio is the total number of offshoreemployees divided by the total number of domestic employees reported byrespondent companies by headquarter region (i.e., the United States andEurope). However, to account for the fact that the ORN database captures onlypart of overall population of companies engaged in offshoring, weight-adjustedfactors are applied to the original ratio to obtain the adjusted ratio of offshoreto domestic employment shown in Table 2.
21 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
While the impact of offshoring on domestic employment
may be due to a number of factors (e.g., the institutional,
social, and political environment), it may also be influenced
by the presence or absence of an offshoring strategy in
a respondent’s company. In the results for the question
on the overall impact of their offshoring on domestic
employment, the responses in the “no change” category
are similar for both respondents from companies with a
strategy (58 percent) and those from companies without
(56 percent). In the “decreased” category, however,
strategy companies say that 28 percent of their offshoring
implementations have reduced domestic employment,
compared to 44 percent of those without an offshoring
strategy (Chart 24). This may provide support for the
argument that a corporate offshoring strategy can help
companies focus on a broad range of strategic issues
beyond cost reduction and consider ways to minimize the
impact of offshoring on their domestic employees.
22 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Table 3
Offshoring outcomes by industry
Chart 24
Effect of offshoring on domestic jobs by strategy(percentage of implementations leading to indicated result)
Sources: Duke University/Archstone Consulting Offshoring Research
Network 2005 U.S. Survey, Duke University/Booz Allen Hamilton
Offshoring Research Network 2006 Survey, Duke University/
The Conference Board Offshoring Research Network 2007/2008
Survey, and Duke University/The Conference Board Offshoring
Research Network 2009 Survey.
58%
With strategy Without strategy
56
28
44
14
0
No change Decreased Increased
A comparison of responses to the offshoring outcome questionreveals that finance companies’ offshoring outcomes lag behindthe other five industries in some important areas (Table 3).In particular, finance and insurance respondents do not findthat their offshoring efforts led to “major product innovations”(0 percent), “better access to new markets” (3 percent), or “break-through process improvements” (12 percent). Forty-two percent
of respondents from manufacturing companies, on the otherhand, say that their offshoring efforts have led to improve-ments in each of these same three areas. At the other endof the outcome spectrum, only 25 percent of manufacturingrespondents find that offshoring has led to “better access toqualified personnel,” even though 61 percent of manufacturingrespondents say this is an important driver of offshoring.
Increased productivity/efficiency 63% 54% 64% 75% 63% 63% 20%
Increase in firm’s overall competitiveness 54 52 60 75 63 68 50
Improved organizational flexibility 49 54 45 83 57 63 60
Better focus on core competencies 48 44 36 58 86 42 40
Improved service quality 47 42 44 58 43 42 40
Better access to qualified personnel 46 53 20 25 43 42 60
Firm growth 40 33 30 42 29 68 40
Better access to new markets 20 3 10 42 29 26 20
Breakthrough process improvements 20 12 10 42 43 26 20
Major product innovations 17 0 0 42 29 32 20
Retail and Retail andFinance and High consumer consumer
Outcome Overall insurance tech Manufacturing goods Software goods
Source: Duke University/Archstone Consulting Offshoring Research Network 2005 U.S. Survey, Duke University/Booz Allen Hamilton Offshoring Research Network2006 Survey, Duke University/The Conference Board Offshoring Research Network 2007/2008 Survey, and Duke University/The Conference Board OffshoringResearch Network 2009 Survey.
Rating Offshoring Outcomes by Industry
Looking Ahead: The ShiftingGeography of OffshoringOffshoring is expected to continue to grow for at least the
next two to three years. According to the 2009 survey results,
54 percent of the participating companies plan to expand
existing offshoring operations in the next 18–36 months
(Chart 25). However, 37 percent plan no change in their
offshoring operations. In the results for the 2007/2008
survey, only 27 percent of respondents said they planned
no change in their offshoring activities. This finding has a
parallel in the slowing trend that can be observed in the
cumulative percentages for a number of companies, which
show that the offshoring of many functions leveled off
after 2008 (Chart 26).
Sources: Duke University/The Conference Board Offshoring Research Network 2007/2008
Survey and Duke University/The Conference Board Offshoring Research Network 2009 Survey.
54%
Chart 25
Comparison of plans for expansion of offshoringactivities (18–36 months out): 2007/2008 and 2009
2009 2007/2008
50
37
27
8
Expanding No change
in plans
Relocating
to another
offshore
location
16
5
20
3
21
2
16
Relocating
back to
home
country
Transfer to
third-party
service
provider
Transfer to
a wholly-
owned
subsidiary
Note: Percentages may not add up to 100 percent because multiple answers were allowed.
Chart 26
Cumulative percentage of companies offshoring business service functions
Source: Duke University/Archstone Consulting Offshoring Research Network 2005 U.S. Survey, Duke University/Booz Allen Hamilton
Offshoring Research Network 2006 Survey, Duke University/The Conference Board Offshoring Research Network 2007/8 Survey,
and Duke University/The Conference Board Offshoring Research Network 2009 Survey.
0
10
20
30
40
50% IT
Innovation
Call center
Finance and accounting
Software
Procurement
Marketing and sales
Human resources
Knowledge services
Legal
Pre-1989 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
23 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Regional expectations: European companiesanticipate expansionU.S. and Canadian companies appear to be taking a
more cautious approach than European companies, since
North American companies are more likely to say they
have no changes planned (Chart 27). According to follow-up
interviews with executives, a lower level of transactions
in the U.S. economy during the past year may partially
explain this trend. One executive said, “Because growth
in transaction volume has leveled off, the pressure on
expanding outsourcing capacity has vanished.” Another
noted that “the urgency of shifting captive operations to
new providers has declined.”
Financial services companies are lookingto grow their operationsResponses from the manufacturing and software sectors
indicate that those industries are planning to slow their
operations (Chart 28). Conversely, 57 percent of financial
services companies, in spite of the economic downturn,
indicate that they plan to expand their offshore operations
in the next 18-36 months. Less than a third of these com-
panies say they anticipate no change to their current plans.
24 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Transfer to
third-party
service
provider
Source: Duke University/The Conference Board Offshoring Research Network 2009 Survey.
49%
Chart 27
Comparison of plans for expansion of offshoring activities(18–36 months out): U.S./Canadian and European companies
United States and Canada Europe
68
39
24
10
Expanding No change
in plans
Relocating
to another
offshore
location
5 30
3 5 20
Relocating
back to
domestic
country
Transfer to
a wholly-
owned
subsidiary
Note: Percentages may not add up to 100 percent because multiple answers were allowed.
Transfer to
third-party
service
provider
Source: Duke University/The Conference Board Offshoring Research Network 2009 Survey.
Chart 28
Comparison of plans for expansion of offshoringactivities (18–36 months out) by industry
No change
in plans
Expanding Relocating
to another
offshore
location
Relocating
back to
domestic
country
30
67
57
Finance and insurance Manufacturing Software
57%
3339
48 9
50
412
40
Note: Professional/technical services and retail/consumer goods had small sample sizes
for this question. None of the high-tech companies provided observations for this question.
Percentages may not add up to 100 percent because multiple answers were allowed.
Service providers are able to anticipatemost needsA comparative analysis of the growth in offshoring demand
(from the client survey) and supply (from the service pro-
vider survey) shows that service providers are generally
in sync with the demands of their clients (Chart 29).
The top three categories for client expansion in 2009—
software development, IT, and innovation—are also the
top three functions in which service providers intend to
expand the scale of their existing services and/or initiate
new service offerings. However, service providers seem
to overestimate the demand for legal services. Nearly
30 percent of participating service providers say they
anticipate legal services will becomea fast-growing off-
shoring service, but only 5 percent of client companies are
planning to expand their current legal service offshoring
operations or initiate new legal service offshore imple-
mentation. (For more on this disconnect, see the box below.)
Sources: Duke University/Archstone Consulting Offshoring Research Network
2005 U.S. Survey, Duke University/Booz Allen Hamilton Offshoring Research
Network 2006 Survey, Duke University/The Conference Board Offshoring
Research Network 2007/8 Survey, Duke University/The Conference Board
Offshoring Research Network 2009 Survey, Duke University Offshoring Research
Network 2007/2008 Service Provider Survey, and Duke University Offshoring
Research Network 2009 Service Provider Survey.
Chart 29
Expected growth in demand and supply
Percentage of suppliers
indicating plans to extend
scale or offer new services
Expected growth in
demand by providers
Innovation
Software
development
Procurement
Marketing
and sales
Legal services
Knowledge
services
IT
Human
resources
Finance and
accounting
Contact
centers
25%52
2153
2314
2023
2814
2524
2058
1020
2529
2031
32%
43
17
17
5
28
41
15
28
24
Percentage of companies
indicating plans to
expand scale or
offshore new services
According to an in-depth interview with an executive from aleading legal service provider, there are several factors thatexplain the recent slow growth of legal services offshoring.On the demand side, many law firms and corporations takea conservative stance toward the sensitivity of their legalactivities, which makes such services a less obviouscandidate for offshoring. A few American companies haveoutsourced or offshored legal services. GE has shifted itsoffshore legal work from GENPACT to Pangea 3 in India, whileDupont has outsourced database management and datamining assignments related to asbestos liability litigationto Office Tiger (a RR Donnelly subsidiary). However, whilethe number of service providers has increased since 2007,one supplier in India noted that only “a few have securedblue-chip U.S. clients.” This is a case, he continues, where“supply has not yet been able to drive demand with newlegal service offerings.”
The massive influx of service providers into the legalservices offshoring market has caused some companiesto reconsider the advantages of obtaining high-qualitylegal services at a lower cost. Despite a hard push fromproviders, many law firms and companies remain cautiousabout sending their legal activities offshore, especiallywhen the task involves intellectual property, which isconsidered an important risk. There are also barriers tomore specific patent and trademark application work. TheUnited State Patent and Trademark Office (USPTO) hasissued a memo to all attorneys registered with the agencystating that applications prepared by foreign associatesare not covered by U.S. rules of privilege.a This creates ahuge barrier for companies considering offshoring theirlegal work involving patents or trademarks.
What’s Holding Back Legal Services Offshoring?
a See generally James N. Willi, “Proposal for a Uniform Federal Common Law of Attorney-Client Privilege for Communications with U.S. and Foreign Patent Practitioners,”Texas Intellectual Property Law Journal, Volume 13, No. 2, 2005, pp. 279, 307–335; and Daiske Yoshida, “Note: The Applicability of the Attorney-Client Privilege toCommunications with Foreign Legal Professionals,” Fordham Law Review, Vol. 66, 1997, pp. 209, 227–238.
25 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Offshoring, according to ORN, refers to a process of
sourcing business functions or processes supporting
home-based and global operations from abroad, either
through wholly-owned (captive) organizational units or
external service providers (offshore outsourcing) that
are normally low cost. In general, offshoring means that
business functions supporting home-based and global
operations are sourced from a location outside the home
country. Often the terms offshoring and outsourcing are
confused. Offshoring refers to process of sourcing and
coordinating tasks and business functions across national
borders. Outsourcing, in contrast, denotes delivery of
products or services by an external provider (i.e., one
outside boundaries of the firm). Offshoring may include
both in-house (captive or international in-sourcing) and
outsourced activities. Outsourcing, in turn, may occur
both domestically (onshore) and abroad (offshore).
Further, offshoring concerns sourcing rather than sales
activities, and operations that support global or domestic
functions rather than local operations. For example, setting
up HR departments in foreign subsidiaries in support of
local operations (e.g., sales and distribution) is not what the
ORN means by offshoring. Only if HR services (e.g., payroll
services) are provided from offshore in support of global or
home-based HR functions does the term offshoring apply.
The ORN project on offshoring of technical and admini-
strative work was launched in 2004 at Duke University
Center for International Business Education and Research
(CIBER), The Fuqua School of Business. In 2004 and
2005, ORN focused on surveying the offshoring practices
of U.S.-based companies. In 2006, an online survey was
extended to research partners from EU universities to
recruit companies in their countries to participate in the
survey as well as conduct case studies. At core of the
ORN project is the contextual commonality of the survey
through the centralized online administration of survey
(in the native business language of a country where
necessary) each year. The cumulative ORN database is
unique in that it allows scholars to observe companies’
actions as they outsource and offshore any type of task or
business process. The ORN corporate (buy-side) survey
allows the network to track the evolution of global sourcing
practices involving seven main areas: functions offshored,
choice of offshore location and rationale for this choice, type
of service delivery model used (captive, third-party, hybrid),
strategic drivers of offshoring, perceived risks, performance
metrics, and future offshoring plans (18-36 months out).
Functions offshored include contact centers, finance and
accounting processes, HR, legal services, procurement,
other administrative back office services, and all innovation
work—R&D, product design, engineering services, and
software development. ORN studies do not cover offshore
outsourcing of manufacturing activities. Participating
firms are from all industries, ranging from financial
services, manufacturing, and software companies to
technical and professional services. They include large
(from the Forbes 2000), mid-sized, and small companies
(<500 employees).
A unique feature of the ORN survey is its focus on
surveying specific offshore project implementations rather
than the general experience of companies with offshoring.
In practice, this means every specific function that a com-
pany (sometimes involving multiple respondents from the
same company) has offshored in a particular location is
identified by the year it was launched and is treated as
a separate observation. This survey design results in a
very fine-grained database that enables an analysis of
offshoring dynamics across various administrative and
technical functions located in a wide range of countries or
regions of the world (e.g., Malaysia, Sri Lanka, Egypt,
Brazil, Nicaragua, Guatemala, Costa Rica, Tunis, Morocco,
Jordan, and Rumania, in addition to China and India),
across industries, and across types of delivery model
(captive, third-party, or hybrid). Finally, the ORN
database includes both companies that have already been
offshoring as well as companies that have considered
offshoring but have not yet initiated the offshoring of
any application.
Since 2007, the annual ORN survey of corporations
(buy side) is complemented by an annual ORN Service
Provider Survey to collect data on the supply of offshore
services. The provider survey tracks service providers
in the key dimensions of service offerings, offshore
destinations, contract and client relationships, and growth
strategies. A combination of data from both surveys provides
a richer and more insightful understanding of offshoring
practice, as it allows ORN to compare the expectations of
both client companies and service providers. With academic
rigor and objectivity, Duke CIBER reinforces its neutrality
and refrains from any commercial bias in conducting the
survey research, which further differentiates the ORN
project from consulting companies.
26 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
Research Methodology
27 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
The Offshoring Research Network (ORN) project on theoffshoring of technical and administrative work was launchedin 2004 at the Duke University Center for InternationalBusiness Education and Research (CIBER), The Fuqua Schoolof Business. Since its launch, ORN has become one of theworld’s most respected authorities on the research andanalysis of offshoring trends. Offshoring refers to theprocess of sourcing any business functions supportingdomestic and global operations abroad, in particular fromlower-cost emerging economies.18
In 2004 and 2005, ORN surveys focused on the offshoringpractices of U.S.-based companies. In 2006, the onlinesurvey was expanded to involve research partners fromEU universities that recruit companies in their countries toparticipate in the survey and examine empirical researchcases. At the core of the ORN project is the contextualcommonality of the survey and the centralized onlineadministration of the annual research. When necessary,surveys are translated into the native business languageof the respective country. For 2009, the survey wasrepositioned to allow companies to update their archivaldatabases at any time. This feature provides companies withan incentive to seek an up-to-date overview of their offshoreoperations with the future functionality to obtain a range ofbenchmarking calculations.
As of November 2010, the ORN database encompassed over2,000 companies (22 percent large, 35 percent mid-size,and 43 percent small) and over 4,300 discrete offshoringprojects, and the database continues to grow. ORN providessupport to the offshoring community by organizing researchdebriefings, holding webcasts, and presenting research atleading international conferences. ORN publishes research intop academic and practitioner publications as well as twoannual survey reports, which are among the most referencedpublications in the managerial and consulting arenas.Selected research publications and presentations can befound on the ORN website.19 ORN also provides customresearch to corporate members.
The cumulative ORN database is comprehensive and allowsscholars to observe companies’ actions as they outsourceand offshore all types of business processes or functions.
Users of the ORN core survey can track the evolutionof offshoring practices in nine main areas:
1. Overall offshoring status (currently offshoring,considering offshoring, not considering offshoring)
2. Adoption of corporate and functional strategies guidingoffshoring decisions
3. Functions offshored
4. Strategic drivers of offshoring
5. Perceived risks
6. Choice of offshore location and rationale for this choice
7. Type of service delivery model used(captive, third party, hybrid)
8. Performance metrics
9. Future offshoring plans (18-36 months out).
Functions offshored include contact centers, finance andaccounting processes, HR, legal services, other admini-strative back office services, and all innovation activities(e.g., R&D, product design, engineering services, andsoftware development).
The ORN survey is unique in its focus on specific offshoreprojects rather than a company’s general experience withoffshoring. In practice, this means a specific function acompany has offshored in a particular location (sometimesinvolving multiple respondents from the same company) isidentified by the year the project was launched and is treatedas a separate observation. This survey design results in acomprehensive and detailed database that allows for ananalysis of offshoring dynamics across various administrativeand technical functions located in a wide range of countriesor regions of the world, as well as across industries, sizes ofcompany, and types of delivery model (captive, third party, orhybrid). Finally, the ORN database includes both companiesthat already offshore as well as companies that have con-sidered offshoring but have not yet initiated it. The annualORN survey of corporations (buy side) is complemented by theannual ORN Service Provider Survey (which started in 2007),as well as by case studies, focused surveys, and workshops forparticipating companies that are intended to provide feedbackand contribute to the interpretation of findings.
These findings also have important policy implications. Theysuggest that national competitiveness increasingly dependson the ability of companies to reorganize themselves globallyand connect with specialized service providers and newscience & engineering clusters around the world.
About the Offshoring Research Network (ORN)
18 This definition is taken from Stephan Manning, Silvia Massini, and Arie Y.Lewin, “A Dynamic Perspective on Next-Generation Offshoring: The GlobalSourcing of Science and Engineering Talent” Academy of ManagementPerspectives, 22, no. 3, 2008, pp. 35–54.
19 For more information, visit our website (offshoring.fuqua.duke.edu/research.jsp).
Founded in 1992, Duke CIBER is one of thirty-one nationalcenters funded under Title VI, Part B, of the Higher EducationAct. The center strives to internationalize the content of coreand elective courses while developing innovative teachingmaterials for Duke’s Fuqua School of Business. It promotesand advances research on international business and U.S.competitiveness.
Duke ORN Research TeamArie Y. LewinProfessor of Strategy and International BusinessDirector CIBERLead Principal Investigator, International ORN ProjectDuke University CIBER, The Fuqua School of BusinessE-mail: faculty.fuqua.duke.edu/ciber/center/arie.html
Dr. Nidthida Perm-AjchariyawongORN Senior Research AssociateDuke University CIBER, The Fuqua School of Business
Dr. Xing ZhongORN Research AssociateDuke University CIBER, The Fuqua School of Business
Jeff W. RussellORN Director of Research OperationsDuke University CIBER, The Fuqua School of Business
The Conference BoardTon Heijmen Senior Advisor, Offshoring/Outsourcing
Randall Weiss Managing Director, Domestic andInternational Research and Products
Academic PartnersCopenhagen Business School (Denmark, coveringScandinavian countries)
IESE (Spain)
Macquarie University (Australia)
Manchester Business School (United Kingdom)
RSM Erasmus University (Netherlands)
ULB - Solvay Business School (Belgium)
Wissenschaftliche Hochschule fur Unternehmensführung(Germany)
University of Tokyo (Japan)
Kyung Hee University (Korea)
EMLYON Business School (France)
Polytechnic University of Milan (Italy)
The Conference Board is the lead collaborator for ORN U.S.Buy-side Survey (2007–2009). PriceWaterhouseCoopers is thelead sponsor of ORN Service Provider Survey (2008-) Past ORNSponsors include Booz Allen Hamilton (2006) and ArchstoneConsulting LLP (2004 and 2005).
AffiliatesInternational Association of Outsourcing Professionals
Information Technology Association of America (ITAA)
Cosponsoring CIBER AffiliatesFlorida International University Indiana University
Michigan State University
Temple University
University of Connecticut
University of Hawaii at Manoa
Indiana University
University of Kansas
University of Maryland
University of Memphis
University of North Carolina at Chapel Hill
Related Resources from The Conference Board
Research Reports
Offshoring Reaches the C-Suite, Research Report 1445, 2009
Assessing Offshoring Risks, Research Report 1431, 2009
Executive Action
Treating Contingent Workers as a Strategic Resource,Executive Action 333, 2010
The Conference Board Council Program
Membership in one of our councils gives you access to a selectcommunity of 2,400 executives from a broad array of industries,functions, and regions who know the value of this rich source ofinsights and new approaches. Enduring relationships are thecornerstone of the council experience. Enhanced by our global,enterprise-wide reach, these relationships span the world andextend value across your organization. Confidential peer dialoguecombines broader perspective, specific knowledge, and sharedexperience to save you precious time and public missteps.
Globalization Leadership Council
Strategic Sourcing Leadership Council
28 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
The Duke Center for International BusinessEducation and Research (CIBER) Lead Collaborators and Affiliates
29 TAKING OFFSHORING TO THE NEXT LEVEL w w w.conferenceboard .org
© 2011 by The Conference Board, Inc. ISBN No. 0-8237-1001-7All rights reserved. Printed in the U.S.A. The Conference Board®
and the torch logo are registered trademarks of The Conference Board, Inc.
Arie Y. Lewin is professor of strategy and internationalbusiness at Duke University, Fuqua School of Business and isdirector of the Center for International Business Educationand Research (CIBER). He is a fellow of the Academy ofInternational Business, and the Organization Managementand Theory division of the Academy of Management awardedhim their first Trail Blazer award at their 2008 Annual Meeting.Lewin is visiting research professor at IESE (2005–2008) andRSM Erasmus University (1998–present), where he is alsoERIM Senior Fellow. He was editor in chief of the Journal ofInternational Business Studies (JIBS) from 2002 to 2007,founding editor in chief of Organization Science from 1989to1998, and convener of the acclaimed Organization ScienceWinter Conference (1994–2010). His research interestscenter on strategic renewal of organizations encompassingstudies of adaptation and selection as co-evolutionarysystems, the emergence of new organizational forms, andadaptive capabilities that distinguish between innovating andimitating organizations. He is the lead principal investigatorfor the multiyear international Offshoring Research Network(ORN) project, which focuses on how companies globalizetheir organizations, business functions, processes, andservices by tracking firm strategies, experiences, and futureplans related to global delivery of all business functions andadministrative and technical work. His current researchfocuses on the globalization of innovation.
Nidthida Perm-Ajchariyawong is senior research associateat the Center of International Education and Research(CIBER), Fuqua School of Business, Duke University. She hasa PhD in strategic management from the Australian GraduateSchool of Management and is currently engaged in theOffshoring Research Network (ORN) project. Nidthida’sresearch interests focus on strategic outsourcing andoffshoring, firm innovation, strategic inter-firm relationshipand managerial decision making.
Jeff W. Russell is currently the Director of ResearchOperations at the Duke Center for International BusinessEducation and Research (CIBER) at the Duke Fuqua Schoolof Business. Current projects include the globalization ofproduct development and services as well as cross culturalcommunication effectiveness and the training of boundaryspanners who lead and manage global relationships. Mr.Russell has written extensively for practitioner orientedpublications and has served on advisory boards for theInternational Association of Outsourcing Professionals andthe Software Information Industry Association.
Many individuals, executives, and companies have contributed tothe preparation of this report. We especially thank the companyrespondents of the 2009 Offshoring Research Network (ORN)survey and the ORN participants who attended the annualdebriefing session, and senior executive roundtables at Duke fortheir valuable feedback and input to get behind the numbers.Duke’s Fuqua School of Business alumni have provided a greatdeal of support to the Duke ORN over the last six years.
The authors sincerely thank the following for their valuable insightsinto the 2009 study: Dr. Stephan Manning, Michael Monaghan,Professor Thomas Huytzschenreuter, Professor Henk Volberda,Professor Joan E. Ricart, Professor Torben Pedersen, andPricewaterhouseCoopers. We also wish to acknowledgeBooz & Company and Archstone Consulting for their earlycontributions to this research.
We wish to thank and acknowledge the following The Fuqua Schoolof Business staff for their commitment and support during thecompletion of this year’s report: Ayse Durmaz and Joe Conder,for their efforts in creating the new survey architecture; andFrank Liao, Bryan Seelagy, and Stefanie McAdoo for their tirelesswork on survey administration and analysis. From The ConferenceBoard, we thank Wennie Lee and Timothy Dennison.
We would like to acknowledge the National Science Foundation(Award No. 0522359) for its early support of two case studiesand development of the underlying theoretical models.
Lastly, we would like to thank all of the ORN membership organi-zations who participated in the 2009 research survey: theInternational Association of Outsourcing Professionals (IAOP),The Information Technology Association of America (ITAA), andGlobal Services Magazine.
Publications Team
Publishing Director Chuck Mitchell
Editor Timothy Dennison
Designer Peter Drubin
Production Andrew Ashwell
About the Authors Acknowledgments
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