Insourcing American Jobs – The Risk and Opportunity for HRO

Offshoring is once again under the harsh glare of the polarized political spotlight in a presidential election year. As my NelsonHall HRO colleague Gary Bragar commented in his blog, President Obama is increasing focus on job creation including encouraging employers to insource jobs back to the U.S. This may cast a shadow of negative publicity on outsourcing that includes offshoring, but I predict the issue poses only minimal direct threat to HRO. In fact, I see increased opportunity for savvy HRO service leaders.

In listening to the President’s remarks and reading the insourcing and investment fact sheet issued by the White House, it is clear that manufacturing jobs are the primary target.

The U.S. lost millions of manufacturing jobs and in some cases almost entire industries, as companies pursued ways to remain competitive with lower-priced global competitors. Lower wages and benefits were a key part of the equation, but there were other factors including regulations, taxation policies, and the low cost of transportation in what was still a bountiful world of low-cost oil.

Offshoring dynamics are changing, especially for manufacturing. The time delay inherent in moving products around the world now creates challenges in meeting the rapidly changing market preferences and shortened product lifecycles of a connected world. With increased competition for limited energy supplies from the emerging economies, the cost of transportation has become a significant factor. Add in moderately decreasing wage gaps and we can see why companies will be able to insource some jobs. Others will be able to create more jobs in the U.S., much like Honda, Toyota, and Mercedes Benz have been doing for years.

HRO as an industry is already a blend of onshore, nearshore, and offshore technologies and workforces. A mix of right-shoring talent and technology helps vendors meet client needs for cost, service, and value. With time and transportation being minor factors in HRO or other BPO, talent remains a primary driver.

Access to pools of affordable skilled talent is an increasingly important element in the growth of all businesses, whether small or large, local or multinational. Who has access to comprehensive data on workforces around the world including costs, turnover, and availability? Who can see trends emerging on skilled labor capabilities and capacity shortages? Who has direct experience in building and maintaining global workforces both for clients and for themselves? HRO service providers!

Think about it, in our HRO community are the likes of Accenture and IBM, growing globalists like ADP and NorthgateArinso, modern tech heavyweights like Infosys and TCS, global research and analysis specialists like Aon Hewitt and Mercer, and RPO leaders such as Alexander Mann, Hays, and Manpower, we even have learning leaders that can handle rocket science like Raytheon RPS.

We need to have a large enough vision for what we can become as an HRO community. There is so much already that we can leverage. Be confident in our value and let our light shine bright!

Linda Merritt, Research Analyst, HRO, NelsonHall

Interested in reading the latest HRO news from NelsonHall? Subscribe to our newsletter by emailing amy.gurchensky@nelson-hall.com with “HRO Insight” as the subject.

To Offshore or Not to Offshore…That is the Question for Mid-Market Companies

Is offshoring of non-client facing, back-office HR processes valuable and viable for mid-market companies? Let’s put political rhetoric, protectionism, fears of domestic job losses, etc. aside for a moment and look at the dollars, sense and stats.

Just like their larger brethren, mid-market companies can gain fairly significant cost savings by offshoring back-office processes such as data entry and validation, payroll processing, software applications development, resume mining and job offer generation, file sharing and other administrative and transactional processes. They can also benefit from improved service delivery due to streamlined, standardized processes and technological homogeny, and expedited cycle times due to 24×7, follow the sun capabilities.

On the flip side, the purported cost savings for mid-market companies (of up to 30 percent, a questionable number, in my view) often don’t materialize anywhere near to that extent. This lack of anticipated cost savings is due to a range of initially unforeseen factors including greater than expected training expenses, travel-related costs, inflation and increasing wages in many offshoring locations. And service delivery issues, still maturing delivery models, governance challenges, etc. also have a negative impact on the benefits and perception of mid-market HR offshoring.

Sounds pretty much like large-market and mid-market buyers face the same dilemmas in the whether to offshore or not to offshore decision, yes?

Yes. This all said, the results and our analysis of the findings of our January 2009 research study entitled “Mid-Market HR Outsourcing Market Analysis” found that offshoring of non-client facing back-office HRO processes will continue to increase. This is in large part because offshoring service providers are increasingly recognizing the importance and value of the still largely untapped mid-market, and are making significant investments to support and satisfy it. For example:

•  One mid-market provider we spoke with plans to increase its offshore capacity from 475 to 800 by the end of 2010; 60 percent of the volume increase will be to service newly transitioned processes from existing clients and the balance is expected to come from new clients

•  New or expanded service centers to support mid-market companies are planned for or cropping up in Ukraine, Mauritius, Morocco, the Far East and Philippines, as well as Tier 1 and Tier 2 locations in India

•  Pure play offshoring providers such as Caliber Point and Wipro are partnering with ERP providers to deliver services to the mid-market through offshore locations, signifying a clear change in both the supplier landscape and the services to be provided to mid-market organizations

•  We estimate offshore, mid-market HR FTE numbers will increase by five to 10 percent over the next three years

The investment in offshored mid-market HR processes is clearly being made, and uptake appears to be solid and growing. Time will tell what level of ROI is realized by the provider and buyer communities.

Gary Bragar, Lead HRO Analyst, NelsonHall