Outsource Software

US can learn from the German and Japanese experience. In the middle 1980s, German industries lost its cost advantage and its high value and production capabilities could not even stop the outflow of jobs to offshore. The same scenario was repeated in the Japanese corporate scene in the 1980s. The rocket high escalation of the Japanese Yen forced many Japanese companies to outsource their manufacturing plants to S E Asia.

The Germans and Japanese have allowed their respective industries to be sharpened by competition by moving out to low cost and efficient offshore operations. This painful transformation took place despite the much less flexible labour law and less performance oriented corporate culture and sluggish economic growth as compared with the United States. Today, the German and Japanese companies are able to remain very competitive without any significant loss in market share as compared to their United States counterpart.

Mr Behravesh, Global Insight chief economist and Lawrence Klein of Nobel Iaureate conducted a study and found that contrary to conventional belief, 90,000 net jobs were created rather than lost in the United States as a result of moving high-tech work offshore.

The report indicated that the lower costs from using offshore resources keeps inflation in check, increases productivity and keeps interest rates low. Furthermore, the benefits of global sourcing added US$ 33.6 billion in 2003 to the real gross domestic product in the United States. The report added that overall GDP is expected to be US $124.2 billion higher than without outsourcing.

Outsourcing is not the only way to create a “virtually unbeatable’ organisation. Retaining some key functions in-house may sometimes still offer the organisation the most flexibility. However, a company is trapped when it has a strong bias for doing everything in-house. Laura Ashley, for example, languished behind competitors by insisting on manufacturing all products in Wales, long after others had moved their production offshore.

After recognising the benefit of outsourcing, they still took a while to do so. Laura Ashley managers maintained expensive production facilities in Wales out of loyalty or corporate responsibility and protecting the jobs of the staff. As a result, the loss-making Laura Ashley group was bought in 1998 by the Malayan United Industries and since closed the five factories in Wales, pulling out of clothing manufacture altogether.

The advantage when you have no fixed overheads is the flexibility and nimbleness to make swift changes. This is particularly useful in industries plagued with fickle demand.

You merely switch and find new contract manufacturers or call centres when the need arises, without being tied down to your in-house resources. This frees up valuable management time and energy that can be better deployed on tactical and strategic planning. Management is not bogged down with non-core and low value activities. It is truly the accountant’s nirvana when the company without the fixed costs is able to generate profits.