It’s not cost, but skills-gap that leads to offshoring: Duke Univ. study

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An annual study by the Center for International Business Education and Research at Duke University's Fuqua school of Business in collaboration with independent research association The Conference Board has found that the offshoring of jobs by American companies is more a result of the shortage of adequately skilled domestic employees, rather than the economic motive to cut costs.

The US software sector has the largest proportion of offshored jobs with almost 13 in every 100 jobs being shipped out but Arie Lewin, Fuqua professor of strategy and international business, finds this to be more of a consequence of the scarcity of domestic science and engineering graduates.

In fact, many of the respondents of the survey feel that the benefits of labor arbitrage are short-lived and have declined at most companies; in IT services and software development, in particular, the average cost savings achieved offshore have consistently declined over the past five years. On the other hand, offshoring comes with a number of hidden costs such as expenses for training, staff recruitment and retention, and management of government and vendor relations.

Thus according to Ton Heijmen, senior advisor to The Conference Board, offshoring decisions are now more driven by the multidimensional value proposition in creating a global footprint, and less motivated by cost savings.

The study based on cumulative responses of well over 2000 companies and 4300 different offshoring projects also finds that companies in the manufacturing and high-tech/telecommunications industry are now more inclined to outsource their talent search operations, and instead of setting up offshore operations would rather employ third-party providers of offshore labour.

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