Businesses in Beijing and Bangalore believe they have discovered a gold mine. But the same experience for many of their foreign investors has exposed land mines in return. Aside from the obvious local employment concerns, companies often discover outsourcing to be far more expensive than originally estimated. Businesses which were first enticed with seemingly low hourly wages find themselves committed to paying more than they ever bargained for.As one example United Technologies, an acknowledged leader in developing offshore best practices, was saving just over 20 percent by outsourcing to India in 2003 (and wages are higher there now). That's still substantial savings, to be sure. But it takes years of effort and a huge up-front investment. For many companies, it simply may not be worth it. "Someone working for $10,000 a year in Hyderabad can end up costing an American company four to eight times that amount," says Hank Zupnick, CIO of GE Real Estate.
Google metrics for outsourcing searches have dropped 50% since then. According to the Black Book of Outsourcing, western firms such as CENIT, IBM Global and Infosdys still sell as many PLM outsourcing services to the world as do Indian firms Larsen & Toubro, Siri Technologies and Satyam. This is bad news for a country carrying perhaps the world's largest surplus in manpower. Such regions, through poor management and cultural barriers, are often too slow with creating domestic markets of their own. China faces similar problems.
A backlash trend to outsource to Europe or the USA is actually emerging now. Many investors, once burned, are looking for better long-term partnerships with contractors and suppliers. This is good news for engineering and design companies in the more developed nations. Stay alert. Opportunities exist for skilled designers in developed countries to demonstrate their value added. Suggestions for remaining competitive: keep resources, skills and training certifications updated, invest in innovation and R&D.
If you have a recent experience about your company's design work being outsourced (or not) feel free to post it HERE.
