The way out is in

As the U.S. economy grows bleaker, the reliance on overseas providers of goods and services could be on the downswing as well. The pressure of the weakening dollar combined with maturing labor forces in countries like India is leading to fewer savings for manufacturers and fewer reasons in support of outsourcing.

We could very well see current outsourcing systems move closer to home in the future, according to the International Association of Outsourcing Professionals (IAOP). Among the association’s predictions for 2009: outsourcing will stay closer to home because of the available local labor from layoffs coupled with a projected increase in government spending on infrastructure.

The IAOP also calculates more volatility in outsourcing due to “global uncertainty,” especially as companies lower their IT spending, consolidate and exit markets.

“Many businesses are examining the additional costs of offshoring,” says Steve Handschuh, president and COO of the Automotive Aftermarket Suppliers Association (AASA). “In many cases, businesses are finding that the limited savings in labor costs can be lost due to higher transportation costs, longer lead times and the resulting higher inventory burden.”

Even if the reliance on offshore partners for goods and services moves closer to home, outsourcing will still play a prominent role in the global business world. And what were once considered developing countries have created more sophisticated labor forces, which means more expenses for cost-conscious manufacturers.

A recent report states that Indian software engineers are set to earn at least 40 to 50 percent of Silicon Valley wages, and the discrepancy between the two will continue to decrease.

But when will the outsourcing be better suited “in”?

A recent CNet news report states China is set to gain an edge on India in the offshore outsourcing arena. Many business leaders mention the BRIC countries (Brazil, Russia, India and China) as the leaders in globalized sourcing for offshore labor.

Other countries expected to become more prominent in outsourcing include Poland, Egypt, Mexico and the Philippines.

Along with these current manufacturing trends, there could also very well be more dependence this year on private label lines. Handschuh clarifies that the term “private label” has multiple definitions, which also includes house brands put out by national chains known for their premium brands.

“However, using the generally understood industry definition of private labels as value lines, the current challenging economy will prompt a drive to lower cost options – but we believe this represents an important educational opportunity for the aftermarket,” Handschuh adds. “AASA research shows that service professionals prefer to use high quality replacement parts. We have the opportunity to help repair professionals communicate the false economy of basing repair decisions based strictly on price to their customers. Once consumers understand the better value of quality parts in terms of reliability, they can make more informed decisions.”

Prominent manufacturers have experienced a slowdown in investments, including the establishment of new offshore facilities and joint ventures, notes Handschuh, who adds this can be attributed to economic pressure and currency fluctuations. “Businesses have to balance the costs of offshoring – transportation, inventory, long lead times – against the potential savings,” he says. “Some of our members are re-evaluating offshoring and opting to stay in North America because it is more cost-effective.”

Other outsourcing trends of note include “person-to-person outsourcing,” where individuals may outsource services like tutoring, translation and Web functions: and “green sourcing,” where environmental factors stand to weigh heavier on companies’ decisions when they choose offshore business partners.

 
 

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