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The New Calculus of Offshoring

For years the offshoring boom was driven by one factor: savings. Today the decision is much more complicated.

And the domestic option can simply be faster. When a disappointing holiday season left online retailer Shop.com hurting, CFO David Morrison says the firm decided that it needed to cut costs by 40%, and fast. Sending the jobs overseas would have required more due diligence than the firm had time for, he says, so instead it chose Corefino, a financial-services outsourcer; Morrison cut the cost of his finance department by more than half in the process.

Some analysts counter that various arguments for keeping jobs at home still can’t trump the economic argument for offshoring them. “Everybody is making a lot of noise about protecting jobs,” says AMR’s Fersht, “but only 20% of businesspeople think that matters.” His conclusion: “Companies have to be seen as being against it, but in reality they have to do it.”

Even companies that have bucked the trend acknowledge that in the short term their costs may rise. When Ajit Singh closed Bioimagene’s India office he did so in the belief that by co-locating engineers and marketers, the company could rev up its innovation cycle, powered by the sort of continuous, unstructured brainstorming that can’t be sparked by e-mails, videoconferences, or social networks. “To become what we wanted to be — disrupters in the marketplace — we had to be in the same location,” he says. “If costs rise 10%, it’s worth it.”

Sounds simple, but only in retrospect.

Josh Hyatt is a contributing editor of CFO.

War of the Words

Perhaps because the outsourcing industry has always been dominated by consultants — the folks who brought you “change agents” capable of “thinking outside the box” — outsourcing has inspired a buzzy and ever-expanding lexicon that is often clever but also confusing. Here’s a guide to some common and not-so-common terms.

Farm-sourcing. A form of in-sourcing or reverse-outsourcing, terms that are used to describe companies that repatriate projects from foreign soil to low-cost regions of the United States. Such back-shoring may locate itself in depressed rural areas (rural-sourcing) or in suburbia (home-sourcing).

Doubt-sourcing. Characterizes the attitude of outsourcing critics who spoof providers as headset-headed drones and U.S. companies as exploiters of cheap labor.

Speedy-sourcing. Describes the practice of big companies hurrying to make deals with outsourcing providers, thereby globalizing their panic attacks.

Small-sourcing. A practice that refers to small companies outsourcing work to remote individuals or teams, often using online intermediaries such as oDesk.

Smart-sourcing. Refers to selecting third-party providers that can add value beyond lowering labor costs, such as innovation in noncore areas.

Right-shoring or blend-shoring. Finding the optimal mix between functions that are performed domestically and those that are moved to foreign countries.

Mid-sourcing. The practice of hiring a firm to serve as a liaison between a U.S.-based and an offshore firm, in essence outsourcing the management of the outsourced work so as to boost quality and improve communications.

Multi-sourcing (also multi-shoring). Dividing outsourced work among a carefully selected group of providers or countries; the opposite of mega-sourcing with one giant such as Accenture or Infosys.

Near-shoring. Bringing offshored work in closer proximity to the United States, by moving it from, say, Asia or India to Latin America. Saves wear-and-tear on management and shrinks transportation costs.

Over-and-out-sourcing. An as-yet (we think) uncoined variant that describes an executive so confused by all other plays on “sourcing” that he or she stops using it entirely — or outsources that jargon-spewing to someone who is contractually obligated to be 20% more relaxed.

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