To off-shore or not to off-shore

February 3, 2005
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A strategy today that is gaining significant management attention is the off-shoring of work. Many companies have experimented with sending work overseas and a number of global companies have set up centers to execute work in countries that have lower wage rates or better availability of highly educated professionals. However, as seen in this past Presidential election, this subject is highly sensitive and political. Bill Wallisch, a senior consultant to major companies like General Mills and Coca-Cola, calls off-shoring "the big whisper. Everyone is talking about it, but in very sensitive and measured tones."

A number of companies have chosen to off-shore certain areas of their information, software development and support, benefits and financial services functions. However to date, the food manufacturing industry is taking a slow approach to off-shoring its engineering work. Several companies have trial projects underway with overseas engineering services firms-most in generic skills or administration areas. Others are experimenting with leveraging their own internal international structures to augment their US capabilities and gain some cost efficiencies. Another approach has been to leverage work completed by US engineering services firms by having work completed in their international offices, where rates are less than US offices. In fact, several large US engineering services firms have offices or joint ventures in Chile, Romania and other Eastern European countries, as well as India and China.

At this point, all of the food industry trials are reported to be in the evaluation stages. There is also a growing concern on the protection of food companies' intellectual property and operational efficiencies. Even when there are legal agreements in place, it may be difficult to keep the proprietary knowledge controlled in large organizations where the information can move instantly. Secondly, it is clearly understood that low rates do not translate into lower engineering costs if you cannot achieve the efficiencies and quality of the work. No one expects to see a short-term payback from off-shoring due to the startup/training/coordination costs and the resulting inefficiencies. The current estimates are for a three-to-five year payback over in-house engineering.

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