IT the 'enabler' of global outsourcing.

Since the early 1990s, United States companies have looked offshore to contain their labor costs, secure new sources of talent and more quickly bring their products to market.

Today's economic climate likely will prompt more companies to seek out and improve their global outsourcing strategies. Many business leaders and experts wonder if technological improvements--which have enhanced productivity, efficiency and operations--will allow U.S. companies to reverse the global outsourcing trend. According to available evidence, this is highly unlikely.

Without information technology, a U.S. business could not possibly route customer calls to India, assign engineering work to China or delegate payroll or accounting work to Latin America or Eastern Europe.

But technology is not the force that led companies offshore; and it will not keep them onshore. Technology should be considered an enabler--not a driver--of today's modern, extended, global enterprises.

Economic and social conditions such as labor arbitrage, tax incentives, access to global talent and a desire to contain overhead costs are the true drivers of global outsourcing. As such, there is no reason to expect that technological advances will entice U.S. companies to keep operations onshore. In fact, it's highly likely, just the opposite will happen.

As technology reduces the barriers and costs for companies to operate offshore, even more firms will explore the benefits of a global outsourcing strategy.

For many companies, technology is no longer a major impediment in global outsourcing decisions; the technology needed to offshore business functions already exists. The primary considerations are how much firms are willing to invest, and what degree of risk they are willing to take.

'Catch-22'

Because of the economic crisis, however, many organizations are currently faced with a "Catch-22."

They recognize that, more than ever, they need global outsourcing to remain competitive and contain costs. In fact, for many firms global outsourcing could mean the difference between survival and collapse.

At the same time, some companies are hesitant to make any investment--including the up-front costs and infrastructure needed--to implement a global sourcing strategy, such as consulting fees, information technology systems and staff severance and retention costs.

The technology that enables off-shoring has changed dramatically since the early 1990s, when large companies first began experimenting with utilizing offshore resources. In those days, technology allowed only the most rudimentary level of worldwide communications, so global outsourcing didn't seem worthwhile for most corporations from a cost-containment perspective.

Even when modern communications and collaboration technologies began to emerge, they were too expensive and slow to meet most corporations' needs. Manufacturing companies were some of the first businesses to successfully implement global outsourcing strategies in the early 1990s.

By the second half of the '90s, many companies embraced robust IT infrastructures that allowed for fast data transfer. Software companies began adopting offshore practices, using teams in different countries to quickly and efficiently develop code.

The finance and insurance industries also began adopting off shoring strategies in the second half of the '90s, as companies took advantage of the emerging technology for efficient voice-call routing through the Internet.

As technology reduced barriers and costs to global sourcing, more companies from different industries began making global sourcing part of their business strategies.

Today, companies rely on IT solutions for email, video conferencing, instant messaging, call routing, document scanning and management as well as workflow management. As outsourcing grows to play an even more critical role in modern, extended enterprises, companies should look to technology to:

* Measure performance, demand and service levels in offshore operations;

* Balance workloads between different locations during peak demand;

* Provide protection and safeguard against loss and theft of company information and customer data; and

* Unite the enterprise around global standards, processes, applications and practices to eliminate redundancy as much as possible

Enabling Cost Savings

Companies should not overlook the cost savings that global sourcing can provide, especially in the current economic environment.

U.S. companies typically save between 20 percent and 40 percent by moving IT and human resources functions oversees. To be sure, every business is different, and its savings and successes will be dictated by its circumstances and how it implements its global sourcing strategy.

Some evidence of the savings in recent years:

* A global office products business reduced its overhead costs by moving its European transaction center to a company-owned center in Eastern Europe;

* An industrial products firm leveraged a center in China for added controls over its business;

* A major energy company moved IT support to both India and Argentina to reduce costs; and

* A pharmaceutical company outsourced production of generic drugs to Asia.

Offshoring explicitly represents a shift in resource allocations for the enterprise. By spending less money on back-office functions, a business frees up funds that can be invested into value-creating activities, such as research and development.

Staffers whose jobs in administrative functions have been eliminated can be retrained to work in jobs in areas that align directly with customer-value functions.

As technology evolves, a broader set of companies are participating in global outsourcing. Previously, only very large firms had the management expertise and resources to invest in global sourcing.

But more recently, companies of all sizes can build a global sourcing infrastructure--or leverage the infrastructure of an outsourcing provider--thanks to lower costs and advances in technology and accessibility.

Technology provides the tools and the resources that enable companies to pursue a global sourcing strategy that constrains costs and taps into skilled labor around the world.

In better economic times, sourcing decisions were often deferred for political or cultural reasons. Today, the issue for many companies is not framed only by savings or competition--it may be a discussion about the business's very survival.

Why Companies Offshore

What moves companies offshore?

In recent surveys, companies cited these drivers for pursuing a global sourcing strategy.

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Source: Duke University Offshoring Research Network. Compiled from Source; Duke University/Archstone Consulting Offshoring Research Network 2005 US Survey, Duke University/Booz Allen Hamilton Offshoring Research Network 2006 US Survey. Duke University/The Conference Board Offshoring Research Network 2007/08 US Survey

Charles L Aird ([e-mail]) is a managing director in Pricewaterhouse Coopers's Advisory Practice. Derek Sappen-field ([e-mail]) is a director in the Practice.