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View From Lodi, CA: HomeShoring, the Patriotic, (And Profitable) Answer to Outsourcing
On this Labor Day, thanks to Dustin Crane, some American workers are hearing less about outsourcing and more about "HomeShoring." Crane is the Chief Executive Officer of the Georgia-based Aelera Corporation.
When Aelera, a ten-year-old information technology firm needed to expand, Crane did what most other executives do. He thought, "I'll outsource."
Crane had received countless calls from promoters begging him to come to India and other far away places like Armenia and China where—he was told—operating costs would be lower without sacrificing efficiency.
But before committing, Crane decided to do his own fieldwork. Instead of taking guided tours provided by the host countries, Crane ventured out by himself.
Crane didn't like what he found.
In China, Crane found pollution so thick he couldn't breathe.
"It is one thing to offshore call-center work where transactions last one to five minutes and repeat 20 times an hour. It's different to offshore a piece of work that takes two to three months to master and maintain that momentum and productivity."
Trip teaches lesson on outsourcing jobs By Tammy Joyner, The Atlanta Journal-Constitution, July 31,04
But what surprised Crane the most was that the savings weren't what they were cracked up to be. Hidden costs, both in terms of salaries and operating expenses, made overseas relocation prohibitive.
When Crane abandoned the idea of outsourcing, he relied in part on a study by Ramp Rate Sourcing Advisors. According to Ramp Rate Chief Executive Officer Anthony Greenberg, sometimes the best thing to do is stay home.
Arguing for relocation within the US, Greenberg says "Companies must realize that ultimately the vast majority of 'outsourcing' is done cost efficiently in the U.S. and that offshore outsourcing is not for everyone."
Greenberg suggests companies follow Crane's example by exercising greater due diligence before taking the outsourcing plunge.
"We have a whole series of questions," Greenberg says. "What do you hope to gain from outsourcing — cost reduction, business transformation? What criteria do you use to identify vendors? Do you truly understand your internal costs?" [The art of successful offshore outsourcing 29 June 2004]
Seeking validation, Crane commissioned his own study to see if other companies were realizing the savings they had hoped for.
Crane asked 216 key U.S. executives to share their experiences with him.
"What we found was kind of amazing. Those that are doing offshoring expected to have a 30 percent to 50 percent cost savings that would drop to their bottom line.
What we found across the board is that they are not receiving that much savings. Many of them are between 0 and 20 percent. We asked in our survey if people were losing money and I think we were the first company to do so. Surprisingly, many were losing money. And so we looked at that and said, this is validation. Second thing is most companies in the United States hear the sales pitch from these companies like Tata and others that say they could save a lot of money. What they don't realize is that there are additional costs. When we looked at those costs, it took away those savings."
About half the companies surveyed indicated that their overseas projects were likely to bring the work back to the U.S.
With outsourcing no longer an option, Crane created HomeShoring which he defines as finding smaller metropolitan U.S. cities where
"talented, motivated technical professionals readily trade lower wages to do challenging, interesting work in premium lifestyle cities. Minimal travel, labor, training and project management costs result in lower costs for clients and a proven methodology shrinks delivery cycles while negating the multiple potential problem areas associated with offshoring."
One such city is Savannah, Georgia. Aelera has just announced plans to locate an application development center in Savannah and Fitzgerald, GA. that will add 250 jobs over the next two years.
"We realize there is a better business case closer to home," Crane said.
Delta Air Lines announced that it would close a call center in India, possibly because of customer complaints about language difficulties.
And in Crane's opinion, other companies may soon start to repatriate their operations to the U.S.
Nothing could be better for the American worker than a re-evaluation of outsourcing.