Companies, including offshore pioneers such as General Electric, Nortel Networks and Citibank, found that actual cost savings, which remain the primary reason for outsourcing, were achieved by 67 percent of the companies to the tune of 5 to 50 percent.
"This is an enormously important phenomenon which needs to be better understood," says Jeffrey Sachs, director of the Earth Institute. "I'm very happy with my colleagues' contributions."
Nirupam Bajpai, a co-author of the report and a senior development adviser at the Earth Institute, said, "Though outsourcing of manufacturing operations has proved itself to be a time-tested and successful phenomenon, outsourcing of services was never considered to be feasible until a decade ago. It was assumed that good quality services could not be sourced from developing countries, and also that the technology needed for such operations was not at hand."
Bajpai said the results of this survey are significant because the responding companies represent a large percentage of offshored work, even thought the number of companies surveyed is small. He also noted that this type of data is difficult to obtain because many companies, fearful of backlash, are reluctant to discuss outsourcing and offshoring.
The nature of the companies surveyed were from a broad range of sectors, including automotive, banking, business services, computer services, financial markets, government, healthcare, insurance, mass consumer products, human resources and securities, business process outsourcing, retail and direct marketing.
The survey indicates that lower end jobs will continue to be eliminated in the U.S. either due to outsourcing or better technology and that physical proximity to the main business is not a factor. Well over half (62 percent) are seeking services in at least one other country besides India, the current offshore destination of choice.
Though the data suggests that offshoring lower-paying jobs can create higher-paying jobs in the U.S. in certain sectors, some higher-paying specialized services are being offshored due to lack of skill set availability. "Skill set availability has been cited as one of the major reasons driving jobs offshore. A pertinent example is radiologist jobs going overseas due to 18% unfilled positions in the US in 2002," says Rohit Arora, a co-author of the report.
The companies that view outsourcing as a long-term investment and are willing to stay beyond a year (68 percent) reported the highest level of satisfaction. The rest, interestingly enough, had less than 12 months experience offshore.
"An important ingredient to the satisfaction level is the commitment of top management to employ outsourcing as a competitive tool and be ready to stay the course," says Harpreet Khurana, a co-author on the report.
"The main downside to outsourcing perceived by American businesses is loss of institutional knowledge, data security, loss of intellectual property rights and political risks," Khurana adds. "The lesson for countries competing for offshore business and foreign development income is that the legal system must be fair and robust."
The report was authored by: Nirupam Bajpai, Senior Development Advisor and Director for the South Asia Program at the Earth Institute's Center on Globalization and Sustainable Development; Rohit Arora, a graduate student at the Columbia School of International and Public Affairs; and Harpreet Khurana, a graduate student at the Columbia Business School.
The report can be downloaded from the URL below:
http://www.earthinstitute.columbia.edu/cgsd/documents/bajpai_outsourcing_001.pdf
It will be used in part in the UN World Investment Report 2004.
The Earth Institute at Columbia University is the world's leading academic center for the integrated study of Earth, its environment and society. The Earth Institute builds upon excellence in the core disciplines –earth sciences, biological sciences, engineering sciences, social sciences and health sciences –and stresses cross-disciplinary approaches to complex problems. Through its research training and global partnerships, it mobilizes science and technology to advance sustainable development, while placing special emphasis on the needs of the world's poor. For more information, visit www.earth.columbia.edu.