While politicians debate the “political” implications of global outsourcing, the practice of outsourcing continues unabated, whether we like it or not. In fact, “outsourcing” in one capacity or another has been with us for decades, if not centuries, but there has never been such a firestorm of debate until the new millennium.
In the human resources space, outsourcing has been popular for years for services like payroll processing and benefits administration. Again, nobody complained - until outsourcing started to impact higher wage earners (i.e., programmers making six-figure salaries) and the outsourced jobs were going outside the USA.
Today's blog posting isn't about whether outsourcing is morally right or wrong, how we feel about it philosophically, or it's implications on society. We'll leave that to somebody else’s blog and to the politicians. No, this posting is about how outsourcing will soon impact, if is hasn't already, your HR business – whether you are a contract recruiter or a regional, mid-size employee benefit firm – and what you should do now to prepare.
But first, some background information from the July 25, 2005 issue of Fortune. In it an article on outsourcing entitled CAN AMERICANS COMPETE? Is America the World's 97-lb. Weakling? (a must read!) points out that large multinational companies adapted to outsourcing long ago – it's the American workforce that hasn't yet adapted. The magazine reports that "firms like Coca Cola and Procter & Gamble already employ most of their workers outside the U.S."
What's most interesting (or alarming) are the types of jobs that are increasingly being outsourced. It's no longer just claims processors, data-entry and manufacturing – increasingly it’s high-paying jobs like accountants, analysts, researchers, programmers and even marketing positions.
Morgan Stanley recently reported they are hiring Indian bond analysts, and as the Fortune article reports, "Texas Instruments is conducting critical parts of its next-generation chip development – extraordinarily complex work on which the company is betting its future – in India." In other words, companies that once employed dozens of engineers/developers for $100,000+ per year in the U.S. can now outsource the jobs for one-fifth the cost.
"Yeah, but what about the quality?" you ask. According to the Fortune Magazine article, countries like China, India, Mexico, Malaysia and Brazil are turning out large numbers of well-educated young people fully qualified to work in an information-based economy. China will produce about 3.3 million college graduates this year, India 3.1 million (all of them English-speaking), the U.S. just 1.3 million. American workers are simply more expensive than almost anywhere except Western Europe.
Historically this was not a problem since most high-paying U.S. jobs could not be done by anyone else around the world. Not anymore, and herein lies the opportunity for HR suppliers.
So yes, let’s get back to HR. How can outsourcing potentially impact your human resource business? Every HR vendor should ask themselves: "Can any part of our product development and/or service delivery be effectively outsourced without sacrificing quality or innovation?" If the answer is yes, you need a plan to do so. Otherwise, your firm may be unprepared for future competition. If you answered no, then your competitors may outsource you right out of business – think harder because your answer will probably change to yes.
Regardless of your size or type of HR business, outsourcing offers you the opportunity to increase your economic value (the difference between price and cost). This is important because the creation of economic value is the final determinant of business success, and most experts would agree that there are only two ways a company can increase its economic value – operating at a lower cost and/or commanding a higher price for services. If you can continue to command a premium for your services, then perhaps outsourcing cannot benefit you and/or the threat from abroad isn't a concern. But most of us do not have that luxury so we must continue to find ways to lower operating expenses or face competitive threats from foreign competition or U.S. competitors who have reduced costs through outsourcing.
What can be outsourced? Anything really. Programming, tech support, training, market research, marketing and PR – you name it. HRmarketer.com is an outsourced solution (and an incredible value). For a few thousand dollars per year, HRmarketer does what many companies still pay at least one full-time person or an agency to do.
The point is that outsourcing has never been easier and more economically feasible, so now is the time to evaluate your options and plan for the future. In today's global economy, it’s just a matter of time before less-expensive foreign HR solution providers enter our market (we've received a lot of HRmarketer pricing requests from such firms recently) and start responding to RFPs – or until your competitors reduce their prices because of strategic outsourcing decisions they made.
If you missed it on the way in, welcome to the global economy.