Striking a Balance with Offshore and Nearshore Consulting

Some points to consider if you are contemplating an offshore consulting solution

The question of offshoring e-procurement or e-sourcing consulting is a topic of ongoing debate. The traditional argument for sending work offshore has been economics, essentially boiling down to cost savings due to the disparity in labor costs overseas. But as with many business trends, there is tendency to overcompensate a need based on a perceived value. And after witnessing it firsthand with clients, it is evident that a 100 percent offshore solution may not be the wisest approach. If you are contemplating an offshore consulting solution, consider some of the following points.

From a consulting services perspective, tasks commonly supported by IT offshore resources include application development, system administration and system help desk (level 1 or 2). A number of individuals usually share these tasks but they are managed through resources locally. If an issue arises, tracking down the root cause can be a challenge and lead to duplicated efforts to fix the problem. In other words, using cheaper labor costs as the main consideration for the offshoring decision may be misguided if the total cost (both soft and hard) of managing/working with offshore resources is not also considered.

Furthermore, based on client engagement experience, consultants that have previously been on-site or are already familiar with corporate culture and business requirements in combination with technical application knowledge, have also proven to be an effective offshore alternative for clients looking for that high level of customer service in a remote package.

At a macro level, consulting companies focused offshore may also be faced with some interesting challenges. First, talented resources offshore have become difficult to retain, according to one argument, with many coming to the United States or Europe after achieving initial success with an established firm. An October issue of The Economist explored the topic of talent, contending that finding the right talent is the true “global issue” in services industries. In this vein, employee retention may be a factor that prevents an offshore consulting provider from delivering consistent long-term solutions with their services.

Second, as labor costs increase in the major offshore markets, resourcing and management costs will also put pressure on profit margins for offshore vendors. To illustrate this point, The McKinsey Quarterly recently published a study of a survey about wage inflation in the India business process outsourcing market, where labor costs have been growing at a rate of 15 percent annually. Though there is still a big divide with consulting rates in the West (i.e. United States and Europe), the cost differential advantage will begin to diminish.

There is no doubt that offshore resourcing, estimated to grow 20–30 percent per year, will continue to be an area of focus for professional services. However, based on the early market indicators for offshore consulting, it would be advisable for corporate procurement departments to work closely with IT to devise a mix of local and offshore consulting resources. As the offshore/nearshore dynamic evolves, the true benchmark for a successful remote solution will be related to the ability to achieve long-term client goals, not just the lure of short-term financial gains.