Offshoring to surge in 2005: Hewitt study

Global offshoring is likely to see a steady growth in 2005, with more companies in developed countries planning to offshore services to low-cost destinations.

According to a Hewitt survey of more than 100 companies, nearly 53 per cent said they had already offshored services to low-cost high quality hubs, while 11 per cent said their companies intended to do so this year.

Respondents cited manpower efficiency as the main reason for resorting to offshoring. The quality and availability of relevant manpower were the other reasons for the jump in offshoring.

Cost was the another driver and some respondents also viewed global sourcing as an excellent way to access new markets, the survey said. Appropriate location was also important for global sourcing operations.

Respondents said identifying potential suppliers was a major problem that faced global offshoring.

Other challenges included defining tasks to offshore, selecting the right strategy and negotiating and placing contracts with suppliers. Some respondents said they were concerned about conceding control to another company.

"Legal requirements, along with tax systems, language and cultural issues are other considerations for companies," the survey said.

On the future of global sourcing, nearly 84 per cent of the respondents said they were optimistic about the growth of offshoring.

Activities, including transaction processing, call centres, payroll, recruitment, IT services, data conversion and contract manufacturing, have been largely offshored to countries like India, China, Bangladesh, Mauritius, Russia and Sri Lanka.

Nearly 23 per cent of the respondents said outsourcing had exceeded their expectations, while 62 per cent said the services had been satisfactory.

Industry experts predict that by 2015, offshoring by the US companies would represent $135 billion in wages and 3.3 million professional jobs. And new countries like Czech Republic, Poland, Hungary and Mexico are likely to become new offshoring destinations this year.