Stamford, Conn. -- FORTUNE 500 companies have realized better than expected cost savings and are planning to expand their offshoring activities, according to a new Duke University/Archstone Consulting study that examined the results and offshoring initiatives of 90 large companies with average revenues of $21 billion.
The results, which were presented today at the 2004 National Forum on Trade Policy in Durham, N.C., found that 72 percent of offshore implementations met or exceeded their expected savings, with 31 percent achieving their service level goals within the first five months. The results also indicated that more than 55 percent of the companies surveyed had cost savings expectations greater than 30 percent per year.
The study also revealed that offshore implementations are planned to grow by more than 50 percent over the next 18 to 36 months citing significant cost benefits as the No. 1 driver (93 percent) followed by demand for improved service levels (56 percent).
"Offshoring of 'white collar' jobs has become a viable strategy for U.S. companies needing to increase their global competitiveness," says Scott Furlong, a principal with Archstone Consulting. "And while companies are acutely aware and concerned about the risks of offshoring, they are making strategic decisions about the right models and the right countries in which to pursue their offshoring strategies.”
The study is the first in a series of bi-annual surveys designed to gain insight into strategic drivers, offshore operating models and financial results of FORTUNE 500 companies. Survey participants recognized offshoring as a force that will continually gain momentum as companies continue to globalize their operations.
"We believe this is the first study that actually compiled data on strategies, plans and operating experiences with offshoring at the company level instead of relying on anecdotal information," says Arie Y. Lewin, Director of Duke's Center for International Business Education and Research (CIBER). "What is also important about this work is that we will continue to survey a growing panel of companies every six months and track trends over the years."
Other key survey findings:
- Higher Value Services Moving Offshore - While IT is the function most often offshored (66 percent), high value services like finance and accounting (60 percent) engineering services (44 percent) and research (32 percent) are more often offshored than transaction-process services like human resources and procurement (24percent);
- Companies are Moving Beyond India - While India is still the leader (80percent) of offshore operations, only 52 percent of expansion plans with a specified location are being targeted for India. Other countries that are growing in importance include: China, other Asian countries, the Philippines, Latin America and Canada/Mexico;
- Companies View Service Levels as Both a Driver and a Risk of Offshoring -While the quality of service is ranked as the No. 1 risk of offshoring, companies are moving offshore to improve their service levels;
- Offshoring Delivers Faster Results than Average Domestic Improvement Efforts - In fact, 75 percent of participants reported reaching targeted service levels within 12 months; and
- Political Backlash had little-to-no impact - Less than 5 percent postponed offshoring plans due to political backlash. In fact, 72 percent said it had no impact on their decision to offshore