OPINION: US onshoring - an idea whose time has come

Posted: 08/03/2016 - 20:12

Dictation being forced in Afghanistan,
Revolution in South Africa taking a stand,
People in Eurasia on the brink of oppression,
I hope it’s gonna be alright.
‘It’s Alright’, Pet Shop Boys

Maybe not the greatest lyrics of all time, but enduring words from a 1989 song describing global upheaval. With some changes in location (maybe) 27 years later the words and sentiment remain. The rise of Donald Trump, the surprising popularity of Bernie Sanders and the Brexit. Mass murder in France, attempted revolution in Turkey. Shootings in both the US and Europe. People feeling abandoned by the systems they built, ignored by the people they elected and forgotten by organisations they trusted.

In such circumstances, people begin to look inwards. The international landscape appears uncertain at best and downright dangerous at worse. Globalisation is under siege.

Countries that have benefited from the same globalisation that has forsaken the working people of the West are exposed to increasing risk. Their success might be short-lived. We regularly read about automation replacing workers at alarming rates. In the WSJ on Thursday, July 7, 2016, Steven Rosenbush references a study by the International Labor Organisation which tells of imminent danger to the workforces of South-East Asia.

“About 137 million workers or 56 percent of the salaried workforce from Cambodia, Indonesia, the Philippines, Thailand and Vietnam, fall under the high-risk category,” Reuters says. In Cambodia alone, 600,000 garment workers make products for the well-known labels, according to Reuters. On the same day, The Times of India referred to a forecast of losing 640,000 BPO jobs by 2020, courtesy of HfS Research. Social unrest lurks close behind.

What do people naturally do in such times? They look inward. They find comfort by staying closer to home.

To switch gears on you – let’s look at another, less violent, driving force for “closer to home”, that of digital transformation. I can hear you sigh – “Not that buzz phrase again!” Well get used to it – technology is eating the world. As the physical and online worlds converge, technological and commercial skills are evolving. All this technology gets “developed” by people. Yes, machine-to-machine plays a role as do automated development tools – BUT people skills are in high demand and short supply.

These people need to be physically close (not distant as in previous models). They need to understand and speak the “language of business” fluently. They are technologically liberated and commercially emancipated. Teams sitting in India just don’t have the contextual understanding that digital transformation demands. They can’t create singular customer experiences without knowing the customer, and they can’t deliver on the pace digital requires. The rules are changing.

Y2K propelled offshore outsourcing: rote, static, serial, isolated and waterfall. Digital transformation powers onshore: iterative, dynamic, parallel, communicative and Agile.

Even Larry Fink of Blackstone – a man probably NOT known for peddling an emotional line of onshoring (which is how onshoring has often been mischaracterised) seems to think it’s inevitable. He acknowledged that good old economic principle so contemptuously ignored by the globalist economists: the Multiplier. Pay people, people spend, they buy, companies produce more, pay people more, get paid, they buy more (you get the point). Fink also talked about skills trumping labour cost – what will the services procurement “professionals” do? They’ll have to learn a whole new vocabulary, discarding all the old language: units, resources, labour arbitrage.

Enter US onshoring – the provision of technology and consulting services from lower-cost, smaller metropolitan, non-metropolitan, suburban or non-urban locations in the USA. This concept is better known as rural or domestic sourcing. It aligns practically with the needs of the digital wave, is inherently less risky than the international scene, intuitively makes sense and is the poster child for the economic multiplier (as our friend Larry Fink mentioned).

The digital journey that businesses find themselves on has an appetite for onshore skills deployed in methods like Agile. Given a perfect world, we’d all prefer to have all our people in the same location all the time – but the economics and existing skills shortage just won’t allow this. Therefore we have to establish an acceptable balance or price, quality, and risk on our software development, deployment and support investments.

  • In-house hires give us high price, highest quality, lowest risk – but the skills shortage and budget economics won’t support this approach exclusively.
  • Contractors and staff augmentation give us highest price, high quality, low (but not lowest) risk – but again these resources remain expensive and elusive with the same budget constraints.
  • Offshore gives us lowest price, lowest quality, highest risk – but the characteristics driven by digital appear to be the square peg in offshore’s round hole.
  • Onshore gives us a low price, high quality, lower risk.

Many see this as a fundamental challenge to their belief in globalisation. Globalists think the benefits are undeniable, eviscerating anyone who dares to challenge this view. This opinion has recently gotten such people into trouble (European Union autocrats take note). It’s a form of denial. The reality is that globalisation and its universal positive effect on the “distribution of wealth” are certainly deniable and debatable.

People and nations “looking inward” is not the end of globalisation and those that do it are no more “Little Englanders” or “Little Americans” hiding behind walls. It’s ok to take a breath – to re-group. Re-assessment is inevitable and fitting. In the case of the Brexit, for instance, the EU must re-assess their “real” intentions and objectives. In the USA an honest re-assessment of the structure of trade agreements and a wider consideration of who benefits are required.

The best metaphor is that of the pendulum. What we see here is the pendulum moving back to centre – not in one extreme (all offshore) or the other (all domestic) but the middle, in equilibrium. Globalisation doesn’t mean one size, or location, fits all. It’s a “horses for courses” world where onshore is the course for the new thoroughbred called digital.


About The Author

Simon Boardman's picture

Simon Boardman is VP of Marketing for Eagle Creek Software Services – the company that pioneered US onshoring. He is from the UK originally, but has lived and worked in the USA for 23 years.