Out sourcing.

• Author: Marshall, Jeffrey
• Position: Special section

Once confined to technology applications and development, offshore outsourcing is growing quickly into knowledge and service areas. Its principal driver: cost savings.

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In the ever-evolving lexicon of business, "multitasking" became popular in the 1990s with the growing sophistication of computers. Expect to hear a lot more about "multishoring" in the years to come.

Multishoring essentially means outsourcing work to more than one offshore location, and it is accelerating at the largest multinationals. It technology functions like that are being sent overseas, moreover, but a whole raft of business, processes like customer service and financial analysis--hence the rise of "business process outsourcing," or BPO.

While top U.S. companies like General Electric Co. and Hewlett-Packard Co. are often cited as bell-wethers, European companies like BP plc and British Airways have also instituted huge programs, and mid-sized companies are clambering on the bandwagon, too. Be it India, the Philippines, Hungary, Guatemala or China, developing countries are eagerly putting out the welcome mat for foreign companies.

The siren song of offshore outsourcing is mostly about money--saving through labor cost arbitrage, by replacing a high-paid job in a developed country with a position for far less in what is usually a developing nation. Gunn Partners, a noted outsourcing consultant, says that companies can frequently save as much as 70 percent on pure labor expenses--though higher telecom, travel and administrative costs may cut those savings in half--and recover their costs within a year. Many foreign-based vendors claim to provide better service levels, as well.

Research seems to support some of those claims. A Forrester Research study earlier this year of 145 U.S. companies found that 88 percent claimed to get better value for their money overseas, and 71 percent said overseas workers did better work.

The cost figures practically leap off the page. Gunn cites one situation in India where the unit manager was making $5,000 a year and the staff just $2,500 each. In another case, a position cost $15,000 in India and $85,000 in the U.S. At a time when companies find they have little pricing power or revenue growth, while health care costs are skyrocketing, such prospective savings gleam like a beacon in a dark night.

A.T. Kearney, a management subsidiary of EDS Corp., has concluded that back-office processing of information technology and IT-enabled services will continue to be outsourced, but the most significant growth and impact will be in more highly skilled services, including financial analysis, regulatory reporting, accounting and graphic design.

Consultants dismiss the idea that large-scale outsourcing is a fad that will disappear if economic growth ever comes steaming back after years in the doldrums. "This trend is not simply a reaction to the slow economy," says Bob Cecil, an executive director with Gunn. "It's accelerating, and will continue to grow as corporations realize that offshoring and multishoring are among the few remaining options for sharply reducing costs and improving competitive advantage."

"The whole concept of offshoring is here to stay," says Mark Teen, president of EquaTerra, an outsourcing advisory firm in Houston, with a major reason being "the access to a labor pool that is going to be more competitive [on costs]. The big focus areas we see are...