Recently an entire computer service company moved to South Africa from Chicago to take advantage of the lower South African currency, the Rand. Now they run all of their operations from Johannesburg. The only activity left in the States is the sales activity. Another recent major move in America was a huge company called Halliburton. The multibillion dollar American defense support and service company announced that it was moving its head office to Dubai to be closer to the client. All of this after finishing a $10 billion contract with the United States government. Outsourcing is permitting companies to locate to just about anyplace. Today it is possible to be anywhere in the world and to operate at lower costs. How far can outsourcing go and how does the future look?

Outsourcing can take on many different forms, including direct and indirect activities. Large multinational companies must be prepared to react to these competitors. Sectors such as the auto industry are being attacked from competition in many different ways. The most obvious attack is from the outsourcing of manual labor. Many companies are required to delocalize their work forces to cheap labor economies such as in Eastern Europe or China. South America has also benefited. Companies that have their manufacturing infrastructure in first world nations have been forced to adapt. The impact is much more harsh in Europe to the point where the UK has pulled out of the auto industry altogether with the closing of Rover. England is moving out of the industrial sector and into the service industry.

To make it more complicated, outsourcing can come from various sources. This has been seen in the travel industry. Until a few years ago the majority of all travel activities were purchased in travel agencies. Today 83 percent of travel is purchased on the net including train and plane tickets, car rentals and hotel rooms. Basically, travel agencies are almost gone. To make it worse most of the computer activities related to the sites are managed and maintained in other countries.

Outsourcing is also forcing companies to react to the competition in the service markets. We have all been hearing about the outsourcing of the computer industry to cheaper market economies. Recently several large multinational companies in Germany were going through a general audit. It is required for publicly traded companies to do this biannually. There is nothing particular about this situation except the expertise was provided by Price Waterhouse Coopers in India. The financial legal and managerial consulting for German companies was being managed by Indian consultants with expertise in German law, accounting and managerial procedures. They completed the project at 30 percent of the cost of local service providers. The team from India visited the client for three weeks following which they returned to India to complete the reports.

These are only a few situations where outsourcing is taking on a new shape. When will creative talent be outsourced? What about new ideas? With companies becoming more international and globalization increasing at a fantastic rate, this form of competition will be evolving. It will be the most dynamic and adaptable surviving.

Forbes
Paul Seymour