Outsourcing Makes A Comeback

After a brief hiatus, companies are back to offloading work to cut costs.

Remember all the talk about outsourcing? After fizzling out over the past couple years as companies simply slashed jobs rather than move them, outsourcing is back in vogue.

A new PricewaterhouseCoopers study shows outsourcing has roared back to life in the past six months and is accelerating, driven by the same cost-cutting focus that triggered the trend in the first place. Some of this is offshoring to captive business units where labor costs are lower, which helps maintain continuity of service. Some of it is to third-party companies. And some of it is moving to countries like India, and from India to other places like China, the Philippines and Costa Rica. Even Romania has jumped into the game for outsourcing accounting services."Cost is still the major factor," says Charles Aird, managing director for shared services practices at PWC. "But people are also looking for greater efficiency, better quality and access to talent."

In Romania, for example, graduates of a five-year accounting program are willing to work at a clerical pay scale after graduation in order to gain some real-world experience. That doesn't last, but the number of graduates has been sufficient to keep labor costs low and accounting quality extremely high. China likewise has set up a three-year degree for clerical staff that provides good-quality labor for a significantly reduced cost.

The list of what's being outsourced is growing, too. PWC's list includes everything from application to infrastructure support, and on the application side it includes finance and accounting, human resources and even legal research. Some of it is being driven by companies cutting costs to get ahead of the competition. But much of the recent growth is being driven by competitors playing catch-up to market leaders that slashed their costs prior to the downturn.

Not everything can be outsourced effectively, though. Computer customer service that was outsourced to India, for example, was notorious for alienating customers. Dell ( DELL -news - people ) eventually brought much of its call-center support back into the U.S. from India, while Apple ( AAPL -news - people ) has made a point of keeping support within the country in which the calls originate. In contrast, application development--a much more complicated skill set--that was outsourced to India has proved to be extremely successful.

Source: Forbes.com