For years, we have been saying that outsourcing is a management trend that swings back and forth like a pendulum, which is controversial because most experts believe that outsourcing is the prevailing trend. In this blog, we will discuss both the anecdotal evidence and empirical evidence and discuss the current thinking about outsourcing.
- Anecdotal evidence comes from commercial printers who are bringing in services that they previously outsourced such as large format printing, mailing and fulfillment services.
- Empirical evidence comes from companies that outsource services.
A Wall Street Journal article, entitled, Donald Trump Outsourcing Attacks Put Firms On Guard, describes the decline in outsourcing and offers evidence of declining outsourcing efforts: “Thanks in part to rising labor costs abroad, offshoring has been declining or stalling in recent years. With wages rising quickly in countries such as China, more outsourcing providers are pushing automation as both a politically neutral and cost-effective solution.”
Will the current administration impact management’s opinion about outsourcing? According to an article, The Traditional Outsourcing Model is Officially Out of Value, but the Future is Bright for Co-Innovation Partnerships, it already has had an impact. This article cited a recent research project done in conjunction with KPMG that included 454 Enterprise Buyers. Author Phil Fersht wrote:
Remember all those juicy reasons why companies jumped into outsourcing? Like driving out cost, standardizing processes, perhaps even finding a few nuggets of innovation along the way with better access to talent and technology? Well our new 2017 State of Operations and Outsourcing Study of 454 major enterprise buyers gives a pretty gloomy picture of the current value impact of today’s outsourcing engagements”.
In the above cited Wall Street Journal article, author Laren Weber writes, “Leaders of US companies with offshore operations are privately worrying they will come under the scrutiny of a president who has blasted firms for moving production outside American borders.” Weber interviewed people familiar with public shaming such as Eric Dezenhall, a crisis-management consultant and former press aide to former president Ronald Reagan who said, “There is a fear of being called out and shamed for outsourcing.”
Truth be told however, no one really knows if the current administration will impact outsourcing. Even the venerable New York Times struggled in answering the question. In a recent article, Pressure from Trump May Delay a Factory’s Exit, but It Won’t Stop It, author Justin Wolfers took both sides:
At first glance, pressuring a handful of companies seems unlikely to have much impact in an economy as large as that of the United States. Imagine that you are a chief executive of a company that has not been a Trump target; there are so many companies in the country that the risk of yours being denounced by the president is tiny. At least that’s what the math shows.
But the psychological reality is very different. Research has shown that people often overreact to insignificant risks, especially when the risks are so vivid. Just as it is almost certain that you won’t get eaten by a shark this summer, it is a near certainty that the vast majority of companies won’t end up in Mr. Trump’s cross hairs. Yet the fears persist, and people take greater precautionary measures than the actual threat warrants.
Personally, I don’t think public shaming will stop companies who are outsourcing printing offshore. That work is long gone and often falls below most people’s radar. However, this may help in-plants that are under administrative scrutiny. The Harvard Business Review refers to these trends as fads and says, “Management fads erupt on the scene, enjoy a period of prominence, and then are supplanted.” If there is continued outsourcing pressure, it could impact companies with in-plant printing facilities that are on the fence about outsourcing and motivate them to retain and improve their production efforts.