20 Jul The future for businesses who ignore offshoring
I have seen the future …
I’m sorry it didn’t work out well for your business, but let me tell you what I saw.
I saw an “outsourcing” industry making it easy for business of all sizes to employ global teams. I saw that it was the norm for senior staff in Australia to manage the output quality of skilled offshore teams costing one fifth of a similar team in Australia. I saw Australian SMEs with as little as two offshore staff, and major corporations with offshore teams of 14,000. And believe me, this future was a lot brighter than most people could have imagined in 2015.
But back to you. I know you thought you were doing the right thing when you chose to hire only Australian staff, but didn’t you realise how much the world was changing? While you were convinced that having an offshore team was a bad idea, your competitors were figuring out how to make it work.
I understand where you were coming from. Like the rest of us way back in 2005, you were frustrated with offshore call centres with their slow staff who were difficult to understand. In your mind, offshore had become synonymous with low quality. Unfortunately, those experiences caused you disregard global resourcing and you didn’t notice the tipping point where all that changed.
Still, by 2015, when you realised that others in your industry were hiring offshore staff, maybe you shouldn’t have shrugged it off. Of course, your heart was in the right place when you declared you’d only hire Australians. You were worried about quality, and considered slave wages unethical. But if you’d looked a bit closer you might have discovered that not only was quality maintained, but that those “slave wages” allowed offshore staff to afford a permanent housekeeper and a private school education for their kids.
Meanwhile, your competitors were paying top local salaries in global labour hubs like the Philippines, for highly skilled, motivated and loyal staff, in a huge range of degree-qualified office roles. You can understand why these successful businesses were reluctant to share those secrets with their competitors.
I guess you knew these businesses had higher margins than you, but you could rationalise that by sticking to your principles and refusing to pay “low” wages. And you probably didn’t realise how big that margin difference was.
Then they dropped their prices.
Having spent a good 2-3 years optimising their businesses with global teams, your competitors had figured out how to triple their profits. Inevitably, one of them radically dropped prices and splurged on advertising in order to grab the biggest market share.
You thought those low prices were just a expensive gamble. A risk that was bound to fail. But it started a trend that snowballed as your other competitors quickly duplicated the lower prices. That’s when you realised that they’d all reduced their costs over the years by quietly integrating offshore teams.
It didn’t take long for the market perception of the value of your products and services to fall. Soon it was lower than it cost you to produce. Within a year you went from earning a steady profit to realising that you could no longer compete on price. You also learned that your perceived “quality advantage” was difficult to sell when your price was 40% higher than your competitors. Your clients deserted you.
In desperation you began to look at offshoring solutions to bring your cost base down. But offshoring is not easy to do well when you’re in a rush, and your savvy competitors were 3-10 years ahead of you.
As I said earlier, I’m sorry your story didn’t end well.
But it doesn’t have to be like that. Since 2012 we have been quietly suggesting to businesses of all sizes that they get up to speed with what their competitors are doing offshore. If they ultimately choose to employ a well-considered strategy and not engage in global-resourcing, that’s great too. The main thing is to investigate what a valid offshore strategy can offer, and understand the changing competition, instead of relying on dangerous assumptions.
Don’t stick your head in the sand. Our clients understand what their competitors are doing, what their margins are, and exactly how global resourcing will create new pressures in the near future.
Until you understand how big this shift is, and how innovative and low-cost your competitors become when they adopt it, there’s a real danger that you are failing to understand the economics of your industry. The last ten years will NOT be like the next ten years.
The fastest (and most enjoyable) way to get educated is to come on one of our Philippines Strategy Tours. Four days of entrepreneurial learning and amazing insights into a country that has become the new centre of the global economy. There’s still time to change your future if you act now.