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Related Experiment Videos

Smarter offshoring.

Diana Farrell1

  • 1McKinsey Global Institute, San Francisco, USA.

Harvard Business Review
|June 15, 2006
PubMed
Summary

Offshore service functions are overheating in popular cities due to high demand. Explore emerging global locations offering skilled talent and better infrastructure for sustainable business growth.

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Area of Science:

  • Business Strategy
  • Global Economics
  • Human Capital Management

Background:

  • Companies increasingly utilize offshore service functions, concentrating in specific Indian and Eastern European cities.
  • Popular offshore locations face challenges: labor shortages, rising wages, high turnover, and strained infrastructure.
  • This concentration leads to market saturation and operational inefficiencies in established hubs.

Purpose of the Study:

  • To identify and evaluate emerging global locations for offshore service functions.
  • To analyze the limitations of traditional offshore hotspots and highlight alternative destinations.
  • To guide companies in selecting optimal offshore locations based on evolving business needs.

Main Methods:

  • Analysis of labor market trends and talent availability in emerging economies.
  • Assessment of infrastructure, regulatory environments, and cost-effectiveness of alternative offshore sites.
  • Review of case studies from countries like Morocco, Tunisia, and Vietnam.

Main Results:

  • Over 90% of university-educated talent suitable for multinational corporations resides outside current popular offshore cities.
  • Emerging locations like Morocco, Tunisia, and Vietnam offer skilled workforces, favorable business conditions, and competitive wages.
  • Alternative sites present viable solutions to the 'overheating' issues in traditional offshore hubs.

Conclusions:

  • The selection of offshore locations requires a strategic shift from solely focusing on low wages to a comprehensive evaluation of diverse business needs.
  • Companies must rigorously assess alternative cities' capacity to meet long-term operational requirements.
  • Emerging markets present significant opportunities for companies seeking sustainable and efficient offshore service operations.

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