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Smarter offshoring.

Diana Farrell1

  • 1McKinsey Global Institute, San Francisco, USA.

Harvard Business Review
|June 15, 2006
PubMed
Summary
This summary is machine-generated.

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.

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  • 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.