EXECUTIVE
SUMMARY
SURVEY ON: ANTI-OFFSHORING PRESSURES AND OFFSHORING OF INFORMATION TECHNOLOGY AND BUSINESS PROCESSES by Shaji khan and Dr. Mary Lacity
Acknowledgements: We are grateful to the 84 respondents for participation and Everest Group for facilitating this survey.
Copyright © 2012 Khan and Lacity
Parallel to explosive growth in offshoring1 of Information
Technology (IT) and Business Processes (BP), we have
also witnessed a growing backlash against offshoring and
resulting pressures on organizations to curb their
offshore engagements. Yet, it is unclear how
organizations are dealing with and responding to such
anti-offshoring pressures2? To gain a better
understanding of organizational responses to anti-
offshoring pressures, we conducted a survey of buyer
organizations with the help of Everest Group during
September – November, 2011. The survey revealed some
interesting insights. Key findings are summarized below.
Overall Extent of Offshoring: On average, there
seems to be no indication of an overwhelming drift
away from offshoring as a result of anti-offshoring
pressures.
A majority of respondents disagreed that their
organization is scaling back or putting on hold
originally planned growth in offshore delivery of IT
and BP services
A majority also disagreed that their organization is planning to avoid (at least within the next 12 months) longer term offshore contracts as a result of anti-offshoring pressures
Service Provider/Location Selection: On average,
we did not find any apparent preference for only
those offshore majors that have sizeable presence
in buyers' home country.
Respondents did indicate some preference for global
majors who can provide flexibility to move offshore
work back to organization’s home country in case of
severe anti-offshoring regulation
The impact of service provider or location selection
on corporate image is an important criterion in
1 For the purposes of this study, offshoring includes both use of third-
party service providers and captive engagements to provide offshore delivery of IT and BP Services 2 The phrase ‘anti-offshoring pressures’ is used here broadly to denote
expectations or demands from constituents that organizations should reduce or eliminate offshoring. That is, the pressures are against "the sending of domestic jobs overseas". The constituents include, but are not limited to, the general public and public opinion, governments, regulatory structures, legislative attempts and laws, professions, unions and interest groups, among others.
making supplier/location choices for a large portion
of responding organizations
Contractual and Relational Governance: More
respondents agreed that anti-offshoring pressures
have had little impact on how contracts are
structured and relationships are managed.
However, we saw some indication of buyer
organizations’ existing or planned use of contractual
buffers to protect against potentially severe anti-
offshoring regulation
Also, some indication that organizations have increased scrutiny of service provider use of work visas and workers deployed onsite
Regulatory Environment Uncertainty: Overall,
respondents expressed greatest uncertainty about:
Changes in laws or policies in relation to hiring of
foreign workers (e.g. H1-b visa policies in the U.S.)
Changes in tax laws or policies related to offshoring
Organizational Satisfaction with Offshoring: On
average, respondents indicated fairly high success
with offshoring. Similar levels of high satisfaction
with both IT and BP offshoring.
Cost reduction and improved flexibility seem to be
the major benefits of offshoring
High offshore employee turnover and problems with
knowledge transfer appear as key issues
For the questions asked, distributions of responses,
information on demographics and nature of offshore
engagements, and other interesting insights, see the full
survey results.
About the authors:
Shaji Khan ([email protected]) is a Ph.D. Candidate
and Dr. Mary Lacity ([email protected]) is Professor
of Information
Systems at the
College of Business
Administration,
University of
Missouri-St. Louis.
ANTI-OFFSHORING PRESSURES AND
OFFSHORING OF INFORMATION
TECHNOLOGY AND BUSINESS PROCESSES
Shaji Khan, Ph.D. Candidate, Business Administration
with IS Emphasis, UMSL
Mary Lacity, Professor of Information Systems, UMSL
Survey Results
Background
Parallel to explosive growth in offshoring, there have been calls for a reduction in
offshoring by a variety of institutional stakeholders such as government and
regulatory bodies, the general public and public opinion, special interest groups,
labor unions, professions, customers…
Institutional opponents are attempting to curb offshoring through regulations, political
rhetoric, public demonstrations, etc.
… President Obama proposes the American Jobs Act
… Bill introduced in US Senate titled “Creating
American Jobs and Ending Offshoring Act”
(eventually blocked from becoming law)
“The United States Call Center Worker and Consumer
Protection Act would protect US jobs and consumers by
punishing companies that send our call center jobs abroad.”
Communication Workers of America. http://www.cwa-union.org/issues/entry/c/call_center_bill/
(Bill Introduced in the House on Dec 7 2011)
Copyright © 2012 Khan and Lacity
2
“It is time to stop rewarding businesses that ship jobs
overseas, and start rewarding companies that create
jobs right here in America” President Obama, State of
the Union Address (January 24, 2012)
“Ins
our
cing
Am
erica
n Jo
bs"
foru
m a
t th
e W
hite
Hous
e
01/11/2
01
2
New York Senator urges National Grid CEO to ditch plans for sending 200 IT jobs offshore http://www.informationweek.com/news/security/privacy/222300075
Research Question: How are buyer organizations dealing
with and responding to anti-offshoring pressures?
Copyright © 2012 Khan and Lacity
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Outline
Survey Background
Demographics
Nature of offshore engagements
Success with Offshoring
Organizational responses to anti-offshoring pressures
Overall extent of offshoring
Service Provider/Location Selection
Contractual and Relational Governance
Regulatory Environment Uncertainty with respect to Offshoring
Copyright © 2012 Khan and Lacity
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Unit of analysis: Organization
Focus on buyers of offshored services
Here offshoring includes both use of third-party service providers and captive operations
Information Technology (IT) and Business Process (BP) Offshoring
Survey invitation sent to members representing organizations across industries and countries
Responses in relation to offshoring from organization’s headquarters country
Data collection period: September to November, 2011
Copyright © 2012 Khan and Lacity
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Survey Background*
* - Our sincere thanks to Everest Group for facilitating this survey
Demographics (n=84; respondents from buyer organizations)
Industry
Category %
Aerospace and Defense 5.9
BFSI: Banking, Financial Services and Insurance 27.9
Consumer Packaged Goods 7.4
Electronics & Hi-Tech 8.8
Energy & Utilities 4.4
Healthcare 10.3
Manufacturing & Industrials 10.3
Media & Entertainment 2.9
Professional services/Investment 5.9
Retail 2.9
Telecom 4.4
Others 7.1
Total 100%
Australia 1
Canada 3
France 4
Germany 3
Hong Kong 1
Netherlands 2
Switzerland 2
United Kingdom
8 United States
60
Organization Headquarters (Number of respondents)
Majority of responding organizations
headquartered in U.S.
Eight other countries represented
BFSI was most represented with 27.9%
Healthcare and Manufacturing with approx.
10% each
Copyright © 2012 Khan and Lacity
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Demographics (contd.)
20%
22%
20%
13%
24%
0 - 4,999
5,000 - 19,999
20,000 - 49,999
50,000 - 100,000
> 100,000
Organization Headcount (Percentage of respondents)
< $250M 6%
$250M - 1B 5%
$1B - 5B 23%
$5B - 10B 17% $10B - 20B
10%
$20B - 30B 9%
$30B - 40B 5%
> $40B 25%
Organization Revenues (Percentage of respondents)
Copyright © 2012 Khan and Lacity
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Nature of offshore engagements
Copyright © 2012 Khan and Lacity
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Offshore Models by Number of Employees (Percentage of respondents)
Info
rma
tion T
ech
nolo
gy
Busi
ness
Pro
cess
es
22%
20%
22%
13%
56%
67%
0% 20% 40% 60% 80% 100%
Business Processes
Information Technology
Dominant Offshore Models Used (Percentage of respondents)
13%
18%
27%
18%
15%
87%
64%
58%
0% 20% 40% 60% 80% 100%
< 5,000 Employees
5,000 - 50,000 Employees
> 50,000 Employees
20%
30%
15%
20%
13%
35%
60%
57%
50%
0% 20% 40% 60% 80% 100%
< 5,000 Employees
5,000 - 50,000 Employees
> 50,000 Employees Predominantly Captive
Similar Mix Across Captive/Third-party
Predominantly Third-party Providers
(see next for summary)
Copyright © 2012 Khan and Lacity
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Nature of offshore engagements (contd.)
About one-third of respondent
organizations had fewer than 500 FTE
deployed in offshore locations
43% had 2000 or more FTE deployed in
offshore locations
34%
12%
12%
16%
8%
3%
4%
12%
< 500 FTE
500 - 999 FTE
1,000 - 1,999 FTE
2,000 - 3,999 FTE
4,000 - 5,999 FTE
6,000 - 7,999 FTE
8,000 - 9,999 FTE
> 9,999 FTE
Offshore Headcount (Percentage of respondents)
Offshore Models Summary
More respondents indicated use of third-party providers as their dominant offshore model for both IT and BP services
BP Services seem to have a relatively heavier captive component in this sample
Increasing use of captive arrangements and decreasing use of third-party providers with greater organizational size is fairly evident for IT Offshoring
However, within BP offshoring smaller organizations (fewer employees) showed greater percentages for captive arrangements than larger organizations
Assessing organizational satisfaction
with offshoring
We asked: Please indicate the extent to which overall
offshoring (across locations, models, and functions) has been beneficial/detrimental to your organization. (7 point response format)
Strongly
Disagree
Disagree Somewhat
Disagree
Neither
Disagree nor
Agree
Somewhat
Agree
Agree Strongly
Agree
Copyright © 2012 Khan and Lacity
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30%
51%
39%
66%
7%
6%
8%
5%
%
%
Assessing organizational satisfaction
with offshoring: Results
1
0
3
3
4
8
3
4
0
14
8
19
3
13
9
23
26
27
27
21
45
27
33
26
21
12
18
4
0 10 20 30 40 50
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
offshoring has helped us achieve
increased speed to market or speed of
delivery
offshoring has improved our overall
flexibility
offshoring has helped us gain increased
access to skilled personnel
offshoring has helped us reduce costs
Overall… %
Benefi
ts w
ith
off
shori
ng
Copyright © 2012 Khan and Lacity
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30%
9%
40%
28%
14%
49%
12%
21%
%
%
Assessing organizational satisfaction
with offshoring: Results (contd.)
we have experienced problems with
knowledge transfer
we have experienced issues related to
poor data security / privacy
we have experienced high offshore
employee turnover
we have experienced poor service quality
With offshoring … 3
0
10
1
18
12
39
13
14
6
10
8
6
13
13
14
30
29
19
35
19
30
6
17
9
10
3
13
0 10 20 30 40 50
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
%
Dra
wb
ack
s w
ith
off
shori
ng
Copyright © 2012 Khan and Lacity
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4%
50%
48%
%
% 1%
Assessing organizational satisfaction
with offshoring: Results (contd.)
with our overall benefits from
Information Technology (IT) offshoring
with our overall benefits from
Business Process (BP) offshoring
Resp
ond
ent
s gene
rally
agre
ed tha
t
We are satisfied … %
0
2
1
2
10
9
14
16
27
23
38
32
10
18
0 10 20 30 40 50
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
Note: We did not find any statistically significant differences for the offshoring
success related items based on:
• US versus Non-US firms
• Dominant Offshoring Models (i.e. predominantly captive, third-party, or mixed)
• Exclusive use of Offshore Majors versus others
• Organizational Size Copyright © 2012 Khan and Lacity
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Assessing organizational satisfaction
with offshoring: Summary
Benefits
Cost reduction and improved
flexibility emerge strong
Increased speed to
market/delivery and improved
access to skilled personnel were
not as strong
Greater variation in responses
related to “improved access to
skilled personnel”
Drawbacks
High offshore employee turnover
and problems with knowledge
transfer appear as key issues
Poor data security / privacy
concerns do not appear to be a
major issue
Greater variation in responses
related to poor service quality
On average, respondents indicated fairly high success with offshoring
Similar levels of satisfaction with both IT and BP offshoring
Copyright © 2012 Khan and Lacity
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Assessing organizational response to
calls for reduction in offshoring:
We asked: Please indicate how your organization is dealing
with anti-offshoring pressures from various constituents across
the different aspects presented below. Constituents include
government and regulatory bodies, the general public and
public opinion, special interest groups, labor unions,
professions, customers, or others. (7 point response format)
Strongly
Disagree
Disagree Somewhat
Disagree
Neither
Disagree nor
Agree
Somewhat
Agree
Agree Strongly
Agree
Copyright © 2012 Khan and Lacity
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Assessing organizational response to
calls for reduction in offshoring: Results
8%
12%
10%
8%
%
%
57%
55%
61%
58%
16
13
14
8
39
45
43
53
13
8
10
16
17
15
12
13
8
7
10
2
6
10
3
8
2
2
7
0 10 20 30 40 50 60
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
%
organization has reduced or plans to
reduce the overall extent of offshore
delivery
organization is scaling back or putting on
hold originally planned growth in offshore
delivery of IT Services
organization is scaling back or putting on
hold originally planned growth in offshore
delivery of BP Services
organization has decided to avoid signing
longer-term offshore delivery contracts, at
least within the next 12 Months
Ma
jori
ty d
isa
gre
ed
tha
t
In response to anti-offshoring pressures…
Copyright © 2012 Khan and Lacity
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0
11%
54%
53%
%
% 11%
Assessing organizational response to calls
for reduction in offshoring: Results (contd.)
…the scale of our organization’s use of
offshore services
…the scope of our organization’s use of
offshore services
And
ma
jori
ty a
gre
ed
tha
t
Anti-offshoring pressures have had no impact on …
2
3
9
8
8
9
8
9
21
17
35
36
18
18
0 10 20 30 40
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
%
Copyright © 2012 Khan and Lacity
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Assessing organizational response to
calls for reduction in offshoring: Summary
On average, respondents indicated no existing or planned decrease in overall extent of offshoring due to the broader anti-offshoring environment
However, there is variation in responses suggesting that some organizations are more responsive than others
Responses were similar for both IT and BP services
On average, no indication of organizations avoiding longer term offshore contracts due to anti-offshoring environment
On average, respondents displayed greater agreement that anti-offshoring pressures have had no impact on the scale or scope of their offshoring
Copyright © 2012 Khan and Lacity
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%
%
27%
16%
39%
16%
20%
30%
13%
44%
Anti-offshoring pressures and Service
Provider/Location Selection: Results
increased preference for only those
offshore majors that have sizeable
presence in buyers' home country
increased preference for global majors
that can provide flexibility to move
offshore work back to home country
our supplier selection criteria include
assessment of any potential impact of
supplier choice on our corporate image
our location selection criteria include
assessment of any potential impact of
location choice on our corporate image
11
8
5
8
33
22
11
8
6
5
8
15
23
27
16
15
14
19
21
27
13
17
25
16
0
3
14
11
0 10 20 30 40
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
%
Copyright © 2012 Khan and Lacity
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More
agre
ed tha
t “Im
pact
on C
orp
ora
te Im
age”
am
ong s
ele
ctio
n c
rite
ria
8%
41%
40%
%
% 11%
Anti-offshoring pressures and Service
Provider/Location Selection: Results (contd.)
… how we select service providers
…how we select locations
Whi
le m
ore
gene
rally
ag
reed tha
t
Anti-offshoring pressures have had no impact on … %
0
3
11
5
12
15
17
17
21
20
26
29
14
12
0 10 20 30 40
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
Variation in responses noticeable
Copyright © 2012 Khan and Lacity
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On average, no apparent preference for only those offshore majors that have sizeable presence in buyers' home country
On average, respondents indicated some preference for global majors who can provide flexibility to move offshore work back to organization’s home country
Assessing impact of Supplier and Location Selection on Corporate Image seems important for organizations
Both supplier and location selection criteria seem to include an assessment of impact on organizational image as a result of such choices
Within this, greater emphasis on supplier selection than on location selection
Anti-offshoring pressures and Service Provider/Location Selection: Summary
Copyright © 2012 Khan and Lacity
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%
%
41%
14%
45%
12%
25%
26%
27%
28%
Anti-offshoring pressures and Contractual /
Relational Governance: Results
our offshoring contracts include or will
include buffers to protect against potentially
severe anti-offshoring regulation
our organization has increased scrutiny of
our service provider(s) use of work visas
and workers deployed onsite
anti-offshoring pressures have had no
impact on how our IT and BP services
contracts are structured
anti-offshoring pressures have had no
impact on how we manage relationships
with service providers
%
2
5
2
0
26
21
10
14
8
9
11
11
21
19
13
16
16
21
19
17
21
21
35
30
6
4
10
11
0 10 20 30 40
Strongly Disagree
Disagree
Somewhat Disagree
Neither Disagree nor Agree Somewhat Agree
Agree
Strongly Agree
Copyright © 2012 Khan and Lacity
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While more respondents agreed that anti-offshoring pressures have had little impact on how contracts are structured and relationships with service providers are managed, we saw: Clearly some indication of organizations’ existing or
planned use of contractual buffers to protect against potentially severe anti-offshoring regulation
Also, clear indication that organizations have increased scrutiny of service provider use of work visas and workers deployed onsite
Overall, strongest impact of anti-offshoring pressures visible in relation to these aspects
Anti-offshoring pressures and Contractual / Relational Governance: Summary
Copyright © 2012 Khan and Lacity
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Assessing perceived regulatory
environment uncertainty for offshoring
We asked: Please rate the following regulatory actions
of Federal and State Governments (home country
governments) on the degree of their predictability.
Focus on predictability as an indicator of uncertainty
Highly
Predictable
Highly
Unpredictable
Copyright © 2012 Khan and Lacity
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Assessing perceived regulatory environment
uncertainty for offshoring: Results
Changes in tax laws or policies with respect to
offshoring are:
Changes in Data Privacy/Security laws or policies that
may impact offshoring are:
Changes in Intellectual Property Protection laws or
policies that may impact offshoring are
Changes in laws or policies that restrict offshore
fulfillment of Government contracts are
Mean 4.66
Mean 4.28
Mean 4.08
Mean 4.30
Mean 4.80
1 2 3 4 5 6 7
Changes in laws or policies pertaining to hiring of
foreign workers (e.g. H1-b visa policies in the U.S.) are
Highly
Unpredictable
Highly
Predictable
UNCERTAINTY Ove
rall,
mod
era
te to h
igh
unce
rtain
ty
NOTE: ENDS OF “ERROR BARS” (black lines) INDICATE 1 STANDARD DEVIATION ABOVE & BELOW MEAN
Copyright © 2012 Khan and Lacity
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Assessing perceived regulatory environment
uncertainty for offshoring: Summary
Overall, results indicate respondents perceived
moderate to high uncertainty with respect to State
and Federal governments’ regulatory actions in
relation to offshoring
Greatest uncertainty observed for:
Changes in laws or policies in relation to hiring of
foreign workers (e.g. H1-b visa policies in the U.S.)
Changes in tax laws or policies
Copyright © 2012 Khan and Lacity
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Limitations of this Study
Could not draw on a random sample in the traditional sense
Although the respondents represent a wide range of industries, organizational sizes, countries etc.
Took a cross-sectional view (i.e. not over time)
Self-report questionnaire
As there is no archival data on extent of offshoring
58% of respondents provided their contact information lending further credence to the validity of results
Could not incorporate possible “Pro-offshoring” pressures
Copyright © 2012 Khan and Lacity
27
Thank you!
Acknowledgements:
We sincerely thank all study participants for their valuable time and insights
We also thank Eric Simonson, Managing Partner, Research at Everest Group and his team for helping us conduct this survey
Contact Information:
Shaji Khan: [email protected]
Dr. Mary Lacity: [email protected]
Copyright © 2012 Khan and Lacity
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