Offshoring in Manufacturing vs Strategic Outsourcing in Services

Published by Fair Trade Outsourcing on

It’s not just the manufacturing industry that’s been involved in outsourcing. The services sector has also been growing in revenue and market reach because of strategic outsourcing either offshore, nearshore or onshore.

But, what’s the difference between offshoring in manufacturing and outsourcing of services in various industries? You’d be surprised to know business process outsourcing, especially in customer service and tech support, does not work the same way as the offshoring practices of manufacturing companies.

#1 Manufacturing companies choose to move jobs outside the country because they want to access labor markets with the lowest rates. Service firms may contract with outsourcing providers because they want to recruit the best people for the job.

When companies need to fill in positions for production, delivery and inventory work, they often hire by batch and with a smaller focus on skills. A decade ago, anyone with basic computer skills can get an office job as a clerk or secretary. Today, the ability to type at 60 words per minute and a basic knowledge of MS Office products are not enough for a job in graphic design, software development, or even in level 2 or 3 tech support.

#2 Manufacturing companies have the option to automate most of the work that used to be done by low-skilled workers. Service firms may want to automate some of the tasks, but they cannot easily replace the kind of emotional labor that only humans can provide.

Automation is a greater threat to American employees than strategic outsourcing. In the services sector, outsourcing providers may choose to use software to make some processes efficient, but the creative, analytical and emotional skills of their employees make a huge difference to the quality of services they provide. Bots simply don’t have the capacity to fulfill the need of humans to interact with others and to build meaningful relationships based on trust and shared experiences.

#3 Reshoring of outsourced jobs in the services sector may not be possible because it will be costly and time-consuming for new employees to relearn everything when offshore providers already have domain expertise over them.

While the idea of bringing jobs back onshore sounds good, it’s not based on what’s really happening around the world. Globalization has changed the way companies do business and the way they hire and manage people.

As a result, labor markets in India, China, and the Philippines have emerged as reliable providers of top-tier talent in outsourcing. They already have domain expertise in business process management functions, including oversight of global service delivery, management of large complex teams, and workforce scheduling, among others.

Reshoring will result to massive service disruption and loss of efficiencies already provided by long-time vendors. This may lead to customer dissatisfaction, decreased sales, and higher training and retraining costs. If an outsourcing provider has increased the value of its services and was able to pull itself up the value chain, the loss of labor arbitrage is not as dire as it may seem now. In fact, companies would rather pay higher for value-laden services than to save money on cheap services from unreliable vendors.

#4 While most manufacturing jobs may be gone forever, jobs in the services sector are not limited to just one labor market.

Services delivered to customers expand in scope and reach because of emerging markets around the world. A cosmetics company, for instance, will need to hire customer-facing staff in the country where they have distributors and retailers.

At the same time, a company will need to hire call center workers who not only speak well but also possess good work ethics and display good judgment when handling calls, emails and chat messages from customers around the world. This means a batch of call center workers in Asia can work side-by-side with another group in Australia, South America, and Europe, depending on the needs of the customers.