Multinational companies must be more targeted in their offshoring strategies during the economic downturn to take full advantage of globalisation trends, experts have warned.
At a conference on offshoring held in London in April, Ian Cramb, chief operations and technology officer at Citigroup, said that an increasingly protectionist business environment will make it more difficult for companies to move their operations around the world.
“Don’t just choose the cheapest place, because it won’t be the cheapest place for long and it will become a lot more difficult to move something the second time around,” said Mr Cramb.
Locations looking to protect foreign investments are increasingly enforcing penalties on companies looking to relocate to lower-cost destinations. Nokia had to pay a total of $314m in compensation earlier this year to the North Rhine-Westphalia authorities and former German employees as a penalty for moving its manufacturing operations to Romania.
Many companies are choosing to offshore business functions – a growing trend in Europe where more outsourcing deals are taking place than in the US. The number of offshoring contracts rose in Europe by 17% from 2007 to 2008, reaching 271, compared with 243 US deals, according to the Association of Outsourcing Professionals.
More firms are turning to outsourcing non-critical business functions to achieve cost optimisation, according to a recent survey by analyst Gartner.
More than 70% of respondents rated budget and cost containment as their top concern in 2009, up 17.5% from 2008.