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U.S. Offshoring Plans Not Slowed by Financial Crisis

 Recession May Accelerate Offshore Sourcing,
 PricewaterhouseCoopers, Duke University Research Shows


U.S. companies plan to continue their current strategies for sourcing some
functions overseas despite the current recession, and the worldwide
economic downturn may even accelerate such plans, according to a study
released today regarding the effects of offshoring trends on American, off source
competitiveness.

The research was conducted by PricewaterhouseCoopers and the Center for
International Business Education and Research's (CIBER) Offshoring
Research Network (ORN) at Duke University's Fuqua School of Business.
The study is part of ongoing research into the effects of offshoring
trends on American competitiveness.

The survey was designed to capture business managers' sentiments in the
midst of the current global slump in financial markets and the U.S.
presidential transition. It was conducted during the first two weeks of
November and asked nearly 100 companies in the U.S. and Europe about
their plans to ship some job functions and business processes overseas.

While cutting labor costs is the most significant factor driving
offshoring decisions since the worldwide financial crisis gained
momentum this fall, many survey participants noted an increased urgency
to improve efficiencies through business process redesign and by
improving offshoring processes.

"Our research shows as companies grow the scale and scope of sourcing
programs, average efficiency decreases," said Arie Lewin, professor of
strategy and international business at Duke and executive director of
CIBER. "Enhancing efficiencies has become more urgent in recent months
as firms squeeze more productivity out of every dollar."

"Redesigning business processes is not equivalent to end-to-end process
re-engineering, which requires a significant commitment of resources
and time," said Charles Aird, managing director with
PricewaterhouseCoopers' Advisory practice, a founding member of ORN's
Best Practices Institute. "Our findings indicate companies can't wait
that long and can't spare those resources; they want to improve their
existing organizational capabilities for managing their offshoring
strategies. This will require developing the discipline and the metrics
to capture the benefits of existing and planned projects."

Forty-one percent of respondents report increasing speed to market is
becoming a more important driver of offshoring. Meanwhile, access to
qualified personnel has not increased in importance, partly because
rising unemployment is widening domestic employment pools.

As a result of the global economic crisis, renegotiating current
contracts with service providers is emerging as a growing concern among
companies. Forty percent of companies said they have pressured or plan
to pressure providers to offer more favorable contract terms in order
to trim costs.

Further cost-cutting options cited by respondents include delaying
large-scale projects that require larger upfront investments and
postponing some longer-term development initiatives. However, some
companies noted providers could ease these pressures by offering to
absorb some upfront costs. Companies said they may realize additional
cost savings by lengthening implementation timelines or cancelling or
postponing discretionary projects such as software development.

While efficiency enhancement and cost reduction are among companies'
top priorities, 12 percent of respondents noted they are considering
spinning off their captive operations -- facilities operated remotely
while owned and controlled by the company -- to a provider or have
already done so. Such an option would require significant time and
effort to negotiate, and capital resources for financing acquisitions
are likely to be scarce.

Earlier, in a paper titled "Strategic Discontinuities in the Global
Economy (Part I)" presented in February 15, 2008,
PricewaterhouseCoopers Executive Director Hari Rajagopalachari analyzed
some fundamentals of the inter-linked global economy and indicated that
the world was heading for a long downturn due to structural imbalances
in the currency, energy and financial markets, with significant medium
and long term implications for India in particular.

A comprehensive report on the research is scheduled to be published in
February 2009 in Shared Services News, a publication of the Shared
Services & Outsourcing Network.

Duke CIBER's fifth annual survey of buy-side companies, recognized as
an authoritative examination of trends in offshoring business processes
and innovation, will begin data collection in January 2009.

PricewaterhouseCoopers is a founding member of the Duke ORN Best
Practices Institute, to conduct case studies by ORN SWAT case research
teams of post doctoral researchers that research, document and distill
best practices.

Duke University's Center for International Business Education and
Research http://faculty.fuqua.duke.edu/ciber/site2006/ was established
in 1992 by The Fuqua School of Business and has been directed by
Professor Arie Y. Lewin since 1995. The Offshoring Research Network
(ORN) was conceived as a multi-year initiative focused on understanding
the relationship between offshoring and American competitiveness.

Duke University's Center for International Business Education and
Research http://faculty.fuqua.duke.edu/ciber/site2006/ was established
in 1992 by The Fuqua School of Business and has been directed by
Professor Arie Y. Lewin since 1995. The Offshoring Research Network
(ORN) was conceived as a multi-year initiative focused on understanding
the relationship between offshoring and American competitiveness.
 





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