The Cost of Offshoring

Bill Hackos, PhD, Comtech Services, Inc.

We are all aware of the benefits of offshoring to consumers and to businesses serving those consumers. We get year round produce, inexpensive electronics, as well as inexpensive technical writing by way of outsourcing. But there are downsides. Consider the recent incidents of pet and farm animal poisonings by the chemical additive, melamine, found in grains originating in China. See “Filler in Animal Feed is Open Secret in China” in the April 30 edition of the New York Times, by David Barboza and Alexei Barrionuevo. Adding melamine to low protein grain ‘tricked’ the protein content analysis tests. The grain appeared to have higher protein content, thereby raising the demandable price. In China, this practice is unregulated and therefore perfectly legal. In the United States, melamine is not FDA approved as an additive to pet or human food.

This incident will force the FDA and the US Department of Agriculture (USDA) to do extensive, additional testing on food products from China. There is little incentive for American importers to do additional testing because testing will be done by the federal agencies. The importers can still make profits on inexpensive food products, and the American people will foot the bill for the testing.

But what if the importers had to do extensive testing of the food they import from China? In other words, would outsourced food still be less expensive than domestic food if the total cost of importing were born by the importers? I can’t answer that question, but the importers would surely know the answer if they were forced to pay the cost of testing as well as compensation to people harmed by the poisons. It’s possible that the importers might switch back to domestic sources.

American companies are also offshoring to China to obtain less expensive technical writing services. Have they looked into the total cost of offshoring? Unfortunately, information development doesn’t have the FDA or the USDA to lean on. Our companies must bear the total cost of offshoring, even if we are unaware of what it is. We know that we must add the costs of additional management and additional quality assurance to the total cost of outsourcing, but many of us are not keeping good metrics.

Because labor costs in China and India are on the rise, and because new technologies are making information development less labor intensive, the tipping point will come when offshoring costs more than domestic information development. For some companies, the tipping point has already come for both engineering and information development.

Let’s keep those metrics up-to-date so that we will know exactly when that tipping point occurs for our companies!

 

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