Second Duke/Archstone Consulting Study Reveals That Fortune 500 Companies Now View Offshoring as a Means to Drive Business Growth, Not Just Reduce Costs
October 11, 2005
Stamford, CT -- In addition to reducing expenses, FORTUNE 500 companies are turning to offshoring for new product development, research and development, and access to qualified personnel, according to the second Duke University CIBER/Archstone Consulting study that examined the results and offshoring initiatives of 96 large companies with average revenues of $25 billion.
73 percent Surveyed said Offshoring was a Key Part of their Growth Strategy
The survey found that 73 percent of the companies surveyed considered offshoring an important part of their overall growth strategy as well as a way to reduce administrative costs. Product innovation and design, research and development and engineering services were all cited as key initiatives that corporations were looking to move offshore. Of the Forbes 2000 companies surveyed, 71% cite access to qualified personnel as a major driver when considering offshoring (up from 54% in the last survey) and industry expertise as the top motivator in considering offshoring locations (74%).
“With this biannual survey, we are able to track trends and provide firm level data versus studies that are anecdotal in nature. Besides the types of functions being offshored, we are also tracking where companies are looking to offshore,” noted Professor Arie Y. Lewin, Director Duke/CIBER.
“We are seeing a shift in the types of offshore functions, which is a shift in the mindset of how top executives are looking at ways to generate new business,” stated Todd Lavieri, CEO and President of Archstone Consulting. “New product engineering, research and development and additional administrative functions are being more fully integrated into strategic plans.”
China is the Fastest Growing Location driven by Manufacturing and Product Innovation Services
While India still has the largest number of offshore implementations among the survey participants, China is clearly the fastest growing location (46% growth rate compared to 26% in the survey completed in fall of 2004). China ’s growth is being driven by functions that support manufacturing; specifically, engineering services and product development that are extensions and can be integrated with existing manufacturing locations. India remains a favorite choice when it comes to IT and back office activities. The Philippines is another location cited by companies that are establishing contact centers (36%) and back office activities (25%) as a result of its strong language capabilities.
The study is the second in a series of bi-annual surveys designed to gain insight into strategic drivers, offshore operating models and financial results of FORTUNE 500 and Forbes 2000 companies, as well as privately held organizations. Industries represented include financial services, manufacturing, technology, computer technology, media, software and programming, energy, aerospace and defense, and automotive.
Other key survey findings:
Disaster Recovery and Data Security Increases as factors for Risks of Offshoring – As companies gain hands-on experience with offshoring, they are developing an appreciation for the business continuity risks in these locations such as natural disasters and risks to data security. The number of survey participants who cited Disaster Recovery as a risk when considering whether or not to offshore, grew to 43% from 26% in the first survey, while concerns about Data Security increased to 56% from 46%.
IT is still the leading offshore implementation (54%). However the fastest growing functions to be launched for new offshore implementations are administrative/back office functions such as HR and finance/accounting with a 60% growth rate.
Corporate Culture Buy-In Still Primary Reason for Companies not Offshoring – 78% of companies that are not offshoring point to corporate culture buy-in as the main reason; other top factors include employee morale (70%) and quality of service (74%).
Better than Expected Cost Savings Continued – Similar to the first study, 78% of offshore implementations met or exceeded expected savings within the first year, with 30% achieving their service level goals within the first five months.
When comparing Forbes 2000 with small and medium sized companies, Forbes 2000 companies achieved 37% savings while small and medium sized companies achieved 55%
"A surprising new trend is that small and medium sized companies are aggressively using offshoring as a growth strategy (91%) compared to Forbes 2000 companies (65%). The survey indicated that 50% of jobs offshored by small and medium companies are in product and process development positions such as engineering, product design and R and D,” states Professor Arie Lewin.
About the Study
Archstone Consulting and Duke University’s Center for International Business, Education and Research (CIBER) teamed up in 2004 to develop and launch an innovative study aimed at developing firm level data (as opposed to national trade statistics and anecdotal evidence) and tracking changes in how companies use offshoring. The study surveyed Fortune 500 and Forbes 2000 companies in sectors including financial services, automotive, airline, consumer products, pharmaceutical, energy, retail, hospitality and high tech. The study will also be expanded to include European companies in 2006 to provide further insights and correlations between U.S. and European experiences .
About Archstone Consulting
Archstone Consulting is a rapidly growing, independent strategy and operations management consultancy. Archstone Consulting specializes in corporate transformations, CFO Advisory services, and operations improvement services in the consumer packaged goods and retail, life sciences, manufacturing, and services sectors. Archstone Consulting offers experienced, unbiased advice, efficient execution and measurable results. Headquartered in Stamford , Connecticut , the company has offices in Chicago , New York , San Francisco and Amsterdam . For additional information, please visit the company’s web site at www.archstoneconsulting.com.
About Duke CIBER
The Duke University Center for International Business Education and Research (CIBER) was established in 1992 by the Fuqua School of Business and has been directed by Professor Arie Y. Lewin since 1995.
There are 30 CIBERs located throughout the United States and funded by the U.S. Department of Education under Title VI through a competitive bid process. Duke CIBER collaborates with other CIBERs to carry out projects and engages in outreach activities with other centers and departments at Duke University , as well as other colleges and universities, businesses, and communities to enhance the international development the Fuqua School of Business.