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Emotional About Offshoring?

Most CEOs would say that offshoring provides substantial savings in labor costs. 

However, Dr. Martina Musteen, a management professor at San Diego State University found that this is not necessarily true and that many businesses are “reshoring” their offshored operations as a “corrective reversal of offshoring arrangements.”

Musteen examined 22 small to medium sized businesses (ranging in size from 2 – 400 employees) and found that offshoring does not always result in cost savings. She also found that the decision on whether or not to offshore certain work is not always motivated by economics.

“Offshoring decisions have been traditionally viewed as optimization choices derived from managers’ careful analysis of risks, costs and benefits,” said Musteen. “But the research indicates decisions related to offshoring doesn’t always follow a rational choice model, but is subject to issues of personal and professional experience, emotions, and not fully considering cultural, language and travel cost issues.”  

With this in mind, the research uncovered some surprising results including:

  • Company managers frequently failed to do extensive research before they made the decision to offshore by not considering the pros and cons of various locations, cultural differences, travel expenses and quality of overseas partners.
  • Patriotism tended to play a significant role in determining whether to offshore. Even managers that engaged in offshoring expressed regret in having to make that decision saying that they would rather “keep jobs at home” and keeping jobs in the U.S. is “the right thing to do. “ Some managers were so opposed to offshoring they were even willing to take a cut in their bottom line to keep work in the U.S.
  • Personal and professional experience impacted offshoring decisions. Naturally, managers with more international experience were inclined to engage in offshoring, but some managers made offshoring decisions based on family connections or personal biases.
  • There were “no distinguishable differences in the decision to offshore” in the demographics of the managers.  The age and nationality of the managers tended to make no difference in the decision making process.

On several occasions, managers in the study concluded that offshoring was not successful from either a cost or a quality perspective. In that case, companies either reshored to the U.S. or moved their business operations to another country.

“At the end of the day, managers need to be aware of their personal biases when considering both U.S. and offshore partners with a thorough cost benefit analysis,” said Musteen. “In addition, the findings of this study suggest that policy makers could appeal to the emotional or patriotic side of decision makers as they seek to prevent jobs leaving the U.S.”