While India still has the largest number of offshore implementations among the survey participants, China is clearly the fastest growing location.

Our Bureau

Bangalore, Oct. 13

IF you thought that global companies are offshoring to cheaper destinations only to leverage the cost advantage, you may be wrong.

The second Archstone Consulting and Duke University's Center for International Business, Education and Research (CIBER) study has found that Fortune 500 companies are offshoring for new product development, research and development, and access to qualified personnel in addition to reducing expenses.

The study examined the results and offshoring initiatives of 96 large companies with average revenues of $25 billion. It found that 73 per cent of the companies surveyed considered offshoring an important part of their overall growth strategy as well as a way to reduce administrative costs.

Of the Forbes 2000 companies surveyed, 71 per cent cited access to qualified personnel as a major driver when considering offshoring (up from 54 per cent in the last survey) and industry expertise as the top motivator in considering offshoring locations (74 per cent).

"With this biannual survey, we are able to track trends and provide firm-level data versus studies that are anecdotal. Besides the types of functions being offshored, we are also tracking where companies are looking to offshore," said Prof Arie Y. Lewin, Director Duke/CIBER, in a press release.

"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 Mr 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."

While India still has the largest number of offshore implementations among the survey participants, China is clearly the fastest growing location (46 per cent growth rate compared with 26 per cent in the survey completed in the 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 favourite choice when it comes to IT and back-office activities. The Philippines is another location cited by companies that are establishing contact centres (36 per cent) and back-office activities (25 per cent) because of its strong language capabilities, the release said.

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 organisations. Industries represented include financial services, manufacturing, technology, computer technology, media, software and programming, energy, aerospace and defence and automotive.

(This article was published in the Business Line print edition dated October 14, 2005)
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