Outsourcing good, offshoring bad

There is much sense in outsourcing, but offshoring is a different kettle of fish.

There is a strong business case for firms to hive off certain jobs, and to give certain tasks to specialists. Usually, the quality will be better, and it will work out cheaper than doing it yourself.

As people always say, outsourcing certain functions allows you to concentrate on your core business — but "offshoring" is often a source of trouble and false economy.

This weekend, NBR reported on the mixed experiences of people using various freelancing websites.

I am pretty much a free-market kind of guy, so I will discount the protectionist talk about the negative impacts that outsourcing will have on your domestic economy. Free trade is a two-way game that benefits us all overall.

I am more concerned about whether offshoring actually benefits a business.

There have been many cases where service from overseas call centres has been substandard, and banks and telcos have lost business because of it. Some, like Z Energy, have even brought such customer-service work back home, to try to provide the best customer service.

As NBR's Chris Keall reported, he too has had second-rate service when he has offshored work, even if just to perform a little experiment. Those commenting on his story shared similar tales.

Now, there is another trend for businesses to outsource many other types of work, such as office, admin, and web-design activities. We've had the rise of the virtual assistant or professional.

Many benefits are enjoyed by both the business and the virtual assistant from outsourcing, various players told me, but where work was offshored, the delivery was typically second rate, and successor contracts were brought back to New Zealand.

It may well be that offshored work is cheaper, which is the business case for it, but it seems as though it is often a false economy.

There are language and cultural barriers to deal with, which might make it harder to specify what you actually want, or the supplier does not properly understand. The overseas-based agent might not have sufficient skills, or their equipment might not be up to scratch. Hence, the greater risk of failure.

Furthermore, complaining to someone in some far-flung continent is harder than dealing with them if they are just down the road. Legal and consumer protection won't be as strong as if you are dealing with a local or trans-Tasman company.

Earlier this month, I argued that it is best for the New Zealand government to keep its cloud Kiwi.

Likewise, we should endeavour to keep our office, web, and similar functions Australasian.

Feel free to get it done on the cheap somewhere else, but if it goes wrong, as is often the case, then it won't work out so cheap after all.

You only get what you pay for — and you don't need to be a protectionist to argue that.