Folks who aren't regular readers of The Tampa Tribune -- or investors in Sykes Enterprises (NASDAQ:SYKE) -- might have missed Michael Sasso's Jan. 21 story about the Tampa, Fla.-based business process outsourcing services company. It's an interesting read that illustrates the complexity involved in "offshoring" key corporate functions.
Sasso was following up on a Sykes SEC filing in which it announced plans to "migrate the call volumes of the customer contact management services and related operations from its Bangalore, India facility . to other more strategically-aligned offshore facilities in the Asia Pacific region." The move, naturally, will cost the company money; Sykes reportedly plans to send work to its facilities in the Philippines.
In its filing, Sykes said the decision was based on "inadequate rates of return at the Bangalore facility, the marginal competitive advantage of Bangalore operations and Bangalore-based customer contact management transactions being better suited for other offshore facilities." (Delta Air Lines (NYSE:DAL) ended an India-based service deal with the company last summer, a move that might have presaged this one.)
That sentence, impressively, manages to be both informative and vague: Sasso's article adds some color, suggesting that some of Sykes' customers asked to be moved out of India because their own customers were having trouble understanding the accents of the company's Indian staffers when they called for service.
What this short story reminds us is that "offshoring," like all business initiatives, is no slam dunk -- and the expected cost savings, the main reason American firms have been shipping business overseas, may carry hidden costs themselves. Firms that offshore may find their customers upset or inadequately served; the removal of departments from an organization's structure may create structural challenges; and then there's the whole morale factor.
As for those cost savings, rapid growth in many markets -- China, India, and Eastern Europe come to mind -- demand for skilled workers is such that the deep values that awaited firms a few years ago are disappearing, forcing them to think increasingly about the long-term availability and cost of workers a few years down the line. What's cheap today may not be tomorrow.
In short, the decisions of smart managers considering outsourcing, whether international or domestic, are a lot more complex than just comparing costs. Sykes' story is just one more reminder of that fact.
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Fool contributor Dave Marino- Nachison doesn't own any of the companies in this story.
