Offshoring no longer in vogue

20:44, Feb 26 2013

It was with great dismay that I, along with many others in the Otago and Southland communities, greeted recent news that the Southern District Health Board was to dump Disabilities Resource Centre Southland (DRCS) and Presbyterian Support Otago (PSO) from home-support contracts, writes Clare Curran (Labour) in From the Beehive.

Until now, both agencies have delivered about 42 per cent of the region's home support. They are to be replaced by two national and one Australian provider.

The inexplicable decision to ditch local health provision for our elderly citizens followed the abandonment of the Dunedin Hillside Workshops. Kiwirail has done the bidding of a government fixated on the belief that offshore production at lowest cost is preferable to a local build, despite the pleas of many (including economists) who argued there was a strong and wider economic benefit from keeping skilled workers employed, paying taxes and providing a spin-off into other parts of the local economy.

It is curious then that our government's approach - to prefer big companies in other parts of the world to manufacture our railway carriages, build critical software or staff our call centres and now to care for our elderly - are flowing against an international trend back to local production and services.

The Economist recently ran a 17-page special report on outsourcing and offshoring, noting that after decades of sending work across the world, many companies (and countries) are re-thinking their offshoring strategies for manufacturing and for services. They also have a name for this phenomenon: Reshoring.

The Economist noted that not only is the offshoring of jobs in manufacturing and services reaching saturation point, but also that Western companies, after a decade of experience, are changing their attitude to the practice. KPMG, a global consulting firm, even announced "The Death of Outsourcing" in a research paper last year.


They now claim that offshoring important tasks to an outside provider is quite a risky thing to do and carries significant hidden costs.

Now many companies are finding that they have lost their connection with important business functions.

At the same time, the cost advantage that drew firms offshore in the first place is disappearing as wages are rising in Indian IT companies and Chinese manufacturing plants.

Most of us will have grown up with a clear idea of what constitutes false economy. I fear that it has pervaded our economic direction at the highest levels.

» Clare Curran is the MP for Dunedin South.

The Southland Times