Labor Cost Arbitrage and Procurement Outsourcing: Why is This Still a Topic of Discussion?

By on January 4, 2010

Getting up on his virtual sandbox, former analyst Phil Fersht recently proffered his predictions for the outsourcing market in 2010. Even though Phil is no longer officially an independent analyst given his role at Cognizant, I still turn to him first for his opinions on the subject, if for no other reason than he is quick to buy the first round of drinks if he knows that someone is actually listening to him. (Which most others do as well, in most cases, even if they’re sober and reading his stuff from a distance.) Because Phil, unlike most analyst types who look at the outsourcing arena, is anything but boring and staid in how he looks at things. Consider his view, which I unfortunately hold as well, that “Labor arbitrage will continue to dominate outsourcing, but the smart providers will be focused on providing consultative value to their clients.” In the procurement sector, there are still far too many deals getting done for the wrong reasons, including the labor-cost arbitrage of the kind Phil points out.

As Phil notes, “When you consider that 75% of service-provider staff for ERP development and support are still onshore, there’s a lot more wiggle room for new and existing clients to cut costs through lifting and shifting work offshore.” This statement could be applied equally to transactional support in procurement focused on the plumbing, supplier enablement, and data management associated with P2P processes and systems…

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Obsessed with how companies manage, spend and save money, Jason writes about procurement, trade and supply chain issues @ Spend Matters. He has significant first hand experience developing and marketing technology and services products, has advised numerous companies on sourcing and related techniques as well as M&A pursuits.  In previous lives before tech, he was a management consultant and merchant banking analyst.

3 responses to “Labor Cost Arbitrage and Procurement Outsourcing: Why is This Still a Topic of Discussion?”

  1. Phil-Am OSI
    Phil-Am OSI January 13, 2010 at 2:37 am |

    Thanks for this great information. We appreciate your thoughts.

  2. Lutouplelip
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    Hi, what about .

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