Monday, March 23, 2009

Did Outsourcing and Offshoring led to Financial Crisis?

Well this sounds strange but it can be true. Every thing can be proved by data and statistics!!

In my earlier role, our team did research on Offshoring Maturity and Financial Performance for Fortune 500 companies and found out that top 30 Offshorers or Outsourcers ( or a better term Globalizers !!) outperformed S&P index by three times.

The top Globalizers were having highest growth rates, better profitability and increasing shareholder value than their peers. The biggest contribution to top 30 Globalizers list was from banking and financial sector (no wonder, the financial crisis!!)

Many of the companies, which are in dire trouble today because of financial crisis, were ironically from the top Globalizers list. This is even true for companies outside banking and financial sector such as automotive and manufacturing sector.

What is cause and effect? Did outsourcing and offshoring led to financial crisis? Or is it the risk taking behavior of these companies which was rewarded in the good cycle and punished in the bad cycle? And this heavy offshoring was a characteristic of risk taking behavior.

Or are these pure random events and not necessarily have cause and effect relationship. (My view on cause and effect changed after reading Tyeb’s “Black Swan”).

Interestingly earlier research on outsourcing and financial performance was considered for getting published in Harvard Business Review but it didn’t go thru ( Probable reason might be that outsourcing/offshoring leads to better financial performance is a common knowledge). Now Ivy League Economists can find answers to this uncommon question: Did Offshoring led to financial crisis?