April 18, 2023

Outsourcing jobs overseas is back. Get out the popcorn.

A recent WSJ piece on the topic of Office Outsourcing has reignited the globalization debate. The headline pretty nails it: Next Wave of Remote Work Is About Outsourcing Jobs Overseas. Most of the conversations are about the politics of globalization, but for many of us, that (cargo) ship sailed a long time ago. The real story is what happens once a global team is in place? What are the challenges or hiring and managing international remote teams? If done wrong, hiring overseas with the goal of saving money can be one of the most expensive decisions a company can make.

Why is job outsourcing in the news now? A quick background:

The pandemic normalized work from home and when the lockdowns ended, there was solid evidence that employees could work from anywhere and get things done. During this time many countries increased their protectionist measures with the goal of boosting demand for their citizens by making it harder for foreigners to get jobs. Local employees got more expensive (and more demanding about not going back to the office).

Then came the market downturn and the employer/employee power dynamic shifted. Now companies looking to cut costs realized they can hire from anywhere. Why pay more from a limited employer pool when there is abundant lower-cost overseas talent?

We've moved from work from anywhere to hire from anywhere.

In the WSJ article, Nicholas Bloom, an economist at Stanford University was quoted as saying, “1980 to 2019 was the rise of manufacturing globalization, which eventually stalled out with the China-U.S. trade war…. From 2020 onwards we will see the era of service sector globalization.”

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Hmm. I agree with the trend here, but I’m not so sure about these dates. For many of us in the services sector, globalization has been in full swing for over two decades starting in 1999 when armies of Indian coders were protecting the planet from that technology apocalypse called Y2K. This is when service sector outsourcing really took off.

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Soon call centers and back-office roles relocated not only to India, but to the Philippines and dozens of other lower-cost regions. And this is where we started making all the mistake that will likely happen again. Grab your popcorn.

There is a lot we learned, or should have learned, from Phase I of service sector outsourcing. I wrote a book about it, in fact.

The big trap companies fell into is that they based their overseas hiring strategy on a number of assumptions that should have been called into question earlier.

During Phase I we learned that the promised cost-savings are never as sexy as expected. We assumed hiring someone at 70% less than we were paying in, say the UK, was all we had to do, and it would be business as usual moving forward. We missed the hidden costs including local employee rules and regulations, unexpected absences and many of the other challenges brought on by fully remote teams.

The second assumption we made was that our communication styles were universal. Wrong again. Communication across different regions vary considerably and this lead to numerous misunderstandings and mistakes both internally and customer-facing.

For example, a client would give one of our new managers feedback that would be completely misinterpreted.

We had numerous cases where our new hires responded to clients in a manner that they found ineffective or sometimes even offensive.

One reached out to our client asking for a donation to his charity for every day he didn’t drink alcohol. Reactions varied on that one from humorous participation to sending management a complaint. Companies that quickly hired abroad without adjusting their communication and their employee training found their customer service quality plummet.

Was a 70% savings in salary worth higher customer churn?

We found ourselves caught off guard with these types of global hiccups. To minimize these challenges, we developed a Communications Contract that set ground rules for expectations, norms and taboos. I can't recommend these enough.

We also spent more time doing virtual team building exercises and looked at ways to adapt our leadership styles based on the new challenges of working globally. I wrote a supplemental chapter about this you can read here.

For companies embarking in new levels of overseas hiring, a good place to start is by using a Discovery-Driven Planning tool that will help detail out key assumptions and highlight potential gaps in the strategy. This framework will help you minimize many of the mistakes businesses like ours made. Because service sector globalization has been happening for the last few decades, there is great experience on how to do it right if you know where to look.

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