Developing a Business Case for Reshoring

4 Sep 2015
by Sakshi Garg


Executive Summary

The initial wave of offshoring was primarily driven by labor arbitrage. However, in recent times increasing wage rates in offshore locations, coupled with automation technologies that reduce the need for human capital, have undermined the value proposition of the labor arbitrage model. Consequently, firms have started looking beyond the traditional construct of labor arbitrage to reevaluate their sourcing philosophy to better incorporate the overall business objectives.

Most recently, the reshoring phenomenon, i.e., movement of work back to onshore locations, has caught the attention of many organizations. Reshoring enables companies to achieve better business outcomes by removing business barriers created by offshoring. Communication, efficiency, agility, delivery management, and regulatory compliance are some of the key areas that are negatively impacted by offshoring. Reshoring can potentially address concerns around these and help in improving the overall business outcome.

Although reshoring is likely to be more expensive compared to offshoring, the non-financial business benefits, such as faster time-to-market, easier retention of knowledge, lower attrition, and ease of management offered by reshoring, make it a compelling sourcing model. This aims to act as an aid for global sourcing managers to prepare and analyze the business case for reshoring.


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