Outsourcing business functions has long been commonplace. Most large-scale manufacturers are now surrounded by clusters of firms that supply them with components. More recently, the outsourcing trend has spread to knowledge-led industries where businesses have embraced the concept, enthusiastically outsourcing IT, back-office, accounting, HR and many other functions. As outsourcing became more sophisticated, the idea of offshoring took hold. Advances in communication links combined with the rise in highly educated, cheap labour allowed firms to delegate large sections of their business to offshore companies for considerably reduced costs.

The success of offshoring has had some interesting implications. Intense competition from offshore resources with in-demand sector/product expertise has caused wage inflation in certain regions, such as India. Some financial institutions are now relocating their outsourcing and offering additional benefits to their employees in an attempt to retain and grow the workforce, pointing to an overheating of demand vs. supply in certain countries. In addition, the increase in wealth and growth of the middle class means more of the population is spending more time in education with the view to work in white-collar industries, potentially outside of their home country.

As a result, we are seeing ‘reshoring’ become more and more common. In the U.S. it has been reported that a rising number of firms are repatriating their manufacturing capabilities. There are many reasons for this, but two key factors are the increasing efficiency of onshore production and that large elements of the difference in cost between the U.S and, say, China has disappeared.

This trend has yet to fully take hold, but the dimensions have changed and it is easy to see this growing over the next few years.

The question for us is: will this trend in the manufacturing sector also hold true of the knowledge industries? Technological improvements now allow a more disparate workforce to work from home, which reduces overall costs and increases flexibility to a larger resource pool. In addition, the customer satisfaction of having a call centre based in a company’s home country is not to be underestimated. Whether this will develop into a major trend remains to be seen. The situation will be guided by a number of factors:

• Niche or commodity – some retail banks are already reshoring their call centres, showing that a local presence can be seen as a strong marketing tool. This will only continue to become more attractive with advances in technology and rising international costs and will spread from niche activities to more generic ones.

• It remains to be seen if the US and EU have the capability or desire to continue to outsource large swathes of their knowledge economies. As the recession bites and unemployment grows, it is likely that governments will provide tax breaks to dissuade offshoring in order to help with education, motivation and subsidy

• As China and India continue to grow, offshore costs will continue to rise. Add this to the growth of domestic wealth in emerging nations, which will increase demand from within and, therefore, reduce the opportunity for external companies. There are however, other new offshore countries on the rise, such as Vietnam and Brazil, and Africa is seen as a long-term potential growth area.

So the offshore winds that the UK and other countries have been experiencing may be changing direction. The picture is, of course, more complex than this and countries and organisations will try and adapt to counter this change in climate. We think that the sourcing mix will continue to change and develop with multiple financial, regulatory, client and political factors deciding outcomes. Reshoring is just one area to be considered in this debate and we are watching it with interest.