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The Repatriation of Outsourced Services

Q&A with Greg Sheldon and Joe D'Ambrosio

To answer questions about the impact of new US tax legislation, repatriation of outsourced services, and tax-efficient supply chains, I sat down with Greg Sheldon, a former C-level Executive at companies like Mylan and Duquesne Light Company.  As part of the Clarkston Executive Alliance, Greg helps companies determine impacts and actions related to the changing global economy. 

Joe:  What do you think are some of the trends driving repatriation of outsourced services and tax efficient supply chains?

Greg: Certainly the new US tax laws provide compelling motivation, but underneath that, there are three key factors fueling this change.  First, there is a macroeconomic impact on countries that have historically been good outsourcing / offshoring partners. These ex-US locations that were cost-effective for outsourcing 5 or more years ago have moved up in the global economy and are now less cost-effective options.

Secondly, there is the obvious change going on in public policy. There are strong nationalistic tendencies, as evidenced by Brexit and what the ongoing negotiations will ultimately result in, the political dialog that occurred in The Netherlands and France and is ongoing in Germany, and the “Make America Great Again” movement.  These sentiments add a new layer of considerations and risks to businesses their sourcing solutions and offshore partners.

Third, is related to data.  A manufacturing plant needs a home.  But the data that runs the company can be anywhere via the cloud.  Cloud adoption is now strategic and is shifting which data centers host it, and where.  The needs of most companies are simple – data centers that are reliable, responsive at the ever-increasing speed of business and able to handle ever-increasing data volumes, cost effective, and agile – providing more flexibly than ever before. There are a lot of good options in the United States that are continuing to evolve and are responding to the new presidential administration and federal mandates.

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Joe:  So what are some of the new realities of offshoring / outsourcing for US-based companies?

Greg: New economic and regulatory policies are impacting offshoring / outsourcing and creating opportunities that need to be considered. Many companies are considering the repatriation of outsourced services of all types.  By repatriation we mean bringing a sourced activity or function into a new model that takes advantage of the evolution in labor and/or technology.  Initially, offshoring / outsourcing worked for companies who wanted to move capital assets off the balance sheet and they could justify the disruption to business process because of these financial gains. However, with the insecurities across industries about how outsourcing will be impacted by emerging economic conditions and regulatory policies, companies are starting to look at bringing these services back to the United States, but not necessarily in-house.

Joe: What are the practical implications of these trends for companies?

Greg: Well, that is a subject to which I have given a lot of thought. My first recommendation for companies would be to revisit their business strategy framework. Does outsourcing offshore play a role in future business models? Does the repatriation of outsourced services make sense for your business model? Does your business model account for new risk factors, business and technology opportunities, and impacts to the corporate brand value?  What is the most tax efficient way to organize people, products, revenue, profit, data, and IP?  It is important for companies to revisit these strategy frameworks so that a new business issue or risk factor doesn’t negatively impact the business model.

Joe: Who within the company should be paying attention to these trends and driving this business evaluation? Is it the board of directors?  Or, is this simply an operational issue that should be managed as part of a normal business operations?

Greg: Certainly, the board of directors would be looking at this issue from a risk oversight perspective. But, in terms of who should be taking on the regular evaluation of the business model, this is generally driven out of the strategy team. However, I have seen this work best when you bring one of the leading thinkers from each functional area – supply chain, manufacturing, quality, IT and finance – and get them in a room with an independent facilitator. By getting about ten key people in a room together over a few days, you can pull together the relevant material and pertinent recommendations for the executive committee around whether to continue to offshore services or whether it makes sense to repatriate these activities.

Joe: What are some of the tangible steps companies need to do to prepare for the return of previously offshored services?

Greg: There are a lot of different types of tool sets that can be used for the transformational change of bringing services back on shore. The value and importance of change management can never be understated.  Ensuring strategic alignment on the ‘what’ and ‘how’ is as important as determining who has what decision rights. Also, companies need to consider that suddenly they will have greater control, again, over processes and information. What new positions and responsibilities will this additional control create throughout the organization? These are all critical questions for preparing your organization for this change.

Thank you again, Greg, for providing your insight on trends and implications for companies relative to the repatriation of outsourced services. We will certainly be talking to our clients about this issue as they look at the practical impacts of the trends you outlined for us today.

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About Expert Greg Sheldon

Mr. Sheldon has held numerous leadership positions, with leading, global companies including Mylan, Pfizer, Georgia-Pacific and Kraft General Foods. He provided key leadership to the start-up of the Georgia Lottery and in executing a turn-around at Duquesne Light Company. Mr. Sheldon has extensive experience with the design and deployment of company-wide networks and business systems, the integration of acquisitions and their separate IT infrastructures, and supportive business functions such as finance, supply chain and regulatory compliance. His professional background also encompasses information security and risk, distributed systems management and leadership development. Greg holds a master of science in management from Georgia State University and a bachelor’s of science degree in industrial management from the Georgia Institute of Technology.

Tags: IT Strategy