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Offshoring consumption
October 21, 2006
John Hagel has written a thought-provoking post about the boundaries of offshoring. We now know that, thanks to the Internet, knowledge work is as susceptible to being moved overseas as factory work. But, it's commonly assumed, there are some hard limits to the offshoring trend. Hagel quotes the economist Alan Blinder, who, earlier this year, wrote that we can at least take comfort that personal services will continue to be delivered locally: "Services that cannot be delivered electronically or that are notably inferior when so delivered, have one essential characteristic: personal, face-to-face contact is either imperative or highly desirable. Think of the waiter who serves you dinner, the doctor who gives you your annual physical, or the cop on the beat. Now think of any of those tasks being performed by robots controlled from India – not quite the same."
This is the common wisdom, but, as Hagel points out, it has one big flaw: It assumes that the customer will stay put. In fact, globalization not only dramatically reduces the cost of transporting physical goods and electronic services to distant customers; it also reduces the cost of transporting customers to distant service providers. This fact is already beginning to disrupt the health care business. Many people in the United States are traveling to countries in eastern Europe and Asia to have major medical procedures performed. They not only save a lot of money but, in some cases, says Hagel, they actually receive better care. He points to "the emergence of highly specialized hospitals in offshore locations that offer state of the art equipment and highly trained physicians that can equal or better the quality record of US physicians. The surgeries being performed include very challenging cardiac, spinal and ophthalmologic procedures." From what I hear, this phenomenon is even bigger in western Europe than in the United States. The proliferation of low-fare airlines throughout the continent has reduced travel costs to the point that it can make economic sense to travel hundreds or even thousands of miles for even fairly routine dental work.
Production, in other words, is not the only thing that can be offshored. Consumption can be offshored, too.
Hagel thinks that health care is only one of many personal services that may be vulnerable: "We need to broaden our horizons on offshoring. This is not just about service providers moving offshore. In a growing number of cases, it is also about service customers heading offshore in the quest for higher quality experiences at lower cost." If the person can move, then the personal service can move as well.
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Comments
I encountered something similar recently in traditional outsourcing. I was looking for a web development shop and was focused on Eastern Europe (we are in Ireland). I'm quite happy to work with remote developers but for a new engagement I always like to meet them at least once during a project. As a result, Belarus dropped off the list (€2000 return flight) and Latvia stayed on (€100 return flight). Ease of access actually overrode expertise.
Posted by: Conor O'Neill ![[TypeKey Profile Page]](http://www.roughtype.com/nav-commenters.gif)
at October 23, 2006 08:45 AM
I'm not sure its correct to think of this as offshoring consumption. Seems to me that its more the case of service businesses concentrating in locations which are favorable to the buisness with appropriate infrastructure for the clients.
Posted by: Chris_B at October 23, 2006 10:17 PM
Right on Target. Medical tourism is certainly entering the mainstream in the West, impacting the perceptions on offshoring and outsourcing.
Posted by: M at August 23, 2007 10:10 AM
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