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Sep 13

Tech CFOs scaling back offshore outsourcing

Posted by Stephen Taub in R&D;outsourcingmanufacturingIT spendingITCash

Stephen Taub

Tech companies are souring on outsourcing.

According to a survey of 100 chief financial officers at technology companies by BDO USA, LLP, just 35 percent said they are currently outsourcing services or manufacturing to companies outside of the US. This represents a 43 percent decrease from the 2009 high when 62 percent of companies were outsourcing and a slight decline from 2010 (37 percent).

What's more, the 65 percent that are not outsourcing would not consider going overseas even if they did decide to farm out production. Rather, they would outsource within the US (25 percent) or Canada (13 percent).

For the first time since 2008, India surpassed China as the leading location, according to the CFOs who are currently outsourcing.

This year 15 percent of CFOs also said they would not consider additional outsourcing in the future.

"Outsourcing can be looked at as a bellwether of the economy," said Don Jones, Partner in the Technology and Life Sciences Practice at BDO USA, LLP. "Tech companies turned to outsourcing in 2009 in order to reduce operating costs and ride out the recession. Since then, we've seen a marked decrease as companies recover and look to create jobs and growth close to home."

What are tech companies outsourcing the most? Of the respondents currently outsourcing outside of the US, their outsourced services include manufacturing (53 percent), IT services and programming (43 percent), R&D (38 percent), distribution (26 percent) and call or help centers (12 percent). "Manufacturing is most commonly outsourced because it can be both labor and capital intensive," said Jones. "When done right, an outsourced manufacturing function can cut operating costs and help tech companies to realize significant savings."

The CFOs also had interesting views on a couple of critical accounting issues.

For example, 68 percent said FASB's recent and proposed revenue recognition rule changes will be either neutral (23 percent) or positive (45 percent) for their company. What's more, 79 percent do not expect the changes to affect their selling practices.

And on the issue of IFRS versus GAAP, the majority of CFOs (68 percent) think that the convergence from US GAAP to IFRS will have no impact on their ability to remain competitive with international firms.

Even so, 20 percent are more positive, suggesting it will make them more competitive with international firms

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