Offshoring isn’t just a manufacturing decision
by Joe Flower
From H&HN Most Wired, May 10, 2006
The core meaning of offshoring is shifting, and that shift is about to penetrate health care on a FedEx
timetable.
In
the past in high-income countries, offshoring assumed that workers in
not-so-high-income countries were malleable and eager to labor for next
to nothing. Today, offshoring looks different. Foreign workers, still
willing to work hard for less, are just as smart and creative as their
U.S. counterparts, and their markets are untapped and growing like
mushrooms.
Shifting
work to other companies has five significant stages, and each one has
different meaning for health care IT development in high-income
countries. Notice, as we move down the list, the shifting center of
gravity for intellectual, creative and financial capital and control.
1. Offshore manufacturing: We buy from manufacturers in high-income countries who outsource parts
to low-income countries.
2. Offshore services: We buy services from companies whose back office, phone banks and other
labor-intensive service work is performed in such places as Bangalore or Manila.
3. Offshore intellectual service work: We buy the services of highly trained professionals in
low-income countries to read radiological images, write contracts and run clinical trials.
4. Offshore creative work: Directly or indirectly, we pay for research and development work and
software, business models, work processes and training regimens designed overseas.
Companies
will increasingly outsource not only manufacturing and clinical trials,
but also R&D, to lower-cost countries. For instance, both Siemens
and General Electric have set up major R&D centers in India.
Philips Electronics, already one of the largest health care technology
suppliers in China (with more than $8 billion in sales there in 2004),
is forming a joint venture with the Chinese company Neusoft to develop
and manufacture X-ray, CT and ultrasound equipment.
Companies
that pursue this strategy may be able to significantly underprice their
competitors, holding the line on inflation and following the pattern of
consumer electronics: over time, consistently offering greater value
for lower prices.
But there is a fifth stage, in which the core meaning of offshoring disappears.
5. We’re just the market: Soon, it will be common for North American health care centers to buy
software and devices designed, built and marketed by companies in China and elsewhere.
This
stage starts now. For instance, look at Sobha Renaissance Information
Technology, a 30-year-old, $1 billion company with 8,000 employees
based in India that has operations in a dozen countries, a number of
Fortune 250 clients and partners, and a full suite of health care
software. It has no U.S. installations yet. It is so eager to enter the
U.S. market that it is willing to offer major discounts to early
adopters, yet it meets skepticism because it is unknown in this market.
This is more than a marketing problem for one company. It is a piece of the shape of the future.