So now CEO’s have to create value? How novel!

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It was fascinating to read in this week’s Business Week that as easy money has evaporated in the world of private equity, that the CEO’s of these firms have to resort to the traditional practice of management - “making the companies they control more profitable” as the magazine says (November 5, 2007 issue, page 40).  Astonishing.  And perhaps gratifying, as we see evidence that the folks with purely financial know-how have come a cropper, to think that perhaps knowing how to actually run a company has value. 

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Will a weaker dollar change outsourcing habits?

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I was recently asked to consider how a weaker dollar might influence outsourcing / nearshoring decisions. 

Well, obviously, exchange rate fluctuations change the ousourcing/near-sourcing equation considerably.  The work that will be most immediately affected by the declining dollar is the stuff that is pretty much plug-and-play, and that doesn’t require training, systems transfers or complex data conversion.  With more complex work, a weak dollar definitely reduces the attractiveness of certain locations versus others as they become more expensive for American companies. 

A larger, and more interesting question to me, is that the nature of a lot of outsourcing work has shifted from having a cost-reduction focus to having instead a focus on acquiring skills and accessing talent.  Microsoft and other large organizations are farming work overseas not necessarily to decrease their costs but to capture the talents of highly skilled workers who either can’t get a visa to come to the US or don’t wish to relocate here.  Although the dollar’s drop makes them more expensive, since the reason for hiring them is strategic, not operational, it won’t be that much of a deterrent. 

Companies aren’t usually able to shift their operations quickly, so unless the dollar’s slump is looking to be a long-term situation, I don’t expect that much will change in most companies’ attitudes towards Canada and other locations.

On the bright side, the slumping dollar means that American firms can be much more aggressive in their competition for overseas contracts – in comparison with foreign players, our companies are going to be at an advantage.  They can bid at local rates for less than their equivalent competitors in the area. 

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