Open access peer-reviewed chapter

# Offshoring-Outsourcing and Onshoring Tradeoffs: The Impact of Coronavirus on Global Supply Chain

By George William Kajjumba, Oluka Pross Nagitta, Faisal A. Osra and Marcia Mkansi

Submitted: October 10th 2020Reviewed: November 29th 2020Published: December 28th 2020

DOI: 10.5772/intechopen.95281

The Indian outsourcing market is worth approximately $50 billion [14]. This includes companies that work in application development areas, such as quality assurance testing services. Companies that rely on outsourcing firms in India range from financial services providers to major technology companies, to name just two of many industries. However, outsourcing firms were simply not prepared for the pandemic and the ensuing lockdown. Outsourcing companies lacked the infrastructure to work remotely while continuing to manage the performance of their teams and meeting client requirements, and their customers are now feeling the pain in the loss of business continuity. Especially in offshore locations, much of the workforce has not previously been set up for this work-from-home scenario, presenting new tactical and operational challenges [15]. The notion of ‘work from home’ is generally not supported by outsourcing companies, and they do not typically provide workers with laptops to use at home. Even if workers have the technology to work from home, including internet connections and secure systems access, many outsourcing firms require client permission for them to do so. The outsourcing-offshoring industries do not lend themselves to working from home. For example, because of security concerns, some companies even ask employees to leave even their pens and pencils outside the office. Specifically, the companies that relied on outsourcing firms for their testing services were left in a lurch. Digital quality is now more critical than ever, given our global reliance on digital experiences, and the companies providing those digital experiences are unable to get the testing they need from offshoring-outsourcing firms. In technology, offshoring is simply moving testing from one office to another. Due to cultural and technological factors, that new office may be less capable of ensuring business continuity during a crisis. In addition, offshoring testing services does not equate to an increase in skill sets or the ability to do different types of testing. Advertisement ## 4. Pandemic offshore-outsource tradeoff The pandemic has been a wake-up call for outsourcing-offshoring economies; why was the US manufacturing industry unable to supply the necessary materials like face masks, medical ventilators, and PPE? Taken together, the US and other advanced industrial economies have evolved a highly efficient and productive product manufacturing-and-delivery system that provides them with a cornucopia of products at relatively low costs. However, inherent to that system are dependencies and expectations that have been called into question by the pandemic. Such performance has fuelled politicians and policymakers to advocate for a reduction in the outsourcing-offshoring business—cementing President Trump’s call to bring the production industry back from overseas. The US alone reduced the corporate rate from 35–21% to encourage companies to re-offshore. Besides that, some US policymakers are proposing a$25 billion fund for companies to re-offshore/re-outsource back to the US from China for the next five years [16]. Companies like Telstra™ in Australia that depend heavily on the Philippines have enacted plans to hire more than 3500 workers back home [17]. At a glance, COVID-19 is likely to deaccelerate outsourcing-offshoring businesses. However, the issue is complex and defies easy solutions, as discussed in the following offshore-outsource tradeoffs.

### 4.1 Offshore-outsource vs. onshore skills

The challenge lies in a combination of how modern supply networks are structured and the operational metrics that apply to manufacturers. Gone are the days when one giant manufacturer, like CAT™ or Toyota™, could design, manufacture, and assemble the components needed to make a product. Today’s manufacturing technology is too complicated to have all the skills in one place. Thus, manufacturers have resorted to outsourcing-offshoring to search for those missing skills at a lower cost. Even something as simple as a lightbulb has components like LED lights that must be made in high-tech industries. Day-to-day equipment like smartphones, computers, and medical equipment contain components that require a great deal of precision and accuracy, and that need considerable training and experience.

During the pandemic, among the items in most demand were PPE (e.g. masks and gloves) and ventilators; the latter being the most technical that requires detailed skills and experience to manufacture. A ventilator blows air and oxygen into the patient’s lungs, preventing them from collapsing. They are complicated pieces of machinery that cannot be created or grafted quickly. At the start of the pandemic, the US had 62,000 fully functioning ventilators and nearly 100,000 older model ventilators. With COVID-19 hitting every corner of the country, nearly a million ventilators were required to treat the patients [18]. A single ventilator contains hundreds of parts, and it takes days for an experienced team to make and assemble such parts to produce a ventilator. Ford and GM, leading car manufacturers in the US, spent over 30 days trying to organise the production lines and training workers to produce ventilators [19].

South Africa (SA) was the most affected country in Africa, with almost 750,000 cases of COVID-19 infection by November 2020. For years, South Africa has depended on the United Kingdom (UK) to outsource medical equipment, ventilators included. During the peak of the pandemic in Europe (end of March 2020), Penlon, the leading manufacturer of ventilators in the UK, could not supply SA, citing the incapability of the company to produce extra ventilators for the SA community. In addition, SA could not reproduce the ventilators due to patent rights. The situation reflects the dangers of relying on offshoring or outsourcing vital equipment. However, once SA was able to acquire the patent rights to produce the ventilators, the country did have the necessary skills to produce them. It took weeks for the SA government to find a local ‘peep valve’ manufacturer, a vital component that allows patients to exhale. The skills needed to produce a single medical ventilator range from fabrication, material processing and simulation to software coding, and such skills are hard to find in a single onshore organisation. Thus, to ameliorate production and meet the much-needed demand, outsourcing/offshoring, some of the parts and skills is the only viable option.

Similarly, the development of a vaccine is one of the critical measures to mitigate the effect of COVID-19. However, very few countries could respond with the required expertise, capacity, and abundant resources. This is mainly because vaccine productions methods place certain requirements on the supply chain that include, but are not limited to, novel skills set, meticulous maintenance, production equipment, and ultra-cold chain storage and shipping process. These rigorous requirements have left many countries with the option of outsourcing the service from leading foreign organisations [20]. Storage is a key part of the vaccine process and requires precise conditions of light, glass vials, and a specific −80°C across the entire supply network to preserve and maintain the effectiveness of the vaccine. The nature of vaccine supply means that there are often several places (warehouses and stores) where items have to be stored before they are finally delivered or administered to beneficiaries. Thus, this is another pandemic tradeoff between outsourcing vs. onshore skills vis-a-vis resources. In particular, the tradeoff is between the onshore skills related to vaccine production to ensure a rapid response and to prevent morbidity and mortality versus costly outsourcing; a demand which is most likely to exceed supply, and which will leave many nations vulnerable and defenceless.

### 4.2 Offshore-outsource vs. air pollution tradeoff

Materials that feed the manufacturing industry are localised. The transport of raw materials from Uganda, the Philippines or Vietnam to outsourcing-offshoring economies could mean incurring high transportation costs. Besides, the stringent environmental laws in developed economies could make the processing of such materials practically impossible. Before the UK and US started practising outsourcing-offshoring of some types of business, they had some of the worst air pollutions in the world. The processing operations were sent to the likes of China and India, countries that are now experiencing the worst air pollution ever [21, 22]. Though outsourcing-offshoring countries have paid some price in terms of job losses, the benefit of improved air and water quality somewhat outweighs the price.

### 4.4 Offshore-outsource vs. livelihoods

Another pandemic tradeoff is that of offshore-outsource vs. livelihoods. Most people, especially in many developing nations, live on the poverty line, depending mainly on COVID-19-impacted industries such as travel, tourism, hospitality, call centres, and manufacturing. However, the pandemic presents a catch-22 situation for those nations that provide offshoring and outsourcing business services to multinationals. On the one hand, the countries that provide outsourcing and offshoring services are unable to fulfil their targets due to lockdown, an impact which drives multinationals into bankruptcy and out of their countries. As such, many nations are caught between maintaining their livelihoods by keeping multinational businesses in their countries, which ensures employment, food on the table, jobs, and which prevents multiple deaths from hunger and poverty. On the other hand, against the need to maintain offshore and outsource services, is the risk of increased morbidity and mortality from COVID-19 which places a greater demand on an already strained healthcare system and limited resources such as ventilators and PPE. This has left many nations vulnerable and defenceless to both challenging instances.

Thus, this requires creating an imminent negative or positive restructuring of offshore-outsource strategies. For example, the several research studies that required clinical trials and the collaborative participation of multinationals in the fight against diseases such as Parkinson’s disease, and leishmaniasis (a parasitic disease associated with poverty and malnutrition) have been suspended. The suspension threatens livelihoods that relied on outsourced and offshored clinical services, and the research skills to reduce the impact of such diseases in society [31]. Also, the disruption to the distribution of outsourced malaria-prevention products, such as insecticidal nets, could lead to an increase in malaria deaths in sub-Saharan Africa. Yet, the continuation of offshore-outsource production and research services equally increase morbidity and COVID-19 mortality.

## 5. Conclusion

Outsourcing-offshoring has played a cardinal role in the development of our economies and is the backbone of the global market. Our study provides a comprehensive analysis of the current and future trend of outsource-offshore post-COVID-19. The current trend of border closure and transport restriction does not favour outsource-offshore practices, rather onshore business. However, meticulous analysis of the supply chain, shows that the cost of onshore outweighs outsource-offshore as summarised in the following tradeoff benefits.

1. Skills:No nation can have all the skills needed to sustain its population, especially in the developing economies. In countries where skills are available, they are expensive to recall offshore businesses. During the pandemic, South Africa had to depend on Penlon skills to get ventilator rights. It took more than six weeks for South Africa to find a “peep valve” manufacturer, a vital component in ventilators. Besides, in the race to find the coronavirus vaccine, most countries must depend on offshore-outsource business to access the vaccine.

2. Air pollution:If countries are to practice onshore, their air pollution is expected to become worse, especially in countries that depend on unrenewable resources. Air pollution is responsible for 4.2–7.0 million premature deaths every year, and it costs \$4.6 trillion per year; this number is three times compared to current COVID-19 deaths. Also, production of nitrous gases and particulate matter particles will increase upon onshoring. Particulate matter elevates cancer, coughing, eye diseases, among others. Such costs make offshoring-outsourcing a better alternative.

3. Carbon dioxide:Carbon dioxide is one of the leading causes of global warming and climate change. Today China contributes 28% of total CO2 emission (10.06 GT), mainly due to onshoring. Such emission has increased flooding in the region and has affected farming in a sector that contributes over 10% of China’s Gross domestic product (GDP). If developing countries that depend on agriculture are to practice onshoring, the cost will be too high—thus practising offshoring-outsourcing offers a better alternative.

4. Livelihood:Offshore-outsource is the bedrock for economic activities that can improve livelihoods and the GDP for countries that offer the business activities for multinationals but keeping the lights on can spiral the COVID-19 cases. However, turning off offshore-outsource activities to combat the upsurge of Covid-19 leads to job loss, economy plunge, livelihood loss, and rise of other healthcare issues induced by poverty, starvation, and mental health. Thus, countries must find an offshore-outsource onshore balancing point that is trailed to their own situation.

5. Demand for medical supplies:As governments and industries increase manufacturing to meet the rising global demand of especially medical supplies to avoid the severe and mounting disruption to the worldwide supply, offshoring/outsourcing and onshoring models will have to be revised to suit the context while meeting the demand caused by immobility pandemics.

## Acknowledgments

We gratefully acknowledge Retha Burger for her suggestions and language editing. We also thank the editor and anonymous reviewers for their thorough review and constructive comments.

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George William Kajjumba, Oluka Pross Nagitta, Faisal A. Osra and Marcia Mkansi (December 28th 2020). Offshoring-Outsourcing and Onshoring Tradeoffs: The Impact of Coronavirus on Global Supply Chain, Outsourcing and Offshoring, Mário Franco, IntechOpen, DOI: 10.5772/intechopen.95281. Available from:

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