By Andy McCue, 28 January 2004 16:45
NEWS Over a quarter of a million UK workers will have their jobs moved to countries such as India over the next six years at a cost of £5.7bn to the UK economy in unemployment benefits and retraining costs.
But the cost to the UK by not offshoring would be much higher - £34bn - due to a drop in output and a subsequent slowing of GDP growth, according to The Impact of Global Sourcing on the UK Economy 2003-2010, a study sponsored by Indian IT trade body National Association of Software and Service Companies (Nasscom).
The study, based on a variety of government economic and job statistics and carried out by research company Evalueserve, predicts that 272,000 jobs will be moved offshore by 2010, although around 19,000 consulting, legal and management jobs will be created as a result - leaving a net loss of approximately 253,000 jobs.
Based on current UK unemployment trends, 102,000 of those are likely to be out of work for more than six months and will require "substantial financial help, retraining and reallocation".
"The total additional economic burden on the UK economy because of this unemployment and retraining cost will be £5.7bn," said the report.
IT, software development and call centre jobs will be hit hardest, accounting for 213,000 of the jobs lost.
But the report warns that the consequences of not following a "global sourcing" policy will be much worse.
It predicts that slow population growth and an ageing population will lead to a shortfall in the supply of domestic labour in the UK, with a demand-supply gap in the UK of 714,000 jobs by 2010 - and IT will be one of the main sectors impacted. Immigration will fill around 372,000 of those positions but that still leaves a shortfall of 342,000, according to Evalueserve.
"Without offshoring and temporary workers, the UK economy will face a cumulative loss in potential output of £34bn," said the report.
Other benefits cited include increased competitiveness in the global economy of UK companies and an expansion of global markets for goods and services from the UK.
Marc Vollenweider, CEO of Evalueserve, told silicon.com that offshoring will bring benefits to the UK economy through more profits for UK firms, and also to wider society in general.
"It translates directly into more jobs for people and the long-term sustainability and competitiveness of the UK economy," he said.
Comments
There are 30 comments. Join the discussion
1. anonymous
We've already seen our manufacturing base move offshore - now they're attacking our service jobs. When will it end and what will be left?
2. anonymous
One obvious way to fund the short fall would be to tax any communication links to such offshore companies, now there a thought Mr Brown.
3. Confused
Am I the only one who's struggling with the maths here?
4. anonymous
The Customer is King. How many 'end users' do you know that think Offshoring is a good idea? I don't think companies are puting a value on the damage to their image.
5. anonymous
now there’s a surprise a study sponsored by the leading beneficiary, are we all to immegrate with our IT Jobs to those countries too
6. Edward Neale
How does offshoring service jobs create more jobs for the UK? Does this mean we'll now be creating a whole new emploment sector, wehere people will be employed to service the service sector? (we could call it the sub-service sector - perfect for the UK business mentality).
What a fantastic and very attractive set of employment opportunities that's going to present - not too well paid either I'll wager. Still at least it's going to boost the competitiveness of UK companies, so it's not all bad news....
7. Fraser James
They would say that- look who the study was sponsored by.It won't happen. The service we have had from various call centres in India is appalling- probably better off phoning the local kindergarten as both their technical and communications skills are more advanced. Some of those people do not even seem to know how to work a telephone, and clearly do not understand the script they are attempting to read from. I've been recommending Dell computers to friends for years, but unless they move their call center back to Ireland I may have to stop- the lousy service they now get from Dehli(?) is damaging my reputation.
8. anonymous
Unsurprising the report was sponsored by India. However, it just emphasises the increasing greed of companies in the UK and elsewhere. In their drive towards increasing profits by lowering the wage bill (outsourcing), such companies are prepared to do so at-all-costs; UK workers jobs. It’s a disgrace and needs to be stopped!
These outsourcers should remember it’s us mugs that buy their products and services, and if we don’t have jobs they won’t have sales. Don’t buy their stuff. Boycott the bug**rs!
9. anonymous
Gvt policy for the last 20 years has based UK "competitive advantage" on a low tax base (now eroded and no longer a differentiator) and free and open markets. Meanwhile the US, French and Italians (not to mention the Japanese & Koreans etc etc) have been talking free trade whilst manning the barricades and subsidising their industries. Only we are naive enough to think we are playing the same game. HA!
Previous questioner asked what will be left? Well the prospective growth industries will be insolvency practitioners and unemployment benefit clerks.
Form and orderly queue please ladies and gentlemen...
10. Dharmendra Misra
I think Outsourcing is good. Why? Media is making money by writing about it, Companies in third world are making money by getting jobs and companies in developed country are saving money by outsourcing.
Too much has been written and too much will be written but reality is this that it is happening. Is it not win All situation???? Please think over it.........
11. Michael Alexander
The study conducted by Evalueserve, for off-shoring jobs, on behalf of its client, Nasscom, is a nice academic study, but ignores reality. One is that it must assume all of the U/K competitors will NOT off-shore their production and services, and that the increased profits will benefit the worker.
We in the United States have been subjected to this argument vis a vis tax cuts. They are supposed to create jobs, but they only enrich the well-off and generally provide low paying jobs at best.
I am also suspicious of, and do not fully value, any report paid for by organizations directly benefitting from the study.
It's a plausible hypothesis, and I don't know what level of detail was provided by the study, but it is too general in reporting the results.
It also ignores alternatives to address within, the aging population and slow population growth at the job age level.
If a nation is to prosper, it must have a moral and ethical hand working in concert with the hand of economics. Think harder and longer before you offshore jobs.
12. jim hall
Offshore the politicians!
13. anonymous
It's a really difficult problem. There are lots of studies carried out that say outsourcing ultimately benefits the outsourcer as well as the outsourcee - but try telling that to a worker in a call centre who is about to lose his/her job. There is also a lot of historical stuff one could go into - example: Indian textile industry wiped out by cheaper British imports (due to industrialisation), British consumers ultimately suppressing price of commodities in developing countries (coffee, sugar, etc), Industralised countries (including UK) exporting pollution and fallout (green house gas emission and erosion of ozone layer) and then pressurising developing countries to forsake their own development in order to repair the damage.......the fact that we drive so many foreign cars - how many people who are raising concerns over outsourcing, support the british car workers? As I said, it's very difficult, and should be seen in a wider context.
14. Gian Mario Moggio
The Sponsor of the Study might have an interest in the outcome of the study. Or not?
15. Craig Golby
Interesting report, and it may simply be that it is abbreviated for the purposes of this article.
It seems to have only considered the costs of the unemployed people, what about the loss of income to those people and hence to the British Economy and Taxation System. Using their numbers and estimating a £20k salary average, thats another £5 billion a year, so by 2010, that would be at least £30 billion, of which the tax man would have taken his cut of £10 billion
The country is still gonna need to be run, so that £10 billion in taxation will be lost, and someone else will have to pay it, tax will go up, the rest of us become poorer.
Interestingly, Evalueserve on their web site have the strange opinion that shipping IT jobs from the US to India has raised the profile of IT. Yes it has, but not the way US IT professionals would want it I am sure.
Get in the real world Evaluserve
16. John Wilson
RE: Am I the only one who's struggling with the maths here?
No you're not! The report admits that the IT is a main loser job wise through off shoring and will be hard hit, but then tries to support the move with a statement about a skills shortfall developing in the UK. Duhh
In any case, claiming skills shortfall is hardly a good reason to ship jobs offshore. It may seem smart when things are going well economically but won't seem so good during times when the UK economy is in a downturn with rising unemployment.
17. James
What a wheeze.
Only last October they released a report entitled "The impact of global sourcing on the US economy, 2003 - 2010"
Do you think the research firm got paid the full whack again for changing just one letter?
18. Tony English
"according to The Impact of Global Sourcing on the UK Economy 2003-2010, a study sponsored by Indian IT trade body"
Well they would be promoting offshoring wouldn't they. Why do Silicon promote this rubbish?
19. Jeffrey Cumpsty
A bit of a biased opinion I think!!!
20. David Bunney
Tax 'em high! Gorden Brown are you listening. Is there a new Inland Revenue (or even overseas revenue) directive due!? Why doesn't the European Commission care at all? Some people would sell there own mother to make a pound or two! Don't tell me the companies do it for the share holders - who are the managers of pension funds - for the people they are making redundant - there's irony for you!
If you buy a 'physical' product from abroad you pay import duty and other taxes. If you import by email or CD in the post no one is the wiser. Make big business in the UK provide full employment/IS/IT audit logs and fine them if they do the improper thing.
21. anonymous
Mmm. A definite cost of 253000 jobs and GBP5.7b. But this translates into "more jobs for people"?
Even if the comments about the labour shortfall in the future are true, I would rather outsource at that time - i.e. when we don't have people available and it is a real problem - rather than now when it would cost the country money. This is putting our people on the dole and sending our money to another country. Why? To enable a small amount of additional profit for corporations which are already quite profitable enough. Who benefits from this? The likes of BT, Shell, BP, the banks, etc. I.e. the most profitable and trichest corporations. Does anyone feel their profits need a further boost?
Fight back. Move your bank account from banks that use offshoring to the likes of the Nationwide who have rejected it. Change your phone company. Wirte to them and tell them why you are doing it. If you don't know if your utility company does it write and ask for an assurance they don't and say you will move your account if it isn't forthcoming. Write to your MP about it. A few dozen letters to your MP from different people will push this up his political agenda. People are doing it in the US and it is now a hot political issue there. Some paper, a copuple of pounds worth of stamps and an hour of your time could save your job.
22. anonymous
Until a couple of years ago I worked for some of the leading UK software development consultancies in the UK, now I currently work for an offshore consultancy, leading up projects in the UK and North America.
From my point of view the real problem is not that India and other countries are taking our jobs but the fact that we are mostly all paid a wage that is unsustainable in the current economy.
Companies are still fragile after the ‘bubble’ burst and need to get systems up and running quickly and with competitive costs to ensure that they don’t get swallowed or swamped by their rivals.
If these companies start going under, then unemployment rises, people in other industries that service those companies suffer and we risk a downwards spiral into economic doom and gloom.
Short term the Offshore craze will continue as it does support our economy by allowing companies to stay in business thus keeping other people in work, however long term the developed worlds IT Consultant markets need to reduce their overall costs to compete so that when the economy is stronger and companies have more cash to spend then they will start to spurn India in favour of local resources that are looking economically viable.
My only advice to those in the IT industry at the moment is not to sit and whine that India are taking your development jobs but to start looking at how you can benefit from the situation. When your company announces that it is using offshore labour, push to be the project or team lead so that you gain valuable management skills whilst also gaining or retaining valuable industry knowledge thus making yourself more viable to your company and other companies in the same industrial arena.
You may disagree with me, You may despise me for joining an Indian Company but at the moment Offshore resourcing is something that is here and we either accept and work with it or reject it and face the risk of not having jobs at all if the economy folds.
23. anonymous
What is all the fuss about, its natural to move this work offshore. After all, no-one buys underwear made in the UK anymore...or cars, computers,toys,...
24. anonymous
Has the huge loss of Excise Duty + VAT revenue been included? This would have been collected on the purchase of infrastucture and software brought into the UK to furbish the call centres. This is particularly convenient for companies who cannot reclaim VAT.....eh banks?
25. anonymous
Theoretical ceiling for IT offshoring?
The current trend of offshoring IT services and call centres has precendents in manufacturing. But whereas there are natural limits to how much manufacturing can be outsourced, given by the fact that you are creating and transporting world-wide physical goods which need to be where the consumers are. Also strict supply chain management & JITO is applied to maintain margins.
That's the economy pf physical goods -
none of these limitiations seem to apply in an infoconomy riding on the back of globalisation.
With innovation, information and sofware travelling at the speed of if not light then certainly global network connections, one wonders what the theoretical ceiling for offshoring is, and what the consequences for countries who to date have had a strong infoconomy are.
26. Concerned world citizen
80s were marked by outsourcing manufacturing resulting in prosperity for all. 90s were marked by internet, broadband and business reengineering agin resulting in proseprity for educated, skilled and hard working. 21st century will have offshoring which will result in prosperity for educated , skilled and hard working. In every wave of productivity gains, lazy, unskilled and inflexible got left behind. Good. Good for the world. Long live offshoring.
27. RAS
I think the reality of cheaper labour
with so many graduates in India, is
cost efficient (offshoring). It should be noted that a offshore job in India
costs around 5000 british pounds - and
in India this currently equals a 23000
pounds salary here. The taxation & cost of living in the UK is very high.
I'm only concerned about our living standards in the UK falling even more.
Apparently 1 in 4 people here in the UK are considered to be very poor now, a slow increase downwards over the last 15 years and continuing.World
Population=cheaper employees I guess!
28. anonymous
Re: Until a couple of of years ago I worked for...
Yes, Mr Anonymous, we despise you.
There are approximately a million people employed in the UK IT industry. Many like me have invested huge amounts of time and money gaining degrees and professional training and building up our careers and people like you want to take it all away.
Do you really expect all of us to work in management positions after the outsourcers have sold our jobs?
Outsourcing is about cutting costs by cutting jobs. If the end result is anything other than huge numbers of UK jobs being lost then outsourcing will not have achieved its goals.
I hope you have real trouble sleeping at night you sell-out.
29. Phil Short
As someone who is skilled, educated and hard working, but wondering what future I have in IT despite a successful 20 year career, I find some of the previous comments objectionable.
To those Indians who think outsourcing is FAB, look over your shoulder. How stupid are you going to feel in three years when your jobs are going to Vietnam? And in ten years the UK should be resolutely third world, so we'll get our turn again soon.
With no manufacturing base, and a rapidly dissolving service sector, the growth of the UK economy is on what basis exactly? When the bust comes we are not going to have any basis for subsequent recovery.
At least the immigration issue will resolve itself.
30. R D W
I don't know why everyone's giving this particular report so much attention. The study was seriously flawed, incomplete and insufficiently rigorous, and there is a clear and obvious vested interest.
A couple of other factors are more to the point:
1) - The business justification - It is already clear that the offshoring industry never did contain much of the value hoped of it. Client companies are seeing rising complaints and unsatisfactory levels of sales and conversions, customers are really fed up and much is being done at home (both UK and US) to increase efficiency and increase sales and service. In addition there is increasing worry by customers about what happens to their personal data when calls and transactions are made out of the country - quite rightly!
2) - The state of the country and society - The US is quite right to be concerned about the loss of jobs and the anti-offshoring sentiment there merely reflects sensible self-interest. What organism with any brain at all would voluntarily give away its means of support - its jobs. It is high time the UK adopted this policy, which I must say also prevails in the rest of Europe. Only the UK is willing to cut its own throat - you don't see France, Germany etc jumping so foolishly into eg. the rigid interpretations of EU law in the way that we do. We're on a self-destruct mission!
Anyway, as another said earlier in this chain, at least we'll be a third world country in ten or twenty years, but will we have the nouse to claim our own back! In the meantime the country will become just a theme park - manufacturing industry largely gone, service industry going - only leaves tourism (and that won't make many well off!)