By Andy McCue, 8 November 2004 17:38
NEWS Offshore outsourcing is a "survival" issue for UK companies and now a mainstream business issue, according to the Confederation of British Industry (CBI).
Over half (51 per cent) of firms said the pressure to offshore has increased over the past two years, with a third already having moved some operations overseas, according to new research commissioned by the CBI in conjunction with Alba and carried out by Mori.
Digby Jones, director general of the CBI dismissed those who view offshoring as "naïve".
"Make no mistake, this is a survival issue. Anyone who believes that firms have a great deal of choice are naïve. Companies know if they don't do it, somebody else will. If competitors act and they don't respond, they may put their business at risk. Offshoring is now part-and-parcel of doing business in the global economy," he said in a statement.
He argued that offshoring means greater productivity and more efficient goods and services but admitted the loss of jobs issue is a challenge.
"Globalisation means that jobs will come, jobs will go and nothing remains the same forever. The challenge is to create more jobs than we lose - which we are doing - and to ensure people have the skills to take advantage of them, which remains a problem."
India and China remain the most popular offshore destinations, while cost-cutting is still cited as the main reason for offshoring by businesses.
The survey also shows no sign of the offshoring trend abating, with 87 per cent of businesses who have already located operations overseas expressing satisfaction with the experience.
The survey questioned 150 CBI members, employing a total of 750,000 people in the UK.
A separate report out today by analyst Datamonitor claims South Africa is increasing in popularity as a destination for offshore call centres.
Call centre numbers in South Africa will double in the next four years, due to the more culturally-aligned front and back-office nature of the country combined with significant labour savings, filling a gap between 'nearshore' locations such as Eastern Europe and traditional offshore destinations such as India.
Comments
There are 18 comments. Join the discussion
1. Guy Kirkwood
Digby Jones is missing the point. Although labour arbitrage is the stated (or hoped-for) aim of offshoring, real savings come from increased efficiencies in processes. These savings that can be achieved regardless of the actual location of the shared service centre.
2. Roger Huffadine
Cost cutting = Service dilution
that is unless you had a crap operation to start with.
3. Hid S
"The survey also shows no sign of the offshoring trend abating, with 87 per cent of businesses who have already located operations overseas expressing satisfaction with the experience."
Now there's a surprise!! Asking a director who has just spent millions to offshore a service if his great plan is successful or not.
Why not ask the customers how they feel about it? The customers who don't see any price benefits (somehow the argument that if services were not off-shored, prices would go up even higher doesn't wash...) and almost certainly see a drop in quality in service.
I know, why not have experienced, better skilled people who can solve problems in half the time instead?
Having similarly ill-trained service personnel off-shore only benefits the companies who pay less for the labour.
But we all know that so I don't even know why I'm bothering to comment!
4. Pancho Villa
I very strongly disagree to the ideas of a bunch of 'outsourcers' which move on the next job (usually within 6 to 18 months) because of their failures and errors.
Do you really know what happens to those which lost/loose their jobs? Can you imagine how they feel...even when doing good work.
Don't tell me you can save some money by selling out our skilled workers (while buying a new yacht for yourself...because of their suberb management skills).
On overall the skills in that region/country (will) fall and if people do not have money to spend other businesses will get problems pretty soon.
Is it this what this 'idiots' like?
We should stop this form of terror against the hard working societies of a region/country very fast. (remember 1789++)
5. Neil Sherratt
New Zealand is a great offshore destination. It's safe, the people speak English, the exchage rate is roughly $2.65 to the £1. Kiwi's are also creative thinkers and have the ability to not just spot problems, but also present you with answers. Have a look at http://www.outsource2newzealand.com/
6. Ray Hindle
The more offshoring, the less UK based jobs. Less UK based jobs, more unemployment. More unemployment, higher taxation to fund benefits, and less disposable income. Less disposable income, smaller profits of even losses to UK firms, hence more offshoring etc etc. Wake up CBI, create the jobs here and improve disposable income, lower taxes, get rid of the socialists and increase profits!
7. Nick Moulsdale
No-one has said it, so I will. There is no choice on off-shoring. As long as there is a ratio of 50:1 between UK semi-skilled/unskilled labour rates and China/India labour rates, offshoring is a no-brainer. UK can only survive by offering highly specialised skills that add value at a rate that cannot be obtained elsewhere. For example software is now mostly written in India as the skill set available is high and the labour rates are a fraction of UK rates. I do agree that off-shore call centres are not well done and could easily lose UK businesses money. Essentially Poor Line Quality and "foreign accents" combine to make UK users hostile to this particular off-shore resource.
8. anonymous
Why not do a 'France'-style protectionist wheeze and stop this under data protection legislation. Job loss stopped.
Digby-Jones says the challenge is to create new jobs to replace the lost one. a/ With What ? b/ How long until these are off-shored!!
Not every-one in the UK can work in Tesco's !!!! You cannot have an economy survive on services along.
What an idiot!!
9. anonymous
Can anyone else think of a more perfect example offshoring...Director general of the CBI maybe....
Then Mr Jones can ring his replacement and waste some of his enormous redundancy package and a great deal of his time, getting nowhere talking to someone else who has no idea what they're talking about.
What poetic justice that would be.
10. Azel Beckner
The offshoring takes capital away from the economy as well as jobs which allow the workers to buy the product of the company which is sending jobs overseas. Paying taxes becomes difficult when the job market shrinks. People in other countries do not vote for the party in power, another consideration when you are trying to increase profits by hiring cheap foreign labor.
11. elliot smart
Offshore jobs but not skills.
The way to remain in a position of global advantage (and thereby earn higher rates than people in india or china) is to have something that everyone wants but no-one else has the skills to produce.
If you offshore skilled work then you have the japanese motorcycle syndrome (the British and American motorbike industries no longer exist as major employers) and our capacity to operate in an industry or market space is dimished.
Therefore the off-shoring of some activities on the basis of cost is one thing but the delivery of key advantage to another nation such as technical skills and thought leadership is sheer folly at the national level.
Not however at the personal level when your shareprice nets you million pound bonuses.
12. Retired Exec.
The inside view: "What the Board thinks about"
I worked at a large plc, we moved a lot of jobs offshore: IT, admin, customer service, etc.
We saved a lot of money. But we didn't lower our prices. Our share price went up, my stock options went up and I along with the other top level management received massive bonuses. But I relised what it was actually doing to the staff of the company, so I left.
The board level view, was that the revenue lost from some customers leaving, would be more than compensated for by the increased profits from reducing the overheads. We had a lot of people working on the projections for this.
The other view was that by moving some operations to developing markets (India, China, etc), we would begin to brand ourselves in these developing areas and would receive revenue from selling into these markets in subsequent years. These markets are going to dwarf the US and Europe.
Most board members of big plc's view the current developed markets as highly saturated and the oppertunity costs of the developed markets are very high. Developing markets are cheap to enter and normally very unregulated.
The directors also keep a paranoid watch on the share price as this is basically what is measured for bonuses. If your competitor reduces his costs by 30%, you have to do it or your stock plumets, you become a sell recommendation and the company dissapears.
So what am I really saying?
That this will continue, the people at the top often get there becasue they don't care about the people they pass going up. They focus on stock market prices not staff wellfare. As an insight; on the MBA course I attended we were taught to lump staff together with machinery, etc. Staff are just another resource to the guys and gals in the big offices.
I wish it wasn't so, but I know that it is.
13. Maxwell Smart
Would you believe the Indian government is subsidizing most of the pay of the offshoring computer tech's out of complete altruism for their technically skilled workers?
Would you believe that they are not collecting intelligence on computer usage trees, patterns and data that could benefit their policy, and aid the foreign policy of their 1 billion person state? Wouild you believe that they do not share this data with Russia which is custom building their Navy, nuclear, and air forces and trying to rebuild its owen Intel capabilities in the west?
Well, what would you believe?
14. Stephen Hopson
This is another symptom of British Management/ Government classes short sighted view of their own bank balances.
Employing foreign workers to do the jobs at the bottom of the stack reduces the "on the job" training opportunities -- whether you are training to be a consultant or a brain surgeon (note that the Goverments policy of bringing in cheap labour to staff hospitals and perform operations is having the same effect in the medical world). No amount of investment in extra theoretical training will make up for this lack of practical experience.
What does this mean? The only people that will be qualified through hands on experience will be those to whom we offshored the "menial" task! So we can see that there will be creeping job loss up the stack as these will then be the only people qualified for promotions.
Thus a previous commenter will get his wish: eventually it must get to the top of the corporation.
In other aspects of our daily lives we extol the virtues of "buying British" or when buying foreign products, to buy "fare trade" products where the supplies / producers get a fare price for their efforts. I believe that this is a growing force. Look at the products in the stores around, whether groceries or high tech goods: "cheapest" is not necessarily "best"
I personally put this into practice when buying services: I do not bank with a company that off-shores it's call centers or development work.
I would urge everyone else to do the same. It is only when the consumers of goods and services wake up and decide where their best interests lie rather than the companies that they do business with that those companies will be forced to change.
15. anonymous
Welcome to our world. I hope that unemployment benefits are better in the UK than in the USA. Many of us here have been unemployed due to this for several YEARS now.
16. Hid S
I don't think there's anything wrong with off-shoring or globalisation of the labour force as such. I'm not a big believer in trade barriers for goods or services.
If someone comes to my company and says, listen, I can do EXACTLY what your current IT manager can do but I'm willing to work for half the salary, then I can hardly blame my company for taking that option.
What I do object to is companies off-shoring, and pretending it's for the benefit of the users/customers and keeping low prices or whatever.
If they said, we're offshoring cos it saves us loads of cash and makes our profit figures look better and we don't really give a monkeys if the service deteriorates, then fair enuf.
It's all this baloney about how they have to do it to survive and it's all been done for our benefit, that makes me mad.
17. anonymous
this is exactly what i think for a long time and i must agree the new markets will compensate the losses on the old markets (caused by unemployment)
however the author does not speak about the political implications, after all it's not his job and as a CEO if things go wrong he always can find a safe heaven!
this is obviously totally unethical and representative of current capitalism (besides corporate governeance go awry, this is a long story)
nobody cares about skills also, capitalism is just one thing , profit
many employees dont understand that CEOs are very cynical creatures besides generals, ministers (but they have different priorities)
18. anonymous
Stephen Hopson says he supports fair trade but will not bank with a company that offshores its call centres. This is fair trade in action. An industry that involves infrastructure, semi skilled labour at more than relativley generous wages, leading to more skilled jobs, and can be imported easily pops up overseas and he wants to shut it down. He and many others seem to believe fair trade or globalisation should only exist where they are the sole winners. Western governments have been subsidising agricultural products for decades, dumping excess produce on thirld world markets, destroying local business in the name of protecting our farmers. Now India, Philippines and other countries have found something they are good at (and the quality arguments are nonsense - give me a Filippino college graduate with a work ethic over a Liverpool high school dropout any day) and can do a lot cheaper and suddenly trade in services is immoral because of the job losses in the west.