Offshoring moves into white-collar phase

Companies are increasingly moving high-end functions such as product design, research and management overseas as offshoring enters a major new phase, according to research published this week.

by Duke University and Booz Allen Hamilton

A report by Duke University and management consultancy firm Booz Allen Hamilton claims that rising numbers of firms are transferring highly skilled jobs to China, India and other countries, primarily because these countries can provide highly skilled scientific and engineering workers who are in short supply in the US and Europe. But these firms are increasingly concerned about the loss of managerial control that comes from such outsourcing, it says.

The report says that the nature and purpose of offshoring has fundamentally changed over the past 30 years. From the 1970s, when manufacturing jobs were relocated to low-labour-cost countries, through the early 1990s, when IT applications work first migrated to India, offshoring meant moving jobs elsewhere, usually resulting in significant job losses at home. But according to the report, there has since been "profound shifts in the rationale and direction of what we've come to call offshoring".

It says: "No longer is offshoring about moving jobs elsewhere; increasingly, it's about sourcing talent everywhere. What began with rules-based, "follow-the-book", codified tasks now encompasses procurement, HR, legal services, engineering services, R&D and product design. And what used to be a tactical labour cost-saving exercise is now a strategic imperative of competing for talent globally."

The report claims that the offshoring of highly skilled work does not result in job losses in the originating country. Rather, jobs are being added offshore because the supply of higher skilled engineers, computer scientists, software developers, researchers and managers in the talent pool has not kept pace with onshore demand.

However, the dispersal of high-end functions away from company headquarters has led to serious concerns about the subsequent loss of managerial control. Some companies are opting not to offshore, not because there is anything inherently unworkable or difficult in the arrangement, but because they believe their own organisation can't handle it. In addition, many companies have concerns over cultural differences and political instability, the report says.

India remains the preferred destination for offshoring, despite the emergence of China, according to the report. It also reveals significant differences in attitude towards offshoring among European and US firms: 38% of European companies considered cultural differences to be a significant risk in offshoring, compared to 28% of US firms. By contrast, 68% of US firms identified service quality as significant concern, compared to 39% of European countries.

The Globalization of White Collar Work
Duke University and Booz Allen Hamilton

Review by: Nick Loney

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