The bane of the new economic recovery has for a very long time now been the excruciatingly high unemployment rates. Back office operations have been on an east-ward journey since 2008 in search of reduced labor costs. An average of about 365,000 white-collar jobs have moved each year reaching a total of nearly 1.5 million jobs that have been outsourced from the US and Europe.
Productivity consultants, the Hackett Group have disclosed that 265,000 more jobs will be outsourced from the first world. The data that the group analyzed is derived from 4,700 companies with a total revenue of nearly $1 billion.
Of the 8 million internal business service positions or back office positions that existed before the recession hit, more than half of that number will move overseas in an attempt to reduce costs. Nearly 46% jobs including 1.5 million in-house IT jobs and 1.4 million corporate finance jobs will move abroad by the year 2017 according to the Hackett group research.
The study however continued and said that job loss will reduce starting in 2014 and reduce to only 133,000 jobs that are sent overseas in 2017.
Understanding the trend
The idea of reducing running costs through operating out of an overseas location with cheap labor overtook the business world more than a decade ago. Most people who contact help desks and call centers are well aware that they are probably in conversation with somebody in India or the Philippines.
The infamous recession and the consequent global economic meltdown accelerated the progress of the outsourcing arena. Globalization has also been a major motivating factor in favor of overseas operations. The market pressures have also dictated the trending operating model to some extent according to Honorio Padron, a data analyst and consultant working on the Hackett research.
Honorio Padron was quoted as saying, “They’re consolidating all of their support functions, including finance, IT, procurement, and some human resource roles, into one internal division, usually dubbed global business services, or GBS.” This division operates out of locations based in areas which support low running costs at high productivity.
The GBS approach
Procter and Gamble or PG as it is popularly known launched its Global Business Services division under the aegis of CIO Filippo Passerini nearly a decade ago. The division delivers nearly 175 unique support services to the company’s operations from 180 locations worldwide.
Instead of duplicating the services in divisions at each location the GBS approach has saved P&G nearly $1 billion in operating costs.
The job cuts that happened in the P&G operations resulted in more jobs for its location in India. Some 40% of offshored IT and finance positions moved to India according to the research by the Hackett group.
But with the middle class rising and pushing up the wages in India, the reduction in operating costs no longer remains as significant as it once was. Does this then translate to jobs moving back to their origins?
Padron was of the opinion, “Don’t hold your breath. There is some anecdotal evidence of ’backshoring’ here and there, but expecting it to be widespread is really wishful thinking.” He also went on to explain that, “India and China’s labor costs are still nowhere near those of U.S. and Europe. Yes costs in Asia are rising – but ours are rising, too.”
Despite the insatiable thirst of outsourcing jobs, the market for IT skills in the US is still going strong with tech unemployment rates at a mere 3.5%. Even if the offshoring continues at the same pace over the next three years, the data analyst jobs are not going anywhere according Erik Dorr, another researcher on the Hackett study.
Dorr was quoted as saying, “If you’re skilled in SAP or Oracle, or doing high-level quantitative analysis, or any kind of IT or finance work that is not repetitive or routine,” your job is probably going to be safe. “A good data analyst creates value that is an order of magnitude higher than what you pay him or her, so comparative labor costs are less of an issue.”
The employers who are inclining towards the GBS operating model are looking for a specific skill set according to Dorr. He elaborated, “If you can manage change, from conception to completion, that is a skill in demand. Right now, companies’ ability to make change happen is constrained by the lack of available talent.”