OFF-SHORING

December 27, 2012


Logistics Management, April 2012 was used as one resource for this posting.

Off-shoring is a word that has recently “popped up” in literature to describe moving jobs from one country to another, generally countries with lower cost of labor.   I retired from a Fortune 500 firm that mandated 33 % of all components and assemblies be purchased from LCCs; i.e. low cost countries.  The meaning was obvious, LCCs operated with labor rates significantly lower than those rates found “at home” and the company wanted to capitalize upon those low rates to increase profit.   The “going rate” for an engineer in India–$15,000, Mexico– $12,000, whereas in the United States—approximately $83,000.  Similar situations exist with CAD operators, draftsmen, assembly workers, etc.   This trend will not be reversed easily or soon.  Corporations in the United States and Europe will move an additional 750,000 jobs in IT, finance, and other business related services to India and other low-cost geographies by 2016, according to new research from The Hackett Group, Inc.   As noted in Supply Chain Management Review last year, researchers were trying to determine if levels of additional off-shoring in these areas would begin to decline by 2014.   That group’s off-shoring research, which examined available data on 4,700 companies with annual revenue over $1 billion headquartered in the U.S. and Europe, found that by 2016, a total of 2.3 million jobs in finance, IT, procurement, and HR will have moved off-shore.  This represents about one third of all jobs in these disciplines.  India is by far the most popular destination, with nearly 40 percent of the jobs being off-shored headed there.  The Hackett Group’s research sees additional off-shoring levels in business services, which are currently at around 150,000 new jobs each year, leveling off or declining after 2014.  They also found  that of the 5.1 million business services jobs remaining on-shore at U.S. and European companies in 2012, only about 1.8 million have the potential to be moved off-shore with  750,000, as mentioned above, moving by 2016.   Within the next eight to ten years, the traditional model of lifting and shifting work out of Western economies into low cost countries will cease to be a major factor driving business services job losses in the U.S. and Europe.  Automation and other productivity improvements will have caused the elimination of 2.2 million business services jobs at these companies between 2006 and 2016 and these factors are currently driving the elimination of round 200,000 jobs annually.  Companies must improve processes and to a great degree automate those processes in order to survive.  Our tax codes are not favorable to companies within the U.S. and companies must compensate for that fact.  “In the U.S. and Europe, off-shoring of business services and the transformation of shared services into Global Business Services, have had a significant negative impact on the jobs outlook for nearly a decade”, said The Hackett Group Chief Research Officer—Michael Janssen.  “That trend will continue to hit us hard in the short-term”.            

What we are saying—don’t’ look for much relief, if any, for the next few years.

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