Amidst the global downturn, the first thing every company looks at is to cut costs and UK-based companies are no exception. One of the dominant arguments for firms to move business offshore is the low wages in other countries.
Companies save around 45% on production costs. Other commercial advantages, beyond that of cheaper labor, include recruiting highly talented employees out of the huge pool of graduates that these countries produce each year. In fact, there is so much talent to choose from that companies agree that they find it hard to filter the excellent from the good. In such a scenario, is it any wonder that companies consider offshoring as the best option for them?
According to a recent survey, in the last six months, two in every three UK-based companies have outsourced at least part of their IT jobs. Not only that, more than half of the IT departments in companies had shifted overseas.
In the UK, offshoring is becoming more popular than ever before. This is particularly attributed to the difficult economy, where companies are looking to reduce costs. The flexible labor laws in Britain are also part of the reason why UK companies are more inclined to make use of offshore opportunities, taking advantage of the availability of an English-speaking population in countries like South Africa, India and Philippines.
When IT professionals in the UK were asked about their outlook for the next six months, half of them said they would offshore work. Going into more detail as to what sort of jobs are being offshored, the survey revealed that the highest number of jobs were that of a “software developer,” followed by programmers and IT support jobs.
According to an IT job board head, Teresa Sperti, “The UK is in the midst of skills crisis, which is currently being undermined by the recession. If we are going to combat the long-term issues associated with IT skills, then businesses should be looking to train and utilize local talent, rather than offshoring their IT activities.”
In spite of so many jobs being offshored by the UK, a survey revealed interesting results, where 76% of people in the UK felt that offshoring does not present any long-term benefits to the economy.
While experts do agree that offshoring results in job losses in the short run; a recent study by the McKinsey Global Institute reveals that offshoring is a win-win situation for the UK. If a company in the UK moves part of its business to another country in an attempt to reduce production costs, this will ultimately lead to cheaper products for British consumers, economic growth for the UK as well as the host country, and finally more jobs within the UK. This shows that while the option of outsourcing may not seem right in the short-term, it certainly is a good option with long-term benefits.
When we look at big countries who offshore their business to other countries; in the United States, the public opinion about offshoring is largely negative. In the UK, although this feeling is not on the same level as in the US, there does exist the fear of losing jobs to low-wage countries.
While offshoring may prove to be beneficial to both the UK and the host country in the long run, experts are of the opinion that it can have a positive effect only when the UK moves up the value-added chain. Currently, as it is well known, it is not just the cost efficiency that is behind companies moving their businesses offshore. There are certain skills not found in the UK and very easily found abroad. Britain has to make up for these deficiencies and only then will offshoring turn out to be positive in the long-run for the British economy.
This globalization of production has been going on for decades and has been increasing with each passing decade. It has also proved beneficial to all concerned. The economic reasons for offshoring are not disputed. On the other hand, the concerns of people who are struggling to keep their jobs or find new ones in the current economy is understandable. However, whatever way we look at it, offshoring is an economic and social fact of the current day.