The growing trend for British firms to send jobs overseas has helped boost employment in the UK, creating thousands of jobs, according to new research.
Economists at the Globalisation and Economic Policy Centre (GEP) at the University of Nottingham say their research contradicts common perceptions that British firms are exporting jobs overseas to India and China simply to cut costs, leaving many here unemployed. It may also suggest that its use as an easy electioneering tool both here and in the US may be misconceived.
GEP economists analysed data from more than 66,000 UK firms over a ten-year period from 1996 to 2005. The results of the study – the largest ever carried out into offshoring – showed that far from increasing unemployment in the UK, the policy had resulted in the creation of 100,000 extra jobs and an increase of £10 billion in turnover.
According to the study, firms that offshore part of their production process or service provision overseas become more efficient. This boosts productivity and turnover and as a result these firms grow and end up employing more people at home.
GEP Centre Director, Professor David Greenaway said: “People fear their jobs are being exported to countries like India and China where labour is cheaper, but the picture is far more complex than that and much more positive."
That said, the perception that offshoring equals unemployment and poorer service is deeply entrenched in the UK consumer psyche, brought on by poor experience of public-facing offshore services, together with rising domestic unemployment and an increasing gap between the better off and the most poorly paid workers. That perception is also embedded in many sectors of the workforce, particularly in manufacturing.
sourcingfocus.com's own offshore survey in April found that the vast majority of consumers would prefer to receive UK-based provision, even if it meant paying more for goods and services. In some sectors and regions of the population, only single-digit percentages of people described themselves as happy with offshoring.
Professor Greenaway confirmed that there are losers from offshoring, most notably in the levels of staff 'churn' “Offshoring does lead to increased job turnover and a change in the skills mix in a firm. The winners are those who have the skills required by firms that are offshoring and growing; the losers are those who cannot adapt.
“The lesson for policymakers is that offshoring is to be embraced, not feared, but we need to continually invest in upgrading the skills of British workers
to increase their adaptability and help smooth the transition from one job to another.”
However, that adaptability is required at all levels of the organisation. As sourcingfocus.com has found at all of this year's outsourcing conferences, often senior managers, such as CIOs, find themselves without the requisite skills to manage a chain of offshore partners located in other parts of the world; some leave and join outsourcing companies as a result.
Of course, communities that have built up around the provision of labour power within the UK, particularly those centred around manufacturing facilities, are usually the hardest hit, and it is a much greater challenge to provide those workers with new skills. Few may care about the newly efficient organisation that has uprooted itself overseas – although some companies do so in order to survive.
That said, the research also exploded another offshoring myth. Report co-author, Dr Richard Kneller said: “The common perception of offshoring is that its largely low paid call centre jobs being exported to lower wage economies like China and India, but that’s not the case.
“If you think of manufacturing and the production of parts, then it is skilled work. If you look at car manufacturing, Ford may make engines at Dagenham but gear boxes in Spain; if you think of Airbus – Britain makes the wings and engines, France the bodies. Most offshoring is actually to similarly developed European nations and the US, where the language skills are better.”
At the core of this is essentially the offshoring of risk: a risk shared is a risk reduced, and many analysts now portray the 21st century company as a globally distributed network of suppliers united around a brand name. This does not just apply to major engineering projects, but also to consumer and business technology, among countless other areas; Apple is one company that is now a carefully managed network of suppliers and IP owners, united by a powerful brand message.
Britain is a major beneficiary of offshoring, said Kneller. “In the services sector Britain has a reputation for areas like finance and creative media, and overseas firms will offshore work in this area to UK firms.”
Arguably, this is the logical conclusion of the 1980s Tory project of turning the UK into a skilled finance and services centre at the expense of the manufacturing sector. How long that vision may play out is now a moot point, as low-cost, high-skill countries such as India will inevitably begin to eat into the centre of the UK economy over the next five years.
The GEP research findings are to be presented at a major conference on offshoring to be held at the University of Nottingham later this month, which is expected to attract some of the world’s leading economists and experts on the subject as well as senior figures from the policymaking community.
• Intellect has just launched an online survey into the future of offshoring. See today's separate story to take part in the survey.