Offshoring the Offshoring Trend Is Generating Controversy As More and More High-Paying White-Collar Jobs Are Workplace Visions Explores Moved Overseas
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EXPLORING THE FUTURE OF WORK No. 2 – 2004 SHRM Research Offshoring The offshoring trend is generating controversy as more and more high-paying white-collar jobs are Workplace Visions explores moved overseas. Though offshoring saves businesses labor costs as well as other expenses associat- developments in society, ed with personnel, it also contributes to an atmosphere of anxiety among workers who feel their jobs economics, science and technology, politics and are being threatened. With job security as one of the most critical factors in determining how satis- government, and the law fied employees are with their jobs, the threat of offshoring could cause significant damage to to stimulate thought and employee morale. Dealing with the functional, structural and strategic aspects of the offshoring discussion on new issues and trends affecting the process will put HR at the center of the offshoring debate. But dealing with the repercussions of off- human resource shoring on employee satisfaction, recruitment and retention may prove to be its greater challenge. profession. Material for the newsletter is gathered through contacting experts in the field and conducting extensive Globalization and Offshoring literature reviews. Offshoring is the exporting of jobs from developed countries to countries where labor and other costs are lower. A globalizing economy along with inexpensive telecommunications technology Questions and comments should be is making it easier for many jobs that were previously immune to offshoring to be sent overseas. referred to the SHRM As globalization accelerates, the offshoring trend is likely to intensify as well. Research Department. E-Mail: Current Trends in Offshoring [email protected] Though once thought of as a threat only to manufacturing workers, offshoring increasingly involves white-collar jobs with relatively high wages. Current trends indicate that offshoring is Internet: www.shrm.org/trends spreading to more industries and is moving higher up the skills ladder. Though factors such as English fluency rates currently give some countries an edge in the offshoring market, the mix of Author: factors that attract investment and offshoring into a country is complex—a reality reflected in the Jennifer Schramm reverse offshoring and multishoring trends. But though many of the issues behind offshoring are Published four times a complicated, the current political debate surrounding it tends to veer toward the simplistic. As year by the Society for Human Resource more jobs are affected by offshoring, the level of pressure on politicians for a legislative response Management, 1800 Duke to the trend may increase. As a result, business leaders, particularly in the high-tech industry, are Street, Alexandria, VA working to convince a dubious public that offshoring’s economic benefits outweigh its costs. 22314-3499, USA, Tel: (800) 283-7476, (703) 548-3440, Future Projections for the Growth of Offshoring Fax: (703) 535-6432 Projections for the growth of offshoring over the coming decade vary greatly. One reason is because of disagreement over how easily white-collar jobs can be transferred overseas in com- Copyright 2004. Reprints by parison to manufacturing jobs. Another factor is the future skill and education levels of the work- permission only. ing age population. With college education rates reaching a plateau, some experts believe this skills deficit will be the issue with the greatest impact on national competitiveness. Industry leaders are also calling for more investment in research and development as a way to remain competitive in a global market where the only thing that can successfully compete against low labor costs is continuous innovation. Implications for HR HR may find itself at the center of an increasingly contentious debate about the implications of HR: Leading People, offshoring for both business and employees. And though some experts believe that offshoring Leading Organizations does not pose a major threat to HR professionals themselves, others argue that HR is as vulner- able as any other white-collar profession. 04-0088 he concept of offshoring is not really new, but it has become a not. For those middle-class workers in fear of losing their jobs to Thigh-profile topic over the last year, primarily because so many offshoring, the force of the trend seems as threatening as it is of the jobs leaving the country are relatively high-paying white- impossible to stop. collar ones. Offshoring is essentially about the cost of human capital—typically the largest expense line item in most companies Current Trends in Offshoring is personnel—and because of this, the human resource function Though offshoring has been around for many years, current trends plays a central role in both the decision to move jobs overseas and are raising its profile. The most important is the change in the types in managing the process once it has been initiated. But as anyone of jobs that are being moved overseas. But the changing nature of reading about offshoring in the latest news stories knows, the trend both the economies and the workforce of nations where jobs are is controversial. As a result, HR professionals may find themselves being sent are also adding weight to the notion that offshoring has at the center of a growing debate about the costs and benefits of the potential to dramatically impact the U.S. jobs outlook. offshoring jobs. But perhaps most critically HR practitioners will need to deal with the aftermath of offshoring and the potential Types of jobs being offshored negative impact it could have on the morale of those workers who What started with low-skilled manufacturing jobs moved into have managed to hold on to their jobs. higher-skilled manufacturing jobs and has now penetrated the service and IT sectors. The impact on the IT sector has had the Globalization and Offshoring highest profile recently. Stories abound of software engineers with Though dealing with effects of offshoring on employee morale and master’s degrees and decades of experience being laid off and job satisfaction will be crucial, HR’s involvement in offshoring is on unable to find work after their jobs were offshored to India. But many levels, both functional and strategic. The process of most analysts agree that the trend is likely to move beyond the eliminating jobs from a national operation and moving them high-tech and manufacturing sectors as well as higher up the job overseas involves putting into place systems and procedures that and skills ladder. This movement into high-skilled jobs has already will manage and unify a global workforce. This will challenge both happened in those sectors where offshoring has been around the HR practitioners and the processes and technologies they use. longest; the manufacturing jobs that moved overseas in the 1980s But the more strategic tasks of addressing the structural, cultural were mainly low-skilled but those being offshored today are and leadership challenges that the addition of new overseas increasingly high-skilled jobs. Likewise, some of the IT jobs now operations could pose are also critical. HR practitioners will be being offshored involve such high-level tasks as software called upon to assess the impact of offshoring on both the workers development. remaining in the home country and increasingly on the reputation According to a recent study from consulting firm A.T. Kearney, and brand of the company overall. With offshoring becoming a financial service companies are planning to move about a half more volatile issue, this will not always be easy. million jobs offshore by 2008. These include high-level financial Globalization is creating the context within which the analyst and research jobs. Other jobs often cited as likely targets of movement of jobs is made easier. The North American Free Trade offshoring include call centers, accounting, legal research, Agreement (NAFTA), which was signed in 1993, has evoked both architecture and design. Though A.T. Kearney predicts that back- criticism and outspoken support. Supporters of NAFTA say that it office processing of information and IT-enabled services will has stimulated trade and investments and that these in turn will continue to be offshored, the greatest impact and most growth will raise incomes and future rates of growth. Critics, on the other hand, come from services requiring higher skill levels. say that NAFTA has led to job loss, particularly of jobs in high-wage manufacturing, and rising income inequality. The arguments on Destination countries both sides of the issue are repeated in the offshoring debate. Because the level of skill required in these jobs is higher than that of Perhaps what both sides agree on is that globalization is rapidly many of the manufacturing jobs that were previously moved accelerating. The shift from offshoring mainly manufacturing jobs overseas, national education and skill rates are the basis on which to the trend of moving certain white-collar jobs overseas has added countries compete. These intangible assets are a crucial piece in the more intensity to both sides of the debate. For businesses offshoring debate and the main reason why some countries stand competing on cost in a knowledge-based economy, the extra 10 to out more than others as potential destinations for offshored jobs. 20% savings in labor costs that offshoring can offer is impossible to One key factor is English language skills; offshoring is dominated turn down, especially since they can be sure their competitors will by English-speaking companies and countries where large 2 SHRM Research numbers of workers in the labor pool are fluent in English. This is science and technology graduates and its close proximity to true of both the countries doing the offshoring as well as the Europe. Western European countries such as Germany and France countries where the jobs are being sent. are also offshoring jobs to Central European countries such as One reason why out of all of the Asian countries where jobs have Poland, the Czech Republic and Hungary.