“For the foreseeable future, the human resources, information technology, finance and procurement organizations of corporate America and Europe will continue to be a source of net job destruction, and hence one of the factors explaining the ‘jobless recovery,’” said the Hackett Group, a global business advisory group, in a research paper published this month.
Offshoring jobs is a major culprit for millions of professional and service sector job losses in the United States and Europe, and experts say that it is only going to increase.
“Declining levels of ‘onshore’ employment of white-collar professionals in finance, HR, IT and procurement is no less pronounced” than losses in the manufacturing sectors, according to the Hackett Group.
The Hackett Group determined that “closer inspection of the trend line shows that in the first part of the decade, IT bore the brunt of the losses due to large-scale outsourcing in corporate America and Europe.
Offshoring Jobs
The U.S. and European finance, human resource, and procurement sectors lost 2.8 million jobs between 2000 and 2010 due to offshoring.
These jobs were not lost due to bankruptcies or loss of contracts, but due to offshoring to emerging market economies.
“While the reductions were accelerated by the recession, they were driven largely by a structural, longer-term trend of ongoing innovation in companies’ Service Delivery Models, maturation of offshoring options, and increasing levels of automation,” the Hackett Group researchers said.
The gloomy news is that another 1.3 million U.S. and European jobs will be moved offshore over the next four years.
“There’s no end in sight for the jobless recovery in business functions such as corporate finance and IT, in large part due to the accelerated movement of work to India and other offshore locations,” the Hackett Group said.
Outsourcing of jobs has become easier because of shared resources, standardized workflow, advanced communication technology, and automation. Employee skill levels in emerging markets have improved significantly since the beginning of the outsourcing trend.
Companies have developed teams built around a “Global Business Services” (GBS) model that re-engineers the structure and working environment of a company and demands a worldview instead of local outlook.
“GBS organizations embrace both outsourcing and their own internal offshore operations, which remain owned and operated by the companies, to enable a broad array of functions to be moved to low-cost labor markets and managed in an integrated fashion,” according to the Hackett Group.
Finance Sector Job Losses
“Our investigation of job-trend projections by function revealed that finance will become a far more significant contributor to total losses than it has been historically,” the Hackett Group said.
Jobs in the finance sector were growing over the last decade due to the Sarbanes-Oxley Act of 2002, which imposed new accounting and financial regulations on corporations. Due to the financial crisis, losses due to lax banking practices, and liquidity problems, the financial sector has gone on a job-cutting spree.
The financial sector will face the most severe job losses when compared to other servicing sectors, not only to outsourcing, but also to automation. A large number of routine job functions in the financial sector are being automated and are accessible to the user with greater speed than a human could provide.
“With the advent of the recession, finance found itself in the crosshairs as management looked for new sources of cost reductions. ‘Rationalization’ of finance activities resulted in large improvements in productivity but also the acceleration of the movement of work offshore,” according to Hackett Group research.
Job Losses Picking Up
In November, the U.S. unemployment figures stood at 15.1 million, and the unemployment rate had edged up to 9.8 percent. Unemployment rates hovered around 9.6 percent over the past months and 9.3 percent during 2009, up from 5.8 percent in 2008, according to a December unemployment press release from the Bureau of Labor Statistics (BLS).
“Temporary help services and health care continued to add jobs over the month, while employment fell in retail trade. Employment in most major industries changed little in November,” according to the BLS.
The best job market was in 1951, when America’s jobless rate was 2.9 percent. The worst historical job markets were in 1982, with an unemployment rate of 9.6 percent, and 1975, with an unemployment rate of 8.5 percent.
The current unemployment rates are derived from the Current Population Survey, a survey that is done monthly and covers 60,000 households. So the U.S. unemployment figure is at best an estimate, and the true unemployment figures might be much higher.
Today’s Offshore Winner Is Tomorrow’s Offshore Loser
The landscape for offshoring is a constantly changing one, as businesses are always in the hunt to reduce costs and maximize efficiency.
Chile, once thought to be the offshore heaven for call centers, with an annual growth rate of 20 percent between 2005 and 2009, is facing a rapid decline in call centers as they move to Peru and Colombia.
Not only is Chile losing foreign corporate investments to other Latin American countries, but also local companies are offshoring functions to countries with lower labor costs.
“Chile’s higher costs are making the country less competitive, leading many Chilean companies to move their call centers to other Spanish-speaking countries in Latin America such as Peru and Colombia, where the cost of the labor used in these services is lower,” according to a 2010 Knowledge@Wharton research report.
Friends Read Free