September 2004 - Offshoring and the changing nature
ComArch, the Polish computer
systems business, announced two weeks ago that
it was sourcing increasing amounts of its information
technology work in the Ukraine, where the salaries
of information technology staff were a fraction
of those in Poland.
The announcement caught my eye,
not because labour sourcing across borders is
anything unusual in technology companies, but
because Poland, which has itself benefited from
European business as a cheap source of IT labour,
is now sourcing cheaper labour elsewhere.
However, Poland is not losing
out economically. Companies such as ComArch have
grown spectacularly on the back of foreign investment.
The free flow of technology work to the cheapest
sources of labour is creating a kind of economic
domino effect with an outcome similar to that
recognised by David Ricardo, the 19th century
economist, when expounding his theory of comparative
The similarity arises because
companies such as ComArch in Poland and Tata in
India are expanding their businesses into western
labour markets, creating new jobs to replace those
that might have been lost in the labour-sourcing
phenomenon of offshoring that has become a serious
election issue in the US.
Nor is this issue confined to
North America. A recent Forrester research report
based on responses from 247 IT bosses found that
three-quarters of mid-sized and large companies
in western Europe planned to use offshore outsourcing
services between now and 2009. The same survey
predicted that the percentage of western European
companies planning to move 1,000 or more jobs
offshore would double between 2005 and 2008. Forrester
expects Europe to lose 1.2m jobs offshore by 2015.
But offshoring is only part of a fundamental sea-change
in labour sourcing that is challenging the way
we think about work. Demographic trends in Europe,
characterised by falling birth rates coupled with
underfunded pensions, are likely to create serious
labour shortages and bleak retirement prospects
for many employees.
These developments are likely
to force employers to rethink their pay policies.
Where, in the past, it has been the custom for
middle-aged employees to look forward to ever-increasing
pay awards as they approach retirement, in future
there may be some logic in tapering pay and responsibilities
downwards later in careers. This way, employers
may be less attracted to the idea of getting rid
of their costlier older managers in early retirement
or redundancy schemes.
New approaches will be required,
as much of individual employees and trade unions
as of employers. Chasing ever-higher earnings
may become less of a priority for the unions than
ensuring career-long employment opportunities
for their members.
In the short term, employers
worried about labour shortages in the UK can take
little heart from European Union enlargement.
A recent survey by Manpower, the employment agency,
of its 300 UK branches found evidence of no more
than a trickle of jobseekers from the new member
The UK government recognises
that skilled workers from central Europe would
be welcomed by many employers to plug serious
skills shortages in traditional trades. An NOP
survey for Manpower found that more than a fifth
of UK companies were experiencing skill shortages,
mostly in skilled trades such as plumbing and
carpentry, but also in customer service and general
Skilled trades remain in demand
but manufacturing jobs have been seeping out of
the UK for years. The TUC said this month that
750,000 manufacturing jobs had been lost in the
UK since 1997. Service jobs have more than compensated
for these losses in numbers but not always in
the quality of work. Moreover, improvements in
IT have meant that many service jobs, such as
those in call centres, tend to be easily transferable
since they do not depend on large investments
in plant and machinery.
Work, which used to be something
geographically confined within a specific area
such as a large factory or office block, is becoming
more fluid, often because of market pricing, flowing
to where it can be undertaken cheaply. The good
news about these developments is that work can
go where it is most needed. Unlike foreign aid
which does little to create sustainable improvements
in living conditions, the creation of paid work
injects spending power into economies which, in
time, creates new markets for those countries
that experienced initial outflows of work.
What remains unclear, however,
is whether these new markets will compensate for
the loss of jobs and pay reductions suffered by
countries experiencing outflows. Foote Partners,
the US-based management consultant and IT industry
research company, reports that the offshoring
of US IT work has led to a slide in salaries for
many similar jobs retained in the US. Some might
view a degree of economic levelling between the
wealthy west and the rest of the world as a welcome
development although there are few signs of any
substantial migration of work to the poorer southern
hemisphere, including sub-Saharan Africa.
When placed in perspective against
the hundreds of millions of under-employed people
or working poor, particularly in developing nations,
a downturn in US IT pay can be hardly viewed as
a crisis. It is yet another symptom of globalisation
that has reached a scale, according to Forrester,
that will enable companies to outwit by stealth
any attempts to introduce protectionism.
As companies begin to make increasing
proportions of their revenues using the internet,
we can expect to see more fragmentation of work
as a result of the competitive prices of outsourced
services. The cost of these services must be compared
to those undertaken in-house that carry significant
overheads beyond salaries - in company pension
contributions, benefits, holiday pay and property
costs. This trend has been slow to match predictions
in the 1990s of a growth in freelance working,
possibly because of big company and government
inertia coupled with traditional expectations.
But attitudes have changed, nevertheless.
Fewer job seekers today appear to be enamoured
by prospects of a lifetime career with one employer.
A greater emphasis on individualism has reduced
the spirit of collectivism and institutional "belonging"
that characterised the lives of those brought
up before and just after the second world war.
But it has not yet destroyed "the job",
which is proving more resilient than some might
Dual careers, overlapping careers
and careers interspersed with gap years and additional
study are all entering working life. Lagging behind
these trends is government policy, not just in
the UK but also at the heart of the European Union,
where social policy continues to be dictated by
job creation philosophies rather than matching
people to work suggested by greater labour market
flexibility. Work should remain important, but
as a means towards richer lives - not for its
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