OFFSHORING: IS IT A WIN- WIN GAME



Main Takeaways

• Offshoring: The relocation of labor intensive service industry functions to locations remote to the business center.

• made possible by

a) improved int’l telecommunications capacity and lowered costs

b) computerization and digitization of most business services

• Better for economy than appearance on surface; creates net additional value for economy

• Challenges: convincing people of the opportunity of re-employment, overcoming worker displacement and disruption

• Solutions: Insurance for displaced workers; sweetened severance packages; better training

• Offshoring likely to increase by 30 to 40% over the next 5 years = 200,000 jobs lost over 10 yrs

More in-depth Summary

Motivation to offshore: lower labor costs! and desirability of employment positions

Who?Where?: US dominates offshoring (70%); Done in countries where English is spoken most

Criteria for an offshored service: function can be digitized or handled by phone; appropriate skills are available ( back end processing, call centers, accounting, software development)

Debate over offshoring: “is your job next?” – probably overstated b/c most US jobs are services

Economic impact: Offshoring creates wealth for US companies and investors which is GOOD

Benefits: a)reduced costs, b)new revenues, c)repatriated earnings, d)redeployed labor p. 381-383

Of displaced workers: 36% found jobs of equal or better income; 55% received less money than before (typically 85% of past wages); 25% received substantially less money (30% decrease)

Case Discussion / Digest Questions

1) The business functions most suitable for offshoring- listed in order of complexity- would be: Back Office (basic data entry, transaction processing, document management) Customer Contact (call centers, customer service, telemarketing, collections) Common Corporate Functions (Finance/accounting, HR, Procurement, IT - such as help desk, maintenance, applications development) Knowledge Services (research services, customer analysis, portfolio analysis, claims processing, risk management) R&D (new product design) EXHIBIT 4 PG. 379

2) The risks of offshoring are: loss of jobs resulting in worker displacement and disruption. This causes an uneasiness among the population and a general backlash at the idea.

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