This excerpt from "The Globalization of White-Collar Work: The Facts and Fallout of Next-Generation Offshoring" finds that offshoring has changed from the original goal of moving jobs to the current objective of sourcing talent.
Offshoring is not what it used to be. From the 1970s, when manufacturing jobs were being relocated to low-labor-cost countries, through the early 1990s, when IT applications work first migrated to India, offshoring?literally?meant moving jobs elsewhere with all the dislocation and distress that it entailed.
The most recent findings of a 2006 survey conducted by Duke University's Fuqua School of Business and Booz Allen Hamilton (the Duke/Booz Allen Offshoring Research Network Survey) reveal profound shifts in the rationale and direction of what we've come to call offshoring.
No longer is offshoring all about moving jobs elsewhere; increasingly, it's about sourcing talent everywhere. What began with rules-based, "follow the book," codified tasks now encompasses procurement, HR, legal services, engineering services, R&D, and product design. And what used to be a tactical labor cost saving exercise is now a strategic imperative of competing for talent globally.
White-collar work can be performed where it makes the most sense and saves the most cents. More important, a looming shortage of technically trained talent, such as engineers and computer scientists, in advanced economies will require the ability to source and manage such talent globally.
Needless to say, this trend has significant implications for both businesses and governments the world over.
The advanced economies of the world no longer have a lock on high-skilled, high-paying jobs. In fact, the findings from the 2006 survey and our ongoing, in-depth discussions with companies currently offshoring and those considering it reveal a salient shift toward locating more sophisticated and mission-critical work in countries such as India, China, Hungary, Brazil, and the Philippines.
Initially, offshoring was limited to highly-codified, transactional work such as credit card processing, claims administration, and call center functions, as well as routine software development. In its second wave, work involving more technical judgment (e.g., finance and accounting, mortgage origination, and other back-office functions) was offshored.
Now, according to the 2006 Duke/Booz Allen Offshoring Research Network Survey, companies are offshoring high-end work that has traditionally been considered "core" to the business, including chip design, financial and legal research, clinical trials management, and book editing.
As offshoring steadily makes its way up the value chain, it is not only encompassing higher end white-collar work; it is fundamentally redefining the organizational structures and management practices of major corporations around the globe.
While cost reduction remains a prime justification for many offshoring implementations, labor arbitrage is no longer the only impetus. Our survey reveals that, increasingly, companies are offshoring to gain critical access to highly skilled scientific and engineering talent in China, India, Eastern Europe, and other emerging locations.
In other words, offshoring is evolving from a cost-saving tactic into a workforce management strategy with significant long-term ramifications. This new trend has a silver lining for those who have long bemoaned and deplored the exodus of jobs from the advanced economies of the U.S. and Europe. Our analyses indicate that the offshoring of high-skill content work does not result in job losses in the originating country; rather the overall job pool is increasing.
The reality is that jobs are being added offshore because the supply of higher-skilled engineers, computer scientists, software developers, and other scientists in the talent pool has not kept pace with demand onshore. In the long term, businesses and governments in the developed economies need to address this critical skills gap if they wish to retain their technological and scientific competitive advantage. The strategic priority for businesses is to develop human-capital strategies for sourcing talent globally and to build organizations that more effectively and seamlessly integrate talent located anywhere in the world.
Governments need to address the growing shortage of technically skilled talent, develop new macroeconomic policy initiatives, and vigorously promote investments in science and engineering education to ensure continued global competitiveness.
This article discusses the five principal insights that have emerged from the 2006 research conducted by Duke and Booz Allen Hamilton and the associated business and policy implications:
1. Labor arbitrage is giving way to accessing talent as the primary driver of next-generation offshoring.
2. Offshoring high-skilled functions does not replace jobs onshore.
3. Companies look elsewhere because they can't get it at home.
4. Where you offshore depends on what you offshore.
5. The obstacles to successful offshoring are increasingly internal and organizational.
A complete copy of the report may be downloaded here.