Corporations in the U.S. and Europe will move an additional 750,000 jobs in IT, finance and other business services to India and other low-cost countries by 2016, according to a new report from business advisory and operations improvement consulting firm The Hackett Group.
However, the study notes that levels of additional offshoring in these areas will begin to decline by 2014, and in the next eight to 10 years, the flow of jobs offshore is likely to cease, as companies simply run out of business services jobs suitable for moving to low-cost countries.
The Hackett Group's offshoring research, which examined available data on 4,700 U.S- and Europe-based companies with annual revenue of more than $1 billion, found that by 2016, a total of 2.3 million jobs in finance, IT, procurement and human resources will have moved offshore. This represents about a third of all jobs in these areas. India is by far the most popular destination, with nearly 40 percent of the jobs that are sent offshore headed there.
The Hackett Group sees additional offshoring levels in business services, which are currently at around 150,000 new jobs each year, leveling off or declining after 2014. The research also found that of the 5.1 million business services jobs remaining onshore at U.S. and European companies in 2012, only about 1.8 million have the potential to be transferred offshore, with 750,000 of those moving by 2016. So by the end of the next eight to 10 years, the traditional model of lifting and shifting work out of Western economies into low-cost regions will cease to be a major factor behind business services job losses in the United States and Europe.
Hackett's research also found that automation and other productivity improvements are another major factor driving job losses in business services at U.S. and European companies. Automation and other productivity improvements will have caused the elimination of 2.2 million business services jobs at these companies between 2006 and 2016, and these factors are currently driving the elimination of around 200,000 jobs annually.
"In the U.S. and Europe, offshoring of business services and the rapid transformation of shared services into Global Business Services have had a significant negative impact on the jobs outlook for nearly a decade," said Michel Janssen, chief research officer for The Hackett Group. "That trend is going to continue to hit us hard in the short term. But after the offshoring spike driven by the Great Recession in 2009, the well is clearly beginning to dry up. A decade from now, the landscape will have fundamentally changed, and the flow of business services jobs to India and other low-cost countries will have ceased."
Jansen said the situation presents a challenge for U.S. and European companies, that have come to depend on increased offshoring to help drive down their costs in IT, finance and other business services areas, but other opportunities for improving efficiency still exist, particularly through automation and end-to-end process improvements to streamline how business services are provided.
According to Hackett's 2012 Key Issues research, companies are currently adapting their business models and priorities in response to economic changes in regional global markets. The study concludes that companies need to fully understand the benefit of adopting global standards and organizational models that allow optimal execution by leveraging both skill and scale more broadly.
However, increased volatility in demand across global regions has also made it more critical than ever for companies to truly understand how each region should operate while still gaining the advantages that come from a global process operating platform, according to the report.
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