It's Not Just Developer Jobs Going Overseas

Dec 2, 2010

Allen Bernard

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, according to new research from The Hackett Group. The dramatic job losses seen by U.S. and European companies in 2008 and 2009 are expected to continue through 2014.

The Hackett Group’s latest research found that close to 1.1 million jobs in corporate finance, IT, and other business functions were lost at large U.S. and European companies in 2008 and 2009 due to a combination of offshoring, productivity improvements, and lack of economic growth. Over 1.3 million additional jobs will disappear by 2014, with offshoring becoming a larger and larger factor each year.

These figures represent annual job loss rates of close to twice those seen from 2000 to 2007.

“With the modest resumption of economic growth this year, policymakers throughout the industrialized world have been struggling to create jobs. But our research shows that across key business functions, their efforts are simply being overwhelmed by offshoring and other factors,” said Michel Janssen, chief research officer for The Hackett Group, in a statement. “This is what’s driving the ‘jobless recovery’ we’re seeing in key white collar job categories, and it’s likely to continue for the foreseeable future."

Janssen told CIOUpdate that global companies are also setting up corporate universities in places like India to further train their college graduates (whose number far exceeds that of the U.S.) in proprietary technologies and processes. This is similar to what some of these same companies did here after World War II and into the 1950s and 1960s when they needed more engineers and technicians than the job market could provide.

Also, while labor arbitrage is still an important part of the decision to ship white collar jobs offshore, it is equally important to establish good corporate reputations in emerging markets like India and China, for example, by hiring locally. On the plus side, any profits made overseas do find their way back into the U.S. but that doesn't help the DBAs, help desk, sys admins, and other, traditionally, U.S. based employees when they lose their jobs.

Still, we live in global economy today, said Janssen, and U.S. corporations have to take advantage of this new reality if they are going to thrive. Even many of Janssen's researchers are based in India because the significant labor savings allows him to conduct and publish more research. Just a few years ago, these would have been considered to high-value to be shipped offshore.

"It's not a question of fighting it," he said, "it's about how you make it work for you. You can't stop it."

IT offshoring decelerating

The trend spiked in 2009, when nearly 700,000 jobs in finance, IT, and other areas were lost to a combination of offshoring, productivity improvements, and lack of economic growth. That number should level out at around 250,000 jobs lost each year through 2014, and possibly beyond.

Corporate finance in particular is now seeing an acceleration of this offshoring trend. While IT dominated the mix of business function jobs lost to offshoring since 2000, growth in IT offshoring is now leveling off. By contrast, the total number of jobs lost to offshoring in corporate finance is expected to grow by a compound annual rate of about 20 percent between 2010 and 2014.

In 2014, the annual number of finance jobs lost to offshore is expected to be higher than the IT figure for the first time.

The Hackett Group’s latest Book of Numbers research, Global Business Services (GBS): Redefining the Enterprise Engine, finds that companies are looking at their overall service delivery models and recognizing that the challenging economic times have presented them with a compelling environment to make change that will enable their business to compete globally for the long term.

Lower headcounts

One of the most important of these changes is the offshoring trend, which is being accelerated by the fact that many companies are now creating their own "captive" GBS organizations in India and other low-cost labor markets.

Captive 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. Over the past few years, many companies have become more mature in their use of GBS organizations, expanding them beyond a basic shared services approach to manage operations in multiple functional areas such as IT, finance, procurement, and human resources.

By offering economies of scale, scope, and skill this approach enables companies to drive cost reductions and lower headcounts. Companies are also looking to enable global enterprise operating standards that will streamline their businesses and drive better overall results.

“A number of factors have helped create this situation. Certainly, the savings that can be generated by moving jobs to low-cost labor markets is too great for most companies to ignore," said Honorio Padron, global business services practice leader, in a statement. "In addition, many companies have become much more mature in their use of offshore resources. They began with shared service centers nearly a decade ago, taking basic transactional areas offshore on a one-off basis. But today we’re seeing the rapid ascendance of comprehensive cross-functional global business services operations that are moving far beyond transactional work, to handle the lion’s share of the support function for many companies. The result is a globalization trend from which there’s simply no turning back.”

Tags: offshoring, great recession, jobs, India, Hackett Group,

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