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Saturday, June 18, 2005

Offshoring : Growth Trajectory

On my return flight yesterday,back to Singapore spotted the Financial Times story somewhat strangely titled- foreign threat to services overblown.The McKinsey Global Institute (MGI) has just released a comprehensive study on The Emerging Global Labor Market,focusing on the dynamics of supply and demand for offshore talent in services. It is a must read for anyone interested in the evolution of offshoring activity.

The MGI study offers a well structured and reported presented assessment of the scale and distribution of offshore employment in 28 low wage-rate countries and 8 mid- and high-wage countries in 2003, and thinkthrough assessments of the maximum number of service jobs that could be moved offshore, and projections on offshore employment by 2008. Although 11 percent of the world's 1.46 billion service jobs can be theoretically performed remotely, the number of those jobs offshored by 2008 will remain modest. An estimated 1.1 percent of total demand for labor in services will go offshore due mainly to internal company barriers.A key factor, the report concludes is that the pace of adoption is limited more by company-specific barriers than by regulatory barriers. Company specific barrier are much more difficult to aggregate and quantify than assessing the impact of laws that may prevent certain forms of offshoring. Corporate perceptions and practices can change rapidly as more experience with offshoring accumulates and as pressure for performance mounts MGI projects that by 2008, there will be 4.1 million service jobs offshore - this represents a mere 1.2 percent of service jobs in developed/high wage rate countries.. Some key highlights of the report:
- Only a small fraction of employment that could potentially go offshore will ever do so. Eleven percent (161 million jobs) of the 1.46 billion service jobs worldwide could be performed remotely. As a rule, the more customer facing functions a sector has, the lower its potential to resource those functions remotely. Consequently, this potential varies depending on the industry. The lowest potential is in retail, for example, where 3 percent of employment may be globally resourced. Packaged software, however, could see 49 percent of its services work done remotely.

- The total offshore employment amounted to about 1.7 million jobs in 2003. In 2008, total offshore employment will reach an estimated 1.1 percent of total demand for labor in services from developed countries, equivalent to 4.1 million employees. Some occupations are also more amenable to remote employment than others. Engineering and finance and accounting occupations are the most amenable (52 percent and 31 percent, respectively), while generalist and support staff occupations are the least (9 percent and 3 percent, respectively) because of the close interactions they entail with customers or colleagues. However, because every industry employs many generalists and support staff, these occupations have the highest number of jobs that could be filled by remote talent — a combined total of 26 million positions.

The gap between the current and potential levels of adoption is mainly explained by internal company barriers rather than regulatory deterrents. Most notably operational issues, management attitudes to offshoring, and structural issues keeping companies from outsourcing services. The key conclusion is -"Offshore employment will grow gradually, making no sudden impact on labor markets overall in developed countries". In fact, its growth will have less impact on patterns of employment than the decline in manufacturing employment developed countries have already experienced. This blog shall cover more about the comprehensive study in the coming days.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"