The Hackett Group's offshoring research, which examined available data on 4,700 companies with annual revenue over $1bn headquartered in the U.S. and Europe, found that by 2016, a total of 2.3 million jobs in finance, IT, procurement, and HR will have moved offshore. This represents about one third of all jobs in these areas. India is by far the most popular destination, with nearly 40 percent of the jobs being offshored headed there.
But The Hackett Group's research 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 Hackett Group's 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 moved offshore, with 750,000 of those moving by 2016. So by the end of the next 8-10 years, the traditional model of lifting and shifting work out of Western economies into low cost geographies will cease to be major factor driving business services job losses in the U.S. and European.
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 The Hackett Group Chief Research Officer Michel Janssen. "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.
"This situation presents a challenge for U.S. and European companies, who have come to depend on increased offshoring to help drive down their costs in IT, finance and other business services areas, " said Janssen. "But other opportunities for improving efficiency still exist, particularly automation, and also end-to-end process improvements to streamline how business services are provided."
According to The Hackett Group's 2012 Key Issues research, companies are currently adapting their business models and priorities in response to economic changes in regional global markets. To be most effective, they need to fully understand the benefit that comes from adopting global standards and organizational models that allow optimal execution by leveraging both skill and scale more broadly. But the 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 comes from a global process operating platform.
Hackett's research highlights two driving factors behind the offshoring trend. By far the most important force has been the consolidation of the delivery of business services into global business services (GBS) organization, as a next-step beyond shared services. Having already moved more than 50 percent of their transactional work into single-function shared services, companies are now expanding the services into non-transactional knowledge-centric processes, and creating multifunctional GBS organizations. The second driver is the broad-based globalization of all aspects of businesses' operating model. As companies' product/service lines, go-to-market strategies and supply chains are becoming more global, the portfolio of business services needed to support these global operations have become more global as well, so the center of business services delivery no longer naturally lies in the traditional domestic market.
The Hackett Group's latest offshoring research is available, with free registration, click here.
