Offshoring 2.0

First came outsourcing. Companies put out to competitive tender within national boundaries, everything but their core business activities, like catering, security and human resources. Then we had offshoring


Those same businesses realized that they could drive costs down still further by sending their outsourced work abroad. Low-skilled service jobs like telephone call centres, data input and in manufacturing, component assembly could be done at a fraction of the cost in countries like India or China. Some thought then that this was the high watermark of globalisation. But they are about to be proven very wrong. The truth is we have only just got started. There is a fundamental imbalance in the global economy; in the post-industrial nations, capital is cheap, but labour is expensive. Conversely, in the developing world, capital is scarce but labour is plentiful. Economically this would suggest the huge potential for mass immigration. Yet politically with today’s pressures on emerging multicultural societies, it is a total non-starter.

That’s why offshoring could be seen as the most acceptable route forward to politicians and businessmen who embrace globalisation. Thanks to the advances in low cost digital communications, the world economy is on the verge of Offshoring 2.0 – a revolutionary new paradigm in the way we do business. In the very near future, for small and medium size businesses, having partners in the Pacific Basin will no longer seem exotic, but the norm. Bookkeeping? Email your tax returns to a Chartered accountant in New Delhi. Need a long production run in a short period of time? Go to Southern China, the new workshop of the world. Even Governments are flirting with offshoring, contracting out exam marking to developing countries. It will be big business though who takes the lead. By some estimates, up to 40% of their currently outsourced jobs, could be next in line to be sent offshore. In 2003, just 3 – 4 % had been moved abroad. The lower ranks of the professional classes – lawyers, accountants, medical practitioners, computer programmers and even financial analysts – are next in the firing line. Are we all ready for this?

Certainly there will be losers. In his recent book, “Outsourcing the American Dream”, Christopher England argues that offshoring is a short-sighted way of making profits, while eliminating your most valuable asset, your employees. But the vast majority of us will be winners. The new jobs that are created tend to be higher paid and more interesting. 12 years ago, huge and successful companies like Google or Amazon did not exist. 12 years from now, there will be many others. The falling cost of manufactured goods like DVD players from China has enriched all living rooms, whilst call centres in India can reach us after work at home. The arrival of the digital age has massively reduced the costs of communication and this is pricing in three billion workers from the developing world. A recent report by the Association for Computing Machinery on globalization and offshoring of software stressed the mutual benefits to India and the USA in jobs and profits in increased trade.

Nor is this just a phenomenon of the Anglo-Saxon world. It’s a strange twist of fate that Senegal, who’s introduction to France was enforced slavery 600 years ago, now is the low cost location of choice for France’s call centre companies. Even Japanese companies have set up call centres in Northern China (where Japanese is spoken). Perhaps the biggest question is – where does it all end? One would have to speculate on what the industries of the future will be. Intellectual property, alternative energy, maybe even artificial intelligence. What we do know is that the global economy is almost certainly going to continue down the route of mass specialisation and the constant redivision of effort. Offshoring is just starting to open up huge opportunities. Tomorrow’s financiers will be very, very busy.