Third of British firms under pressure to move operations overseas

Jan 26 2006 by Nic Paton Print This Article

Almost a third of UK businesses feel under pressure to move parts of their operations overseas in a drive to cut employment costs and tackle skills shortages, new research has suggested.

As a result, some 30,000 formerly British jobs have been offshored each year since the turn of the millennium, said the Chartered Institute of Personnel and Development.

However, these losses have been partially offset by parallel job gains in the UK, and have been more than compensated for by the underlying growth in jobs over the same period, it stressed.

But the organisation, which represents human resources professionals, said any plans to offshore must involve HR if it is to minimise the negative effects often associated with offshoring.

These included damage to employee morale, job losses in the UK and difficulties stemming from managing people and operations remotely.

The survey found that 17 per cent of those organisations polled reported the benefits of offshoring were less than they anticipated.

Nevertheless, more than 60 per cent were either very satisfied or fairly satisfied.

More than half of employers believed offshoring could cause low staff morale
More than half of employers believed offshoring could cause low staff morale, just under half believed managerial control was more difficult.

A total of 44 per cent cited job losses in UK as a problem and 33 per cent felt that language barriers were another obstacle.

Ben Willmott, CIPD employee relations adviser and author of the report, said: "Organisations that decide to go down the offshoring road focusing purely on cutting costs, without taking account of the people management challenges and the potential pitfalls are likely to face considerable problems.

"Too many organisations don't involve HR when strategic decisions about offshoring are being made with the result that some of the real people management challenges that exist may not be taken into account in the excitement over the potential cost savings," he added.

HR could play a greater role than is often the case in early consultation with unions or employee representatives, as well as in helping to look at the opportunities for employee redeployment, he argued.

"At the planning stage HR should also already be contributing to the internal communication strategy and identifying training needs," he said.

On average, organisations that offshore make 180 UK job cuts. But offshoring will also normally create jobs too, with organisations generating an average of 58 jobs in the UK as a result.

"Projecting these findings onto the whole economy suggests that around 30,000 UK jobs have been offshored each year since the start of the decade," said CIPD chief economist John Philpott.

"This will be of concern to some, not least those workers directly affected. But as the survey finds these job losses are partially offset by job gains, and they should also be viewed in the context of the 250,000 net new jobs created in the economy during the same period," he added.

"On balance, if handled well offshoring is good news for UK consumers and will ultimately result in more jobs and greater prosperity both at home and abroad. The key requirement is to ensure that those workers that are adversely affected are given every help to find new jobs," he continued.

The survey also found a clear discrepancy between the role respondents believe human resource professionals should take in the offshoring process and the role they play in practice particularly regarding communication and training.

Around four-fifths of organisations believed HR should contribute to internal communications and play a central role in consulting with unions and employee representatives at the planning phase.

But in fact only about two-thirds of employers actually gave their HR professionals this responsibility.

Other areas where there was greater potential for HR involvement during the planning of offshoring projects included manpower planning, designing and redesigning jobs and identifying training needs.

"Employers need to involve HR professionals in the offshoring process at all stages if they are to achieve the business objectives they had originally hoped for," argued Willmott.

"They have the skills and knowledge to help manage some of the people risks involved, and to make sure such initiatives are successful in terms of cutting costs while maintaining positive employee relations.

"It is important to get those things right or the quality of services or products and the overall programme of the business may suffer," he added.

Other findings from the research included that more than a fifth of organisations had offshored one or more business activity in the past five years or were currently considering doing so.

Of those organisations that had offshored or were considering doing so, 43 per cent outsourced one or more business activities to a third party overseas, 31 per cent moved or were considering moving business activity overseas as a direct employer and a quarter had moved or were considering moving one or more business activities overseas as an indirect employer.

Manufacturing and production was the business activity most likely to be offshored, followed by IT support, IT development and call centres/customer services.

Almost a quarter of those polled reported that administrative jobs were most likely to be needed when offshoring customer services activities.

This was followed by supervisory jobs, technical jobs, middle management and senior management.

Public sector employers were most likely to consider offshoring as a result of a joint venture overseas and to increase focus on core business. Cost reduction was not a main driver for public sector organisations.

India was the most popular offshoring destination, followed by China and Poland.