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BPO Journal

Monday, July 25, 2005

Measuring it!

A recent article in the Economist refers to three reports - "The Emerging Global Labor Market" by the McKinsey Global Institute, an OECD report and a study by by LogicaCMG, an Anglo-Dutch outsourcing firm - all of which provide a handle on key measures that help to understand the nature and extent of outsourcing and primarily, its overseas component, offshoring. The latter has received widespread media attention as a threat to: millions of jobs here in the U.S., the security and privacy of sensitive customer data, and intellectual property of the client firm. However, little objective information on the outsourcing market exists to either support or allay these concerns. As the McKinsey report highlights, "so far, the debate about offshoring has been fuelled by anecdote rather than fact". Some interesting highlights of these reports are:

In 2003, there were 1.5m service jobs in developed countries that were outsourced abroad. According to the institute forecasts, by 2008, that number will have risen to 4.1m. To set a context, it points out that “an average of 4.6m Americans started work with a new employer every month” in the year to March 2005. A similar report by the OECD confirms that “even the largest projections of ‘jobs lost to offshoring' are relatively small in comparison to general job turnover.” Moreover, the OECD report states that during the period 1995-2002, the growth in offshoring was highest Estonia, Ireland and Sweden, all of them member states of the EU. Probable cause? "European firms," says the OECD, "tend to offshore within Europe" (perhaps, excepting Britain).

The McKinsey report also points out that if current demand continues, the supply of suitable labour in popular destinations such as Prague and Hyderabad will run short by 2006 and 2008 respectively. The demand for engineers from Britain and America alone will use up the suitable supply in all of China, India and the Philippines by 2011. Given sunk costs in physial and human capital, this necessitates the need to tread carefully towards choice of outsourcing destination.

The study published by LogicaCMG, an Anglo-Dutch outsourcing firm, points to the benefits of outsourcing. It states that the shares of British quoted firms, after announcing outsourcing deals, outperformed comparable firms without such a deal by an average of 1.7% in the month after the announcement. Studies in America report even bigger gains. LogicaCMG says that, if British firms increase their outsourcing by half by the end of the decade, an extra £10 billion ($18 billion) will be added to their stockmarket value. The bottom line? According to the OECD, close to 20% of total employment in the 15 pre-expansion EU countries, America, Canada and Australia could “potentially be affected” by the international sourcing of services activities.

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