"Among employers who offshore, half said they believe offshoring is necessary to compete in a global economy and 15 percent project more than 20 percent of their jobs will eventually be sent overseas," said Matt Ferguson, CEO of CareerBuilder.com. "This does not mean the U.S. will see a reduction in employment levels, however. One-in-four employers who offshore said it has enabled them to create a greater number of better jobs here in the U.S."
Amount of Jobs Being Offshored
Thirteen percent of employers said their companies outsourced work to third party vendors outside the country in 2007. The same amount said they would do so in 2008. Seven percent of employers offshored job functions to foreign affiliates in 2007; 9 percent plan to do so in 2008. Plans to offshore to third party vendors in 2008 are more prevalent in the Northeast and West at 15 percent compared to 12 percent in the South and 10 percent in the Midwest.
Looking forward, among employers who offshore, 44 percent estimate less than 5 percent of their jobs will ultimately be sent overseas while 39 percent project more than 10 percent of their jobs will eventually be offshored.
"We're seeing a systematic pattern in the types of positions that are vulnerable to offshoring," said Lorin Hitt, Associate Professor of Operations and Information Management at the Wharton School. "The study indicates that services that can be delivered electronically and don't require much face-to-face interaction are now at higher risk of being displaced."
High-Skill Jobs Also at Risk
According to respondents who offshore, more firms are offshoring high-wage, high-skill jobs that were once thought to be immune to global competition. Twenty-eight percent of these employers reported more high-skill services positions are being sent overseas to third parties or foreign affiliates in need of management, technology and sales and marketing know-how. The majority of employers who offshore (69 percent) believe high-skill services positions are at equal or more risk of being offshored than low-skill jobs. Examples of jobs companies plan to offshore:
- Computer programmers - 32 percent
- Software developers - 32 percent
- Customer service - 25 percent
- Systems analysts - 16 percent
- Sales managers - 8 percent
- Graphic designers - 8 percent
- HR personnel - 7 percent
- General managers - 6 percent
- Marketing personnel - 5 percent
Among industries, technology services, telecommunications, insurance, manufacturing, engineering, banking & finance, oil, travel, utilities and communications all reported higher rates for offshoring.
Impact on the U.S. Job Market and Workers
The study indicates, of all the respondents, older workers were more susceptible to being displaced than younger workers.
Of all workers who reported being displaced by offshoring, one-in-five (21 percent) said they were reassigned within the company. Seventy-one percent were let go. Of those who were reassigned, 76 percent reported it was a lateral move while 7 percent reported they benefited from either a promotion, higher compensation or both. Of those who left the company, 81 percent went to another employer that was not aggressively offshoring.
While U.S. workers have lost jobs as a result of offshoring, companies are making the argument that offshoring is ultimately benefiting the American workforce. Twenty-eight percent of employers who offshored jobs said offshoring has already enabled them to create new, better jobs of different types in the U.S.
"The adverse impact of offshoring has been somewhat tempered by a shift of displaced workers to firms that are not yet offshoring," said Prasanna Tambe, Doctoral Student at the Wharton School. "Although offshoring has already had a significant impact on some U.S. workers, offshoring-related displacement currently accounts for a relatively small proportion of annual U.S. employment turnover, which can be close to 40 percent per year."
Cost-Savings and Other Reasons for Offshoring
Cost-savings is the primary motivator for offshoring, according to 64 percent of respondents. Looking at information technology specifically, nearly half (49 percent) say they save over $20,000 per head on average by offshoring. Fifteen percent of employers say they are saving more than $50,000 per head.
Twenty-seven percent of respondents cited availability of skills and 19 percent pointed to plans for expansion in a particular market as their main reasons for offshoring.
"As part of the Wharton team's research, we have found that firms offshoring for expansion were more likely to be moving sales and support positions overseas, suggesting that part of the offshoring that is occurring is to enable U.S. firms to better serve their overseas customers," said Tambe.
Popular Spots for Offshoring
Offshoring companies are predominantly drawn to South Asia with 44 percent of employers who offshore stating they sent jobs to India. Others key locations include China (24 percent), Mexico (12 percent), Canada (9 percent), Germany (8 percent), the Philippines (7 percent) and the U.K. (7 percent).
Reasons for Not Offshoring
When respondents who don't offshore were asked why their companies chose not to, one-in-five (21 percent) said they felt it is important to keep jobs in the U.S. Fourteen percent reported their customers would not respond favorably and 10 percent said they work with sensitive data. Difficulty to build trust across borders, the cost associated with monitoring workers and shipping/materials, and the availability of a skilled labor pool abroad were also cited.
