To stay competitive, the recent trend has been to outsource whole processes because:
Others, whether at home or abroad, can complete them better or cheaper
They’re only needed occasionally
They’re supportive, not core, and only the latter must be controlled closely
Over the last three decades, many UK organisations have resorted to outsourcing abroad viz:
Production and assembly work to China and its neighbours because of lower labour and land costs – although this may not last
Computer software design and call-centre operations to India because of lower costs coupled with an educated English-speaking labour force
Outsourcing has led to many well-known majors becoming but a shell of their former selves – they keep their core processes in-house and outsource the rest viz:
Dell, Nokia, Ikea, Glaxo and Apple specialise in the creative side of their businesses, the production of concepts and ideas, the scaleable parts of products – they increasingly export jobs paid by the hour
They say there’s more money in designing a shoe than in actually making it – Nike, Dell and Boeing get paid just for thinking, organising and leveraging their knowhow and ideas while subcontracted factories in developing countries do the grunt work
Walmart has become an information network, bringing tens of thousands of its foreign and home suppliers together into one profitable collaboration
McKinsey estimated 10% of USA jobs, such as accountancy and computer programming, would be lost to outsourcing – some said: “At least it’s only 10% and not more” – and computer programmers, reluctant to reduce their wages, would lose their jobs and become computer repairmen or barbers instead
James Dyson moved all his production processes to Malaysia to make drastic and essential reductions in unit costs – the overall result was:
The company not only survived but thrived
Product design, marketing, selling and HQ processes remained in the UK
More staff than before were employed in the UK, and most of them were more skilled and better paid than before the move
To succeed in future Dyson says his eponymous company needs ‘to design and innovate better than others’ – they have to produce products that have better features and work better than others on top of being price competitive
Essex County Council, with the help of IBM, considered outsourcing schools management, social care, highways and libraries
Many high labour and low knowledge content white collar jobs have also been outsourced to lower labour cost countries
For instance, call-centre and accountancy work, both made possible with the rapid advances in ICT and cheap telecommunications
Higher knowledge content work has also been outsourced:
Microsoft, for example, employ many computer programmers living in India
Sainsbury’s outsourced their IT systems plus some 800 IT staff:
This was a pivotal part of their business, being vital that they monitored changes in customer preferences as well as scheduled deliveries to keep shelves full
They outsourced not only the input of routine data but also its analysis
They later regretted doing so, especially the latter
Tesco’s analyses proved to be much better, and this helped them become the UK’s number one retailer
In future, outsourcing will be a much greater threat to UK service jobs than to manufacturing – manufacturing, at only 14% of GDP, has already done most of what it could do – service sectors have done little to date
The likes of India and China already have well educated work forces – they also produce many more graduates than any Western nation, including the USA
So, as long as they restrain their natural desire to earn as much as we do in the West, we will continue to lose service jobs to them
An emerging case for ‘Onshoring’?
Some foreign ‘suppliers’ have been found to be less then reliable, make more mistakes, take longer to sort out queries or need more support than their UK-based equivalents – overall costs thus can end up being greater than if no outsourcing had been used
For example, London based financial institutions have experienced such unforeseen ‘failure costs’ because of their foreign call-centres
The NHS should also beware outsourcing to India – as The Times noted: “What could be nicer than phoning a Delhi call centre to book your intimate swab”
And remember when eight London hospitals outsourced to India thousands of letters to be typed from dictaphones – and it didn’t go too well:
‘Eustachian tube malfunction’ became ‘Euston Station Tube malfunction’
‘Below-knee amputation’ became ‘baloney amputation’
‘Phlebitis, left leg’ became ‘flea bite his left leg’
