Has the off-shoring bubble burst?

Is off-shoring going to be a very hot political potatoe?

Does off-shoring threaten to destroy jobs and export skills that are needed to sustain economies?

These are all questions that are beginning to be asked as the politicians notice that unemployment is growing in the local well-paid IT community. It is an impossible position to be seen to allow jobs to move abroad.

The political agenda has heated up in the US with the upcoming elections. It does however have some more important consequences that need to be understood.

We the consumers want reduced costs.

We the politicians want to save jobs.

We the consumers want improved services.

We the businessman want a free market.

We the people want to protect our data.

We the person want to protect our intellectual property.

We the economy need to minimise labour intensive processes.

We the economists must understand Darwinian theory.

We must accept change.

Feature Story

Has the off-shoring bubble burst?

As business goes global, sourcing decisions have to be made in the context of the market. In the IT world many of the labour intensive activities have become candidates for being done abroad such as help-desk, programming, systems management and forensic analysis. If a competitor starts to use these services and achieves the cost reductions it is obvious that the business must do it to remain competitive.

What are the consequences if this happens?

Jobs will be created in the the off-shore environment whilst jobs will be lost in the local environment. This causes difficulties for politicians as they cannot be seen to support job losses. This is becoming an election issue in the US with John Kerry demanding that the contracts are stopped. An innovative response is that some prisons are offering low-cost call-centres to meet the business and political agendas.

If the work does go abroad then the data will go with it so the next issue is raised - data protection. When it comes to governments they have "National eyes only" policies, when it comes to personal data the human rights laws kick in. To implement the necessary security the economic advantages are diluted.

Why is this happening?

The labour intensive processes are too expensive. They require too many people which requires space, salaries and facilities. The strategic business response must be to reduce the labour intensive processes, this will still cause loss of employment! So is the problem really off-shoring? Interestingly the cost advantage has shifted from 70-80% to 30% over the last few years.

Politically the only answer is education, innovation, investment, trade, training, effectiveness and efficiency. As the economies evolve we have always shifted low-value expensive activities abroad as higher-value specialised capabilities are created.

So to answer the question.

The off-shoring bubble will not burst because it is not an off-shoring bubble. It is normal global behaviour within the normal economic cycles.