Sun, Jan 16, 2005 - Page 11 News List

Europe storms ahead of US in sending jobs offshore

PROFIT A recent study showed that the UK and US derive US$1.12 to US$1.14 for every dollar's worth of business offshored, while US$0.33 goes to the recipient country


Europe stormed ahead of the US last year in its dash to offshore more business activities, a report revealed on Friday.

The research, from adviser TPI, showed offshoring contracts rose to a record 58 billion euros (US$76 billion) last year, with the UK accounting for 20 percent of the total, making it the second biggest offshorer after the US.

Europe as a whole accounted for 49 percent of the total, overtaking the US for the first time, which stood at 44 percent of all projects. The Asia Pacific region accounted for 7 percent. In 2003, the US had a market share of 47 percent, Europe 41 percent and the UK 1 percent.

The 28 billion euros of outsourcing contracts awarded by European firms last year was up from 25 billion euros in 2003 and double the level of 2002, TPI said.

"The equalization between the European and US outsourcing markets comes through dramatic growth in Europe, not any significant decline in outsourcing in the Americas," said Duncan Aitchison, TPI's managing director of international business.

"European companies realize that they cannot continue to compete effectively on a global scale without utilizing the increased efficiency and flexibility they can gain through outsourcing."

The figures did show the US declining in terms of the value of contracts as well as global share. Its 24 billion euros worth of offshoring last year was down from 27 billion euros in 2003 and 31 billion euros in 2002.

Research by the UN estimates that the US and UK could offshore 5 million jobs between them during the next decade, provoking vociferous complaints from trade unions.

Last year, for instance, the bank HSBC said it would offshore 4,000 jobs from the UK while the UK's National Rail Enquiries and Lloyds TSB bank's insurance arm announced they would shift nearly 1,000 jobs each to India. Insurer Aviva sparked protest when it said 2,350 jobs in its call centers and IT processing sections would go east.

The US and UK tend to be the biggest offshorers because of the global dominance of the English language, although Germany is rapidly increasing its use of offshoring. Its share of the international total leapt to 12.5 percent last year from just 4 percent the year before.

Consultancy McKinsey has carried out a study showing every dollar's worth of business offshored from the US or UK creates US$1.45 to US$1.47 of value. Of this, the UK or US derives US$1.12 to US$1.14, while US$0.33 worth goes to the recipient country.

That is because the US or British firm doing the offshoring benefits from higher profits which are then ploughed back into new kinds of activity, creating new jobs. Consumers in the host country benefit from lower prices and, in theory at least, from the creation of new, high-value, jobs.

TPI says Europe's use of offshoring will continue this year.

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