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Tue, Nov 09, 2004 - Page 12 News List

UK firms say pressure to outsource rising

COST CUTTING Many firms say a need to reduce costs and avoid regulations means they are sending more business functions overseas -- especially to China and India

THE GUARDIAN , LONDON

The pressures of global competition are forcing more and more UK companies to outsource parts of their business to low-cost destinations in Asia and eastern Europe.

A survey conducted by the Confederation of British Industry (CBI) ahead of its annual conference, which gets under way in Birmingham yesterday, shows that an increasing portion of businesses in both the manufacturing and service sectors were looking offshore, with India and China the most favored locations.

Digby Jones, the CBI's director general, said offshoring was now a fact of life, but stressed that the benefits of moving some business functions overseas outweighed the costs.

Higher profitability meant jobs were saved or created in the UK, he said. The CBI estimates that outsourcing may have cost 250,000 jobs in the past 10 years, but helped create 400,000 to 500,000.

"It's here to stay," said Jones. "Off-shoring is now part and parcel of doing business in the global economy.

"Make no mistake, this is a survival issue. Anybody who believes that firms have a great deal of choice is naive. Companies know if they don't do it, somebody else will. If competitors act and they don't respond, they may put their businesses at risk."

Jones said countries who believed that they could fight outsourcing through protectionism were living in "cloud-cuckoo land," but he said the burden of government red tape was helping to push companies overseas.

"The government must avoid forcing firms to offshore through an increase in policies unfriendly to business. The rising cost of compliance with regulation is now starting to drive firms abroad."

A survey of 150 CBI companies employing 750,000 people found that the desire to cut costs was comfortably the main reason for firms contemplating offshoring, with more than nine out of 10 firms citing it as a reason.

However, Jones said that the frustration of business with bureaucracy was reflected in the 26 percent of firms which said regulation had made them consider moving. He said the government should help to reskill the workforce.

"Western economies have to upskill and reskill for ever. We can never say the job is done," he said.

Brendan Barber, general secretary of the Trades Union Congress, rejected the idea that British businesses were being driven abroad by high tax or over-burdensome regulation. The UK was a low-tax country and second only to the US in its lack of employment regulation, or red tape, when compared with the rich countries in the Organization for Economic Cooperation and Development, he said.

"Digby Jones is right to stress the importance of employee skills. Some British companies have an excellent record of investing in their staff but there is a long tale of poor performers.

"Too many companies prefer low paid, low skill, long hours, `low road' jobs that cannot compete in today's global economy. The UK will never cut pay, working conditions or employment rights enough to beat India or China. We need to move up to a `high-road' economy, in which innovative businesses with well trained and highly skilled staff provide quality products and services."

The CBI survey found that 51 percent of respondents said pressure to outsource had increased over the past two years, with 21 percent describing the pressure as "very great." Some 30 percent said they had already taken some activities overseas and almost one in four were considering doing so in the future.

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