Ken HessHistorically, companies in the U.S. have offshored low wage and low responsibility jobs to cheap labor locations around the globe. However, that trend has begun to change in recent years as more companies rethink their offshoring strategies. The button-pushing and lever-pulling jobs that were offshored through the 1990s and early 2000s are still expanding, but higher-level jobs are seeing an upsurge as well.
It seems strange that companies would offshore jobs that are already low cost for offshore ones that offer less incentive than those with higher salary margins, such as engineering, mid to senior level technician, finance, and other decision-making roles. The trend now is to offshore jobs that have greater responsibility to low cost labor locations. The savings are significant.
For example, an assembly line worker job that pays $25,000 per year in the U.S., might cost as little as $5,000 per year in another country. A savings of $20,000 per year is significant, but far less so when compared to the assembly line manager position that pays $75,000 in the U.S. compared to $20,000 in that same low cost location. That’s a savings of $55,000 per year.
“At MentorMate we have nearly all of our software technologists located out of our delivery center in Bulgaria. Experience ranges from intern levels to the most senior architects and software development managers. Not only have we had significant success in having these technical experts in our offshore location, I would say that it’s been a critical success factor.”—Jamie Bolseth, Chief Operating Officer, MentorMate.
Is Offshoring Benefiting?
Of course, there are far fewer managerial positions than those of the assembly line worker. But for companies that are “management heavy,” offshoring those high cost jobs saves a huge amount of money for companies struggling to compete in a global market.
It’s unclear how many U.S. companies offshored jobs prior to 1979, but that year was a pivotal one in manufacturing. Manufacturing was at a peak with 19.6 million manufacturing jobs in a total labor force of 104.6 million. Between 1979 and 1989, most of the jobs that left the U.S. were those in manufacturing. Manufacturing jobs moved due to rising labor costs in the U.S., fueled in part by inflation and in part due to labor union demands for higher worker wages. During the 1990s, manufacturing continued to move offshore, along with a growing number call centers and customer service desks.
“I outsource my entire business overseas. I run a digital marketing agency and have found that I can charge less and still maintain a profitable business by outsourcing all web design, development, mobile app development, etc. overseas. The only thing that I do is sales and PR.”—Simon D. Granner, Founder, Next Gen Digital Marketing.
Although the mass offshoring of jobs didn’t occur until the early 2000s, manufacturing still holds the number one spot among all jobs sent to offshore locations. According to a U.S. Bureau of Labor Statistics report, manufacturing in the U.S. peaked in 1979 when we had over 19.6 million manufacturing jobs in a labor force of 104.6 million. In 1979 manufacturing was 21.6 percent of all jobs. As of mid-2013, manufacturing only comprises 9.9 percent of jobs in the U.S.
The Top Five Types of Jobs Offshored from the U.S.:
Manufacturing
- Information Technology Services
- Research and Development
- Distribution
- Customer Service/Call Centers
Alan Blinder, a professor of economics and public affairs at Princeton and a former vice chairman of the Federal Reserve Board, states the relationship between job skills and ability to be offshored in the following way:
“Contrary to conventional wisdom, the more ‘offshorable’ occupations are not low-end jobs, whether measured by wages or by education. The correlation between skill and offshorability is almost zero.”
In a 2012 Congressional report on offshoring, Alan Blinder gave a moderate estimate of 25.6% of all U.S. jobs are most susceptible to offshoring. He goes on to say that a more aggressive estimate totals almost 40 million, or 29.0% of all U.S. jobs.Blinder categorizes jobs according to their relative degree of “offshorability” with Category I being “highly offshorable” to Category IV, which is considered to be “non-offshorable.” See Table I for details of his analysis.
“I outsource so much of our business and do a huge amount of my manufacturing overseas with my factories in Asia. It has worked great for us and we have grown to be the top custom duck manufacturer in the world. However, I also decided to outsource domestically.—Craig Wolfe, President, CelebriDucks.
A simple search of Monster.com’s India website, monsterindia.com, on all industries for experience level in the ten year range produces more than 19,000 jobs. The same search using 15 and 20 years yields more than 5,000 and more than 2,000, respectively.
As you can see from Table I, highly skilled and highly paid jobs are in categories I and II, while lower paid, less skilled worker’s jobs are not so readily offshorable. Service type jobs are also very difficult to offshore because they require face-to-face interactions or the direct handling of goods that prevent offshoring.
It’s obvious that companies now seek offshore workers with more experience. The popular Chinese site,ChinaHR, goes so far as to have a separate navigation tab to showcase its “High-end” jobs. But, as in any job market, the higher the job level, the higher the salary demands. Companies find that workers with 10 to 20 years of experience often command disproportionately high salaries, even rivaling those of their U.S.-based counterparts.
English Skill Holds the Key
The problem that hiring managers face when seeking experienced workers is that clearly documented work history is sometimes difficult to obtain due to the rate at which workers change jobs and the rate at which fledgling companies go out of business. Workers with verifiable long work histories have little trouble finding lucrative employment opportunities. And those who have better than average English language skills are increasingly selected for managerial, low-level executive, or customer-facing positions.
A 2008 CareerBuilder.com survey found that 28 percent of companies are sending an increasing number of high-wage, high-skills jobs overseas. Sixty-nine percent of respondents say these types of jobs are at equal or greater risk of being offshored than low-skill jobs. And a June2014 hiring survey conducted by Dice.com showed that trend continuing with tech professionals with six to 10 years of experience (71 percent) fall into the hiring sweet spot for recruiters, followed by those with two to five years (59 percent).
Offshoring of higher-level jobs will continue as long as traditionally cheap labor locations remain price competitive. Although industry analysts predict a global salary “leveling”, according to Everest Group research, low cost locations should continue to meet U.S.-based company’s desire to lower costs by shipping jobs elsewhere for as many as the next eight to sixteen years.
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