Offshoringhr 0106

Survey report January 2006
OFFSHORING AND THE ROLE OF HR
Contents
Summary of key findings The pressure to offshore The types of offshoring The business activities most likely to be offshored The reasons organisations consider offshoring The most popular offshoring locations The impact of offshoring on jobs Reasons why offshoring is not an option Offshoring and the role of HR Conclusions and implications Background 3
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Offshoring and the role of HR
Summary of key findings
This report sets out the findings of the CIPDs survey on offshoring and the role of HR professionals in the process. The analysis is based on replies from 589 HR practitioners in organisations employing more than 2.4 million people.
Offshoring is broadly defined as the process of transferring previously UK-based business activities to an overseas location. However, under this general definition there are various types of offshoring. For the purposes of this survey report, weve defined them as:
the process of outsourcing business activities or
Of these, 14% of respondents report that their
organisation has experience of offshoring one or more business activity in the past five years and 7% have not offshored to date but are currently considering it. Offshoring models
Outsourcing is the most common model of
services to a third party overseas.

moving business activities or services to another
offshoring, followed by moving business activity overseas as a direct employer and moving business activity overseas as an indirect employer. Which business activities are most likely to be offshored?
The business activity most likely to be offshored is
country as a direct employer

moving business activities or services to another
country as an indirect employer (eg part of a parent group thats providing the business activity/activities overseas). The pressure to offshore
Just under a third of respondents (30%) report
manufacturing and production.

A third (34%) of organisations currently
offshoring or considering it, indicate that manufacturing and production is the business activity theyre already offshoring or are likely to offshore in the future.
that their organisation is under some pressure to offshore a business activity.

Organisations in the manufacturing and production
and private services sectors are most likely to feel under pressure to offshore.
A significantly larger proportion of employers believe
This is followed by IT support (24%), IT
development (22%), call centres/customer services (22%), financial and back-office support (19%), product development (18%), and accounts (16%). The disadvantages
The biggest disadvantage associated with
the pressure to offshore is continuing to increase compared with those who believe that its decreasing. How many organisations are offshoring?
In all, just over a fifth of organisations have
offshoring among organisations that have already offshored or are considering it is the negative impact it could have on staff morale, with 55% of respondents identifying this as an issue.
offshored one or more business activity in the last five years or are currently considering doing so.
Other significant disadvantages of offshoring
The impact of offshoring on jobs

The average number of jobs offshored by
identified by respondents include the fact that managerial control is more difficult (48%), the possibility of associated job losses in the UK (44%), language problems (33%) and the risk of disruption to supply (24%). Reasons for offshoring
The desire to cut costs is by far the biggest reason
respondent organisations with experience of offshoring is 370. Private services sector organisations typically offshore the most jobs, averaging 524, followed by manufacturing and production employers, with 217 jobs. The mean number of jobs offshored by non-profit and public sector organisations is significantly lower, averaging 50 jobs for employers in both sectors. The role of HR
Almost 60% of respondents whose organisations
for organisations to consider offshoring. In all, 86% of respondents whose organisations have offshored or are currently considering it as an option identify cost reduction as the main driver.
Skills shortages in the UK are the next most
have already offshored one or more business activity or are considering doing so report that HR has been involved in strategic decisions about offshoring from the point the idea was first raised as an option.
In all, 70% of respondents with experience of
significant reason for considering offshoring, cited by 27% of respondents, followed by: the need to improve processes (21%); as a result of a joint venture (21%); achieving economies of scale (20%); and increasing revenue (20%). The most popular overseas locations
India is, by some distance, the most popular
offshoring think HR should play a central part in managing the change process when offshoring projects are being implemented but less than half of respondents report this as being the case in practice.
The survey asked respondents to provide
offshoring destination. More than half of respondents with an interest in offshoring indicate that they have already offshored to India or are considering doing so.
China is the next most common location, identified
information on the role they think HR should play during offshoring as well as on the role that HR actually plays when such projects are being planned, when they are being implemented and once they have been completed. The survey shows that respondents believe there is more scope for HR involvement during all stages if offshoring is to be managed successfully.
by 27% of respondents as a current or future offshoring base.

Poland is the third most common offshoring
destination and the most popular European location, with 18% of respondents having an interest in the country.
The pressure to offshore
Just under a third of organisations are under some pressure to offshore, while a fifth of organisations have already offshored one or more business activity or are currently considering doing so.
How high is the pressure to offshore? Just under a third of respondents (30%) report that their organisation is under some pressure to offshore a business activity. Of these, 6% report that the pressure to offshore is very high, 10% that it is fairly high and 14% that the pressure is low. In all, 69% say they are under no pressure whatsoever to consider offshoring. Employers in the manufacturing and production and private services sectors are far more likely to feel under pressure to offshore. Among manufacturing and production employers, 45% feel under some pressure to offshore, with 12% perceiving the pressure as very high, 17% as fairly high and 16% as low. A total of 36% of organisations in the private services sector are under pressure to offshore. Within this group, 7% of respondents put the pressure as very high, 11% as fairly high and 18% as low. The survey revealed that there appears to be little pressure to offshore business activities among organisations in the voluntary and public services sectors. Just 12% of voluntary organisations and 13% of public services sector organisations report any pressure to offshore, with the level of pressure overwhelmingly described as low. Is the pressure to offshore increasing? Nearly a fifth of survey respondents report that the pressure to offshore has increased in the last two years, 75% report that its remained the same and just 1% say the pressure has decreased (see Table 1 overleaf).
Manufacturing and production employers are easily the most likely to report that the pressure to offshore has been increasing (32%), but 66% believe the pressure is unchanged. Among private services sector respondents, 22% believe the pressure to offshore has increased, but 71% see no change and 2% identify a decrease. In the non-profit and public services sectors, just 8% and 6% of respondents respectively report an increase in pressure to offshore, while more than 85% of respondents from both sectors believe the pressure is unchanged. How many organisations have offshored or are considering doing so? Just over a fifth of organisations have offshored one or more business activity in the last five years or are currently considering it (see Table 2 overleaf). Of these, 14% of respondents report that their organisation has experience of offshoring one or more business activity in the past five years and 7% have not offshored to date but are currently considering it. A total of 4% of respondents have considered such an initiative in the past and decided against it, while threequarters say that offshoring isnt seen as an option by their organisation. Organisations in the manufacturing and production sector are more likely to have experienced offshoring
(25%) or to be considering it (9%) than the other main sectors. Just over 60% of respondents in the sector dont regard offshoring as an option for their organisation, while 4% have considered it in the past and decided against it. In the private services sector, 18% of organisations have offshored in the last five years and 9% are currently considering doing so. Offshoring isnt seen as an option in 68% of private services sector organisations, with 6% having considered such an initiative in the past and decided against it.
Offshoring isnt regarded as an option by the majority of non-profit organisations and public sector employers. As many as 92% of non-profit sector respondents and 94% of those in the public sector feel offshoring isnt appropriate for their organisation. However, there is some activity, with 6% of non-profit organisations and 3% of those in the public sector having offshored in the last five years and 2% in both sectors currently considering it.
Table 1: Has the pressure to offshore changed in the last two years?
Percentage of respondents
Total Manufacturing and production Non-profit organisations Private services sector Public services sector
Yes, its increased No, its stayed the same Yes, its decreased
19 75 1
32 66 0
8 84 0
22 71 2
6 87 1
Table 2: Which of the following statements best describes your organisations position with regard to offshoring?
We have experience of offshoring business activity in the last five years We havent offshored any business activity before but we are currently considering it Weve considered offshoring in the past and decided against it Offshoring is not seen as an option for our organisation
14
25
18
4 74
4 62
0 92
6 68
1 94
Case study: telecommunications firm
This telecommunications firm has offshored more than 500 jobs to India in the last two years. The company took the decision to employ staff directly in the new overseas location, setting up its own office and infrastructure in Gurgaon near Delhi in 2004. The company, which employs 1,200 people in the UK and 4,100 employees across Europe as a whole, took the decision to offshore mainly to reduce costs but also to take advantage of the availability of the highly skilled Indian graduate workforce. In addition, the company regarded the differences in time zones as an advantage, and the less restrictive employment regulations in India were also seen as a benefit. The companys HR director said the firm decided to employ directly overseas rather than outsource because of concerns that this might compromise the quality of the service and that managerial control might be lost. We wanted a stand-alone operation in India that was truly representative of what we do in Europe, he said. The firm has offshored transactional processing for all operational areas of the business, including order handling, parts of the engineering function and sales support. It has also transferred to the new Indian office the processing of company payments and credit control, other financial back office support, as well as IT support and development. The companys HR team is at the heart of the offshoring initiative. It was involved in the first conversations about offshoring when it was put forward as a possible option in 2003. It contributed to manpower planning, the development of project timeframes, and the redesign and design of new jobs. HR was also involved in identifying training needs and the scope for employee redeployment in the affected parts of the business in the UK and Europe. Another responsibility taken on by HR was in relation to risk management. Possible challenges and drawbacks associated with offshoring in India were assessed, such as potential recruitment difficulties and high employee turnover, as well as data security issues. A core part of HRs role during the planning and implementation stage was around communication and consultation with employees. The offshoring initiative led to 400 compulsory redundancies across the firms European operation, with a quarter of these jobs lost from the UK. The HR director said that the firm consulted with works councils in the European countries affected and followed the statutory consultation guidelines on redundancies in its non-unionised UK operations. This included the establishment of an ad hoc employee information and consultation forum. We tried to be very consistent in terms of what we were doing, why we were doing it and the benefits to the business. We redeployed where we could, he said. The companys UK-based HR team plays an ongoing role in supporting the Indian operation. It developed the HR policies in the new location, which are a mix of global policies such as performance management and local policies. At any one time there are between 10 and 12 people on assignment in India from the companys various European operations, ranging from senior managers to technical experts in less senior positions. They play the part of positive champions and have helped smooth the transfer of roles to India.
A combination of staff briefings and notice boards, newsletters, emails and the company intranet are used to ensure effective internal communication at the Gurgaon centre and to help integrate it with the companys European operations. The company is also consciously building its employer brand with the local community in Gurgaon and has introduced a charity day on the first Monday of every month, where employees organise a theme at work and raise money for local good causes. The HR director said the company had been extremely satisfied with its experience of offshoring and that the benefits involved had been greater than originally anticipated in terms of the cost reductions achieved and the quality of service. As a result of this success, it is to expand its offshoring operation and, by the end of 2006, it is planning to employ 900 Indian staff at its Gurgaon offices.
The types of offshoring
Outsourcing is the most common model of offshoring, followed by moving business activity overseas as a direct employer and moving business activity overseas as an indirect employer.
What is the nature of the offshoring that has been carried out or is currently under consideration? There are essentially three different types or models of offshoring. For the purposes of this survey report, we have defined them as: the process of outsourcing business activities or services to a third party overseas moving business activities or services to another country as a direct employer moving business activities or services to another country as an indirect employer (for example part of a parent group thats providing the business activity/activities overseas). In the organisations that have offshored or are currently considering such an initiative, the most common model is outsourcing one or more business activity to a third party overseas, with 43% choosing this approach.
Almost a third (31%) of organisations have moved or are considering moving business activity overseas as a direct employer. A quarter (26%) of respondents say their organisation has moved or is considering moving one or more business activity overseas as an indirect employer (for example part of a parent group thats providing the business activity overseas).
The business activities most likely to be offshored

Manufacturing and production is the business activity most likely to be offshored followed by IT support, IT development and customer services/call centres.
This section was answered only by organisations that have experience of offshoring business activities in the last five years or are currently considering it as an option (see Table 3 opposite). The business activity most likely to be offshored is manufacturing and production A third (34%) of organisations offshoring or considering it indicate that manufacturing and production is the business activity theyre already offshoring or are likely to offshore in the future. This is followed by IT support (24%), IT development (22%), call centres/customer services (22%), financial back-office support (19%), product development (18%), and accounts (16%). Other business activities in which there is interest in offshoring include secretarial services/back-office support (8%) and research and development (6%). The offshoring of HR services is still relatively uncommon (7%). From a sectoral perspective, not surprisingly, employers in the manufacturing and production sector are overwhelmingly the most likely to have already offshored or to be considering offshoring manufacturing and production activities (70%).
Private services sector organisations are most likely to offshore call centres/customer services and IT development. Among employers in this sector that have already offshored or are considering it, a third report they have already offshored or are considering offshoring these particular business functions. The functions next most likely to be offshored by private services sector organisations are IT development (30%), financial back-office support (24%), accounts (21%), and product development (19%). There is also some interest among private services sector organisations in offshoring manufacturing and production activity (10%), human resources (9%), and secretarial services/back-office support (9%). Of the small proportion of public services organisations that have experience of offshoring or are considering it, the business activities most likely to be offshored are product development (43%) and call centres/customer services (29%). Other functions that public sector organisations have an interest in offshoring are human resources, IT support, financial back-office support, and secretarial service/ back-office support. Among the few non-profit organisations that have
The other business activities most likely to be offshored by manufacturing and production employers are IT support, IT development and product development, with 14% of organisations in this sector having already offshored or currently considering offshoring these functions.
already offshored or are considering it, human resources, call centres/customer services, IT support and financial back-office support are the functions most likely to be offshored.
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Table 3: Which of the following activities has your organisation offshored/is currently considering offshoring?
Manufacturing and production Secretarial services/back-office support Research and development Accounts Financial back-office support IT support Product development IT development Insurance Other financial services Risk management Call centres/customer services Human resources
34 8 6 16 19 24 18 22 1 3 2 22 7
70 4 8 10 10 14 14 14 0 2 0 8 4
0 0 0 0 25 25 0 0 0 0 0 25 50
10 9 5 21 24 31 19 30 1 5 3 31 9
0 14 0 0 14 14 43 0 0 0 0 29 14
The relationship between the type of business activities that are considered for offshoring and different models of offshoring Organisations that have offshored manufacturing and production activities or are considering it as an option are more likely to do so as a direct employer (41%) rather than outsource the activity to a third party overseas (35%) or move the activity overseas as an indirect employer (28%). Organisations that have already offshored IT support or are considering doing so are marginally more likely to do so as an indirect employer (28%) than as a direct employer (26%) or through outsourcing to a third party overseas (22%). IT development offshoring is most likely occur in cases where employers provide the service overseas as a direct employer (26%), followed by offshoring the activity as an indirect employer (25%) and outsourcing (19%). For organisations with an interest in offshoring call centres/customer services, the most common approach to offshoring is outsourcing (30%), followed by the
direct employer model (18%) and the indirect employer approach (16%). Where HR offshoring is involved, the most common model is offshoring the function as an indirect employer (13%), followed by providing the activity overseas as a direct employer (8%) and outsourcing (4%). The CIPD has published an Executive Briefing, HR Outsourcing: The key decisions, to help organisations address some key questions about HR outsourcing (it can be ordered from www.cipd.co.uk/bookstore). The Institute has also produced an online tool on the issue entitled Outsourcing HR: A framework for decisions, which is available to download at www.cipd.co.uk/tools What type of job roles are involved? Our survey has also provided information on what job roles are typically involved when different business activities are offshored (see Table 4 overleaf). Administrative jobs are the most likely to be needed when customer services activities are offshored, with 22% of respondents reporting that these roles were/are
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involved, followed by supervisory jobs (16%), technical jobs (13%), middle management (8%) and senior management (2%). Proportionately more middle and senior management roles are involved when marketing, business development and sales activities are offshored. Of the respondents commenting on this, 7% identify that middle management jobs are likely to be involved and 5% indicate that senior management roles are needed, compared with just 3% of respondents saying that supervisory roles are likely to be involved and 4% who identified technical and administrative-level jobs.
Technical jobs are the types of role most commonly involved when manufacturing and production activities are offshored (27%), followed by supervisory roles (20%), administrative and middle management jobs (18%), and senior management (10%). IT offshoring also places a priority on technical jobs, with 33% of respondents indicating that these roles are involved, followed by administrative jobs (21%), supervisory (19%), middle management (18%) and senior management (5%).
Table 4: What types of job role were/are involved?
*Respondents (%) indicating that these job roles are involved when particular business functions are offshored
Senior Management Middle Management Supervisory Technical Administrative
Customer service Marketing/business development and sales Operations IT Finance and accounting Manufacturing and production Product development Risk management Research and development Secretarial Human resources
2 5 10 5 6 10 1 1 2 0 2
8 7 13 18 12 18 4 3 4 1 6
16 3 17 19 13 20 2 1 3 4 4
13 4 20 33 17 27 9 1 6 5 6
22 4 17 21 19 18 2 0 3 8 9
*Based on those respondents whose organisations have already offshored or are considering it
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The reasons organisations consider offshoring

Nearly 90% of respondents cite cost reduction as a reason for transferring business activities to overseas locations. Other significant drivers of offshoring are skills shortages in the UK and the need to improve business processes.
The desire to cut costs is by far the biggest reason for organisations to consider offshoring. In all, 86% of respondents whose organisations have offshored or are
currently considering it as an option identify cost reduction as the main driver (see Table 5).
Table 5: Why did your organisation consider offshoring originally?
Skills shortages in the UK Restrictive regulation in the UK/Europe Joint venture with overseas businesses Economies of scale (bringing together activities in one location) To improve level of service/ product quality To access higher calibre of employee To increase focus on core business To increase revenue To reduce costs To improve customer satisfaction To improve processes (speed, quality, accuracy, etc) To gain close proximity to new customers To increase stock price To access improved IT systems/ infrastructure
27 6 21 20
18 2 28 14
50 0 25 25
37 8 13 22
29 0 57 0
15 10 18 20 86 13 21 9 5 9
10 6 26 24 84 14 18 20 2 8
50 0 50 25 50 25 0 0 0 0
18 13 10 18 90 12 24 2 8 10
43 0 29 14 14 14 14 0 0 0
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Skills shortages in the UK are the next most significant reason for considering offshoring, cited by 27% of respondents, followed by: the need to improve processes (21%); as a result of taking part in a joint venture (21%); achieving economies of scale (20%); and increasing revenue (20%). Among manufacturing and production employers, apart from the drive to cut costs, the most significant reasons for considering offshoring are: the result of a joint venture with an overseas business (28%); to increase focus on core business (26%); and to increase revenue (24%). Private services sector employers are more likely than the survey average to cite cost reduction as the main reason they considered offshoring (90%). They are also the most likely to consider offshoring as a result of skills shortages in the UK, with 37% citing this as a factor.
Public sector employers are most likely to consider offshoring as a result of a joint venture overseas. More than half cite this as a reason. The other most significant reasons identified by public sector respondents are: to improve levels of service; to increase focus on core business; and skills shortages. However, cost reduction isnt a main driver of offshoring among public sector organisations. Of the small number of non-profit organisations involved in offshoring or considering it as an option, the main reasons to offshore are: skills shortages; to improve the level of service; to increase the focus on core business; and to reduce costs.
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The most popular offshoring locations

India is by some distance the most common offshoring location, followed by China and Poland, which is the most popular European country for this purpose.
India is, by some distance, the most popular offshoring destination. More than half of respondents with an interest in offshoring indicate that they have already offshored to India or are considering doing so (see Table 6 overleaf). China is the next most common location, identified by 27% of respondents as a current or future offshoring base.
Reasons for choosing particular offshoring locations When choosing an offshoring location, lower costs are the main attraction for more than three-quarters of employers, closely followed by the availability of a skilled workforce, identified by almost 70% of respondents (see Table 7 on page 17). Other reasons for choosing a particular country to
Poland is the third most common offshoring destination and the most popular European location, with 18% of respondents having an interest in the country. The next most popular offshoring destinations are the Czech Republic (12%), Malaysia (10%) and South Africa (9%). Manufacturing and production respondents are more likely to regard China as an offshoring location (48%) than those from the other main sectors. Respondents in this sector are also more likely than the survey average to have already offshored or be considering offshoring in Poland (28%). Private services sector organisations are clearly the most likely to have offshored to India or to be considering doing so (70%). The most popular offshoring locations among public sector organisations are Malaysia and China. The few non-profit organisations with an interest in offshoring are most likely to choose India, South Africa and Poland.
offshore to include English language capability (38%), other language capability (22%), employees willingness to take on mundane jobs (19%), and economies of scale, that is bringing together activities in one location (18%). Additional factors also taken into account are the host governments support for the industry (17%), different time zones, which mean that its easier/more costeffective to provide 24/7 services (15%); and proximity to customers (14%). Manufacturing and production employers are more likely than those in the other sectors to look for a location to provide cost savings (82%). However, the availability of a skilled workforce (56%), proximity to customers (24%), and the host governments support for the industry (22%) are also regarded as important reasons for choosing an offshoring location. Among private services sector organisations, the biggest pull to an offshoring location is the availability of a skilled workforce (84%), followed by lower costs (75%), and English language capability (52%).
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Table 6: Which country/countries has your organisation offshored to or is in the process of considering offshoring to?
Europe Czech Republic Estonia Hungary Ireland Latvia Lithuania Poland Portugal Romania Slovakia Slovenia Spain Rest of the world Argentina Australia Brazil Canada Chile China Costa Rica India Malaysia Mexico New Zealand Phillipines Russia Singapore South Africa Taiwan Thailand Turkey Vietnam Base (number of organisations responding to question) 2 2 4 2 2 27 1 53 10 4 2 6 3 7 9 2 5 6 2 125 2 2 8 2 2 48 2 38 10 4 2 6 4 6 12 2 6 14 2 50 0 0 0 25 0 0 0 50 25 25 0 25 25 25 50 0 0 0 0 4 2 2 2 2 2 10 0 70 9 5 3 6 5 9 9 2 5 0 3 67 0 0 0 14 0 43 0 29 43 14 0 14 14 29 29 0 0 0 0 7 12 2 6 6 3 1 18 2 4 2 2 6 20 4 6 4 6 2 28 2 6 2 2 6 25 25 0 50 0 0 50 0 25 25 0 25 6 3 5 9 0 0 13 3 3 2 0 8 14 14 0 14 14 0 29 0 14 14 0 14
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Table 7: What are/were your organisations reasons for considering that country/those countries?
Language capability English language capability Low levels of regulation Availability of a skilled workforce Host governments support for the industry Lower employment costs/total costs Employees willingness to take on mundane jobs Proximity to customers Better resource/asset utilisation Different time zones mean that it is easier/more cost-effective to provide 24/7 service Same time zones (as the UK) Economies of scale/bringing together activites in one location To benefit from new or existing centres of expertise Superior level of service/product quality
22 38 9 69 17 77 19 14 6 15
12 20 14 56 22 82 16 24 8 6
25 25 25 25 25 50 0 0 0 0
30 52 8 84 13 75 24 5 5 24
14 29 14 29 43 14 0 14 0 0
3 18 15 9
2 18 16 8
25 25 0 0
2 19 16 10
0 0 0 0
The considerations most likely to influence public sector organisations choice of offshoring locations are the host governments support for the industry, availability of a skilled workforce and English language capability.
is more difficult (48%), the possibility of associated job losses in the UK (44%), language problems (33%), and the risk of disruption to supply (24%). Other concerns over offshoring include worries about
Non-profit organisations choice of offshoring locations is mainly affected by factors such as low costs, availability of a skilled workforce and English language capability.
data security (23%), damage to employee/union relations (21%), and losing customer loyalty (19%). Manufacturing and production employers are more
The disadvantages of offshoring The biggest disadvantage associated with offshoring among organisations that have already offshored or are considering doing so is the negative impact it would have on staff morale, with 55% of respondents identifying this as an issue (see Table 8 overleaf). Other significant disadvantages of offshoring identified by respondents include the fact that managerial control
likely than the survey average to regard job losses in the UK as the main disadvantage associated with offshoring, with 50% identifying this as a concern. Respondents in this sector identify other major disadvantages associated with offshoring as: a negative impact on employee morale (48%); difficulties over managerial control (44%); the risk of disruption to supply (36%); and damage to employee/union relations.
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Manufacturing and production respondents are less likely to be concerned by the impact offshoring might have on how the organisation is perceived by customers or on the effect it might have on the employer brand. The negative impact offshoring has on staff morale is by some degree the biggest concern private services sector respondents have regarding offshoring. This is followed by worries over managerial control, job losses in the UK and negative impact on customer loyalty.
Public service organisations regard the main disadvantages associated with offshoring as language problems, political implications, managerial control, and negative impact on staff morale. The risk of disruption to supply, language problems and negative impact on staff morale are the main disadvantages of offshoring according to respondents from non-profit organisations.
Table 8: What does your organisation see as the disadvantages of offshoring?
Security risks Data security risks Political risks Negative impact on staff morale Negative impact on customer loyalty Negative publicity Negative impact on employer brand Appropriate skills not available Managerial control more difficult Job losses/redundancies in the UK Language problems Time-zone problems Risk of disruption to supply Damage to employee/union relations Inferior level of service/product
17 23 17 55 19 14 10 10 48 44 33 17 24 21 18
16 26 16 48 6 8 6 12 44 50 34 22 36 30 24
0 25 50 50 25 25 0 25 25 25 50 0 50 0 0
15 25 16 61 31 19 12 8 49 37 30 13 15 13 16
29 14 57 29 14 14 14 0 29 14 71 14 29 28 0
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The impact of offshoring on jobs
The average number of jobs created overseas through offshoring initiatives is 370, and while the number of posts lost in the UK as a result averages 180, this is partly offset by the nearly 60 positions which are created in the UK following such activity.
The average number of jobs offshored by respondent organisations with experience of offshoring is 370. Private services sector organisations typically offshore the most jobs, averaging 524, followed by manufacturing and production employers, with 217 jobs. The number of jobs offshored by non-profit and public sector organisations is significantly lower, averaging 50 jobs for employers in both sectors (see Table 9). Respondents were asked to estimate what percentage of their UK workforce they had offshored. Manufacturing and production organisations and private services sector employers have offshored on average 10% of their UK workforce, while the figure for nonprofit and public services sector employers is 4%.
Our survey has also provided information on the impact offshoring business activities has on respondent organisations UK workforces. The average number of UK jobs lost from respondent organisations as a result of offshoring is 180. Private services sector employers lost the most UK jobs as a result of offshoring, with an average of 205 job losses. The average figure for UK job losses among manufacturing and production employers is 171. Job losses among non-profit organisations and public services employers are much lower, with averages of 17 and 13 jobs respectively.
Table 9: Approximately how many jobs has your organisation offshored?
Percentage of respondents Number of jobs 100 or less 101250 251500 5011,000 1,0013,000 3,000 or more Not stated Average (jobs)* Number of organisations
37 12 6 5 5 1 34 370 86
41 21 6 3 3 0 26 217 34
75 0 0 0 0 0 25 50 4
35 7 7 6 7 2 36 524 46
80 0 0 0 0 0 20 50 5
*The average was obtained by averaging the mean score for the different number of jobs catagories.
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How many UK jobs have been created as a result of offshoring? In spite of the potential for job losses (see above), offshoring business activities also leads to the creation of new jobs. Among our respondent organisations, an average of 58 jobs were created in the UK as a result of offshoring. Private services organisations benefit from the creation of the biggest number of new jobs in the UK as a result of offshoring, with an average of 95 jobs created. Offshoring resulted in the creation of 18 new UK jobs on average among manufacturing and production organisations. Non-profit and public services sector organisations benefit from the creation of more jobs than they lose as a result of offshoring. The survey shows that on average 33 new jobs were created in non-profit organisations as a result of offshoring, compared with an average loss of 17 jobs. Public services sector organisations saw the creation of 25 new jobs as a result of offshoring, against a loss of 13 jobs. This might be explained by the fact that the cost savings provided by offshoring enable nonprofit and public services sector organisations to recruit additional UK staff to meet service needs here. What types of job have been created offshore? Our survey provides information on the types of job typically created offshore. Almost half of respondents say that offshoring led to the creation of skilled jobs overseas and a third report that semi-skilled jobs were created. In all, 19% of respondents reveal that managerial and unskilled jobs were involved in their offshoring operations, while 13% indicate that graduate jobs were created overseas. Manufacturing and production employers are more likely to create managerial jobs offshore (24%) than employers in the other main sectors and are also significantly more likely than the survey average to create semi-skilled jobs (44%). Private services sector organisations and public services sector organisations are more likely to create skilled jobs overseas as a result of offshoring, with, respectively, 48% and 60% of these respondents reporting the generation of such roles.
What types of job have been lost in the UK as a result of offshoring? Respondents identify skilled jobs as the category most likely to be lost in the UK as a result of offshoring, with 29% reporting losses at this level within their organisation. A quarter of respondents report that semiskilled jobs had been lost as a result of offshoring, while 19% indicate that managerial jobs had been lost, compared with 15% of organisations shedding unskilled jobs. Just 8% of organisations report that graduate jobs had been lost in the UK as a result of offshoring. Manufacturing and production employers are most likely to lose managerial positions in the UK following offshoring, with 27% of employers in this sector reporting losses at this level. Employers in this sector are also more likely than the survey average to shed semiskilled (32%), unskilled (24%) and graduate jobs (12%). Private services sector employers are most likely to lose skilled jobs as a result of offshoring 30% of respondents indicate losses of this type. Organisations in this sector are less likely than the survey average to lose all other categories of job: managerial (13%); semi-skilled (20%); unskilled (7%); and graduate (7%). The small number of non-profit sector and public services sector organisations responding to this question report the loss of skilled jobs only. What type of job have been created in the UK as a result of offshoring? Managerial jobs are the jobs most likely to be created in the UK as a result of offshoring, with 19% of respondents indicating the creation of such positions in their organisation. The other types of job most likely to be gained in the UK as a result of offshoring are, in order, skilled (14%), graduate (8%), semi-skilled (8%) and unskilled (2%). Private services sector organisations are more likely than the survey average to see the creation of almost all levels of job as a result of offshoring apart from unskilled jobs. More than a quarter of respondents in this sector report the creation of managerial jobs and
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17% indicate skilled jobs being created. Graduate jobs had been created at 11% of organisations and offshoring resulted in new semi-skilled jobs in 9% of private services sector employers. However, there is no evidence of new unskilled positions in this sector as a result of offshoring. Manufacturing and production employers are most likely to create managerial and skilled positions in the UK, with 12% of respondents in this sector reporting new jobs in these categories resulting from offshoring. In all, 6% of respondents indicate new semi-skilled and graduate positions in the UK as a result of offshoring, while only 3% of manufacturing and production organisations saw the creation of new unskilled jobs. Public services and non-profit respondents reveal that the only type of job created as a result of offshoring is semi-skilled positions. Do the actual benefits of offshoring compare to the anticipated benefits? Although almost a third of respondents didnt reply to this question, nearly half of those who did, and whose organisations had experience of offshoring, report the benefits of offshoring as being the same as they had anticipated before the initiative.
Private services sector organisations are most likely to report the benefits of offshoring as being less than expected (20%). In all, however, 39% of respondents in this sector report that offshoring had delivered the benefits expected and 7% indicate that offshoring had delivered more benefits than they had expected. Manufacturing and production employers are more likely than the survey average to be content with offshoring 53% report the benefits to be just as they had anticipated. A total of 15% of respondents in this sector report disappointment with the actual benefits gained, while 6% say the benefits of offshoring exceeded organisational expectations. Among the small number of public services organisations responding to this question, 40% report the benefits of offshoring to be as anticipated, 20% feel the benefits exceeded their expectations and the same proportion of respondents indicate that offshoring had not delivered all the anticipated benefits. Respondents from non-profit organisations are evenly split between those that report the benefits of offshoring to be just as they had expected, those that are disappointed with the benefits delivered and those for whom the benefits exceeded their expectations. How satisfied are organisations with their
However, 17% of the respondents report that the actual benefits of offshoring were not as great as they had hoped. And, for 6% of organisations, offshoring had exceeded their expectations.
offshoring experiences? More than 60% of organisations are fairly satisfied (48%) or very satisfied (13%) with their offshoring experience (see Table 10). Just 8% of respondents indicate that their organisations are not very satisfied
Table 10: How satisfied is your organisation with its offshoring experience?
Very satisfied Fairly satisfied Not very satisfied Completely unsatisfied Not stated
13 48 8 0 31
9 59 6 0 26
0 50 25 0 25
15 41 11 0 32
20 40 20 0 20
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with their experience of offshoring, while no respondents reported that their organisation had been completely unsatisfied with offshoring. Just over 30% of respondents whose organisations had experience of offshoring did not answer this question. Has your organisation brought back to the UK any previously offshored activity/activities? In total 15% of organisations with experience of offshoring have brought back to the UK business activities that had been offshored. Manufacturing and production employers are more likely to have done this (18%) than private services sector organisations (15%). There was only a very small number of responses to this question from public services and non-profit organisations. Three of the five public services organisations that responded to this question reported that they had brought back previously offshored business activities, as did two of the four respondents from non-profit organisations. What were the reasons for bringing previously offshored activities back to the UK? The most common reason for bringing back offshored business activities to the UK is unsatisfactory level of service or product quality, with 39% of respondents citing this as a factor. Other significant grounds include: difficulty with management control (31%); normal business change (31%); rapid turnover of overseas staff (23%); to improve customer loyalty (23%); and trouble with an outsourcing provider (23%).
Respondents also cite as reasons: the desire to improve corporate profile; concerns over disruption of supply; language problems with the overseas workforce; and a need to distribute workloads more evenly between the overseas and UK locations. Among private services sector organisations, the top two reasons for bringing back offshored business activities to the UK are: difficulties with managerial control; and a need to improve customer loyalty. Other significant factors are unsatisfactory levels of service; language problems; normal business change; and to improve corporate profile. The main factors cited by respondents from manufacturing and production organisations are: rapid turnover of staff; unsatisfactory product quality; disruption of supply; trouble with an outsourcing provider; and normal business change. Respondents from the public services and non-profit organisations report difficulties over managerial control as the most significant factor for bringing back to the UK previously offshored activities. Other key factors cited by respondents from both sectors include: concerns over data security; a need to improve customer loyalty; and language problems.
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Reasons why offshoring is not an option

Among organisations that have no interest in offshoring the main reason is that such activity is not regarded as appropriate for the nature of the business, followed by concerns over employee morale and over difficulties with managerial control.
The main reason organisations dont consider offshoring as an option is that it is not judged to be suitable for the nature of the business (see Table 11 overleaf). Among respondents whose organisations were not already offshoring and were not currently considering it, 87% indicate that offshoring isnt suitable for their organisations business. The other key reasons why organisations dont consider offshoring include concerns over the negative impact it would have on morale (12%); difficulties over managerial control (12%); concerns over the level of service or product quality (11%); the negative impact it would have on customer loyalty (11%); and the negative impact on corporate reputation (10%). In all, 84% of manufacturing and production organisations that were not already offshoring and were not currently considering it report that it isnt suitable for the nature of their business. Other significant factors cited by respondents in this sector are concerns over the negative impact on morale (15%), and over managerial control (13%). Among private services sector respondents, 86% report that offshoring isnt suitable for the nature of the business, 14% cite difficulties over managerial control, and 12% highlight concerns over the impact of offshoring on customer loyalty and on the quality of service.
Nine in ten public services sector respondents indicate that offshoring isnt seen as an option because of the nature of the organisation. Other significant reasons why public services sector organisations dont consider offshoring include concerns over security risks (16%); job losses in the UK (15%); the negative impact on staff morale (15%); damage to employee/union relations (14%); and the negative impact on organisational reputation (13%). Respondents from the non-profit sector are most likely to regard offshoring as unsuitable for the nature of the organisation 94% say this is the case. In addition, other factors against the use of offshoring cited by respondents from this sector include: the negative impact on organisational reputation (13%); concerns over the level of service (10%); and the negative impact on staff morale (10%).
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Table 11: What are the main reasons your organisation has not offshored any business activity?
Not suitable for the nature of the business Managerial control more difficult Negative impact on customer loyalty Negative impact on corporate reputation Negative impact on staff morale Damage to employee/union relations Job losses/redundancies in the UK Security risks Data security risks Concerns over possible disruption of supply Concerns over cost control Time-zone problems Language problems Too much foreign travel Excessive training costs Having already outsourced in the UK Concerns over level of service/ product quality
87 12 11 10 12 8 10 8 5 7 4 4 5 2 2 4 11
84 13 12 9 15 11 12 6 3 15 4 4 5 1 2 3 10
94 4 10 13 10 4 6 4 0 0 2 0 2 0 0 4 10
86 14 12 9 11 5 6 6 6 4 3 5 6 2 2 4 12
90 10 10 13 15 14 15 16 8 7 5 3 5 2 2 3 10
This question was answered by organisations that do not have experience of offshoring and are not currently considering it.
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The survey shows that respondents believe there is more scope for HR involvement during all stages of the process if offshoring is to be managed successfully.
HR involvement in strategic decisions about offshoring Almost 60% of respondents, whose organisations have already offshored one or more business activity or are considering doing so, report that HR is involved in strategic discussions about offshoring from the point the idea is first raised as an option. Manufacturing and production organisations are most likely to involve HR at the earliest possible stage when offshoring is first proposed, with 66% of respondents in this sector reporting this to be the case.
What role should HR play during the pre-offshoring planning stage and what role does HR actually play? The survey asked respondents to provide information on the role they think HR should play during offshoring as well as on the role that HR actually plays when such projects are being planned, when they are being implemented and once they have been completed. The survey shows that respondents believe there is more scope for HR involvement during all stages if offshoring is to be managed successfully (see Table 12). At the planning stage for offshoring projects, 80% of
Among private services sector organisations, 56% of respondent organisations involve HR in strategic decisions about the possibility of offshoring from the point the issue is first raised. Public services sector and non-profit organisations with experience of or an interest in offshoring are less likely to involve HR in early strategic discussions about offshoring, with just over a quarter doing so.
respondents identify consulting with unions/employee representatives as being central to the role that HR should be playing. Other areas regarded as integral to the role HR should play during the pre-offshoring stage are: manpower planning (75%); considering the scope for employee redeployment (77%); contributing to the internal communication strategy (78%); and identifying training needs (76%). About two-thirds of respondents also believe that at the
Is HR involved in strategic decision-making about the introduction of offshoring? HR is more likely to be involved once offshoring is being seriously considered and the specific requirements of such an initiative are being considered. At this stage, almost 69% of organisations involve HR. Manufacturing and production employers are most likely to involve HR at this point (72%), followed by private services sector organisations (67%), non-profit organisations (50%), and public services organisations (43%).
planning stage HR should play a role in: taking into account the implications of employment regulation both in the UK and overseas; helping to identify risk; and beginning work on the design and redesign of jobs arising out of offshoring. However, there is a considerable contrast between the role that respondents believe HR should play and the role that HR actually plays during the planning stage for offshoring. About two-thirds of respondents report that HR actually has involvement in union/employee consultation and discussions about the scope for
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Table 12: In your experience, what role(s) should/does HR play during the pre-offshoring/planning stage?
Manpower planning Helping to identify service delivery objectives of offshoring proposal Helping to develop timeframes for the project Considering scope for employee redeployment Consulting with unions/ employees Contributing to internal communication strategy Contributing to external communication strategy Designing new jobs arising from the introduction of offshoring Redesigning new jobs arising from the introduction of offshoring Identifying training needs Identifying risk Anticipating employment regulation implications (TUPE, information and consultation etc and/or the requirements of regulations in new overseas location)
a b a b a b a b a b a b a b a b a b a b a b a b
75 57 35 17 54 38 77 63 80 67 78 59 51 34 62 35 65 40 76 56 64 42 65 57
72 56 24 8 48 34 74 56 70 58 68 56 48 32 60 30 54 36 70 48 50 30 58 52
50 50 50 0 25 0 75 75 75 75 100 75 25 0 50 25 25 25 75 50 25 0 75 75
76 57 40 25 60 43 80 71 85 76 88 66 57 39 61 37 70 42 79 63 75 55 70 63
57 43 57 0 29 14 43 29 71 43 71 29 43 0 71 14 57 14 85 29 14 0 57 43
KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays
employee redeployment. And only 59% of respondents indicate that HR contributes to internal communication strategy at the pre-offshoring stage. HR is also significantly less likely in practice to be involved in manpower planning (57%) and identifying training needs (56%).
HRs role when offshoring projects are being implemented There is also considerable contrast between the role that survey respondents feel HR should play when offshoring projects are being implemented and the role that the function actually fulfils (see Table 13).
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Table 13: In your opinion/experience, what role(s) should/does HR play in the implementation of offshoring projects?
Contributing to the agreement of service delivery objectives Managing the change process Monitoring the effectiveness of the change process Considering scope for employee redeployment Consulting with unions/ employees Managing redundancies Contributing to internal communication messages Contributing to external communication messages Designing new jobs arising from the introduction of offshoring Redesigning new jobs arising from the introduction of offshoring Identifying training needs Managing ongoing training Recruiting employees in new location Managing risk Meeting employment regulation obligations (TUPE, information and consultation etc and/or the requirements of regulations in new overseas location)
a b a b a b a b a b a b a b a b a b a b a b a b a b a b a b
29 13 70 48 60 32 70 58 73 60 72 64 70 58 46 31 55 35 56 38 62 50 57 44 57 45 51 39 51 42
18 12 68 44 48 24 60 50 70 58 64 56 60 52 46 30 50 38 48 38 56 46 56 40 44 38 42 30 44 32
25 0 50 25 50 25 75 75 75 75 75 75 50 50 25 25 50 25 25 25 25 25 50 25 75 50 50 0 100 75
39 13 73 52 70 40 76 67 75 64 78 73 78 67 48 34 58 34 60 39 69 55 61 49 70 52 60 47 58 51
29 0 29 0 14 0 57 29 57 29 57 29 43 14 43 14 43 0 29 0 29 14 29 14 29 14 14 0 57 29
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In all, 70% of respondents with experience of offshoring think that HR should play a central part in managing the change process when offshoring projects are being implemented, but less than half of respondents report this as being the case in practice. Almost two-thirds of respondents believe that HR should be responsible for monitoring the effectiveness of the change process, although this only happens in about a third of respondent organisations where offshoring projects had been implemented. Seven in ten respondents think that HR should be involved in considering the scope for redeployment and in contributing to internal communication messages at this stage of offshoring, while 58% report this actually happening. There is less of a gap between the proportion of respondents who believe HR should play a role when it
comes to consulting with unions/employees (73%) and managing redundancies (72%) and the role that the function plays in practice in relation to these matters (60% and 64% respectively). About two-thirds of respondents believe HR should help to identify training needs at this stage of offshoring and 57% see a role for the function in managing the provision of ongoing training. However, HR is actually involved in identifying training needs in only half of respondent organisations and managing ongoing training in just 44%. More than half of those surveyed with experience of offshoring identify the design and redesign of new jobs resulting from offshoring as two areas that HR should be involved in at the implementation stage. In reality, though, HRs involvement in job design and redesign is limited to slightly more than a third of organisations.
Case study: business services firm

To date, this business services organisation has created 360 administrative back-office roles in India working on three different contracts. And a major global sourcing agreement to deliver a new business services contract involving as many as 1,000 roles in India is in the pipeline. The HR team has played a central role in the global sourcing process, from initial discussions through to consultation with the trade union. The organisation has grown rapidly from its establishment in 1995 to about 6,000 employees by 2005. A significant number of the new members of staff, who were acquired over this period following a TUPE transfer, were represented by a major union and covered by collective bargaining arrangements. In 2004, in order to meet one of its customers growth plans and maintain progress on cost reduction, a number of back-office processes that could be transferred to India were identified. The organisations parent company already had business centres in a number of locations in India, including Chennai, Bangalore and Mumbai, but these had tended to be more focused on providing engineering and technical IT activities rather than back-office business process work. However, small office processing centres had recently been set up in India for other financial services contracts. This allowed leverage on the technical infrastructure and meant that some skilled resource was already in place. The tasks that were proposed for offshoring for the contract were routine and repeatable back-office administration tasks, such as making changes to customer details, dealing with sales repayments, and responding to general white-mail enquiries. No direct customer-facing work was involved. However, the offshoring proposal was controversial because of likely union concerns over the impact on jobs.
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The company prefers the term global sourcing to offshoring because it regards this as a more accurate way of describing its focus on the cost-effective delivery of business services, regardless of location. Members of the HR team were involved from the very beginning of the process in considering the implications of transferring the tasks abroad, discussions with the parent company and in the development of the communication strategy and key messages for both internal and external use in partnership with the various stakeholders. Communications that the HR team were instrumental in drafting included employee Q&As and briefing documents, timelines, and letters to Members of Parliament. The HR team also helped draft pre-emptive and reactive press releases and was involved in assessing the risks associated with global sourcing. The biggest challenge for the company was convincing the union representing the employees whose jobs could be affected that global sourcing was important for the long-term success of the business and would not have an adverse impact for existing employees. In the early stages of the consultation process, the union was extremely unhappy with the proposal to move a number of back-office processing roles abroad and at one stage in the summer of 2004 considered strike action. A solution was found with the negotiation of a global sourcing agreement that set out the principles under which the company would conduct any transfer of such roles abroad. The agreement covered a range of issues, including communication, consultation, redeployment and redundancies. It also covered employment conditions for workers taken on as part of any global sourcing initiatives. The company was also able to avoid any redundancies by redeploying staff to work in different areas of the business. Once the project was agreed, HR played a key role in liaising with the Indian management team with regard to the recruitment for the new positions at the parent organisations Chennai site in India. HR was also involved in establishing the management structure and the new processes, as well as selecting UK staff who have been seconded to India to help deliver the training for the Indian recruits. Workshops were developed and delivered both in the UK and in India to generate greater cultural awareness between the two teams and to facilitate a better working environment. The creation of a management liaison role has been key to the success of the operation. The position is occupied by one of the firms UK managers who is on long-term assignment in Chennai, reporting to the Indian general manager and the operations director in the companys UK headquarters. The firms HR consultant for employee relations and strategy, who has been closely involved in the project, said: For us, global sourcing makes business sense. We have been very pleased with the standard of work and with the level of productivity. It has enabled us to grow our business and develop new products in the most cost-effective way possible.
29
The role HR plays once the offshoring process has been completed The most common role played by HR once offshoring has been completed is in contributing to internal communication messages, a function carried out by HR at 42% of organisations that have experience of offshoring (see Table 14). However, two-thirds of respondents believe that HR should play an ongoing role in internal communications to help integrate offshoring operations once theyre in place. HR is also involved in recruiting and retaining employees in the new overseas locations in about a third of organisations. Other functions typically carried out by HR
once offshoring projects are in place include: identifying training needs (36%); managing ongoing training (30%); and developing HR policy in the new location (36%). In contrast, about half of respondents believe that HR should play a central role in all these activities once offshoring projects have been completed. Four in ten of those surveyed think HR should help develop the employer brand in the new overseas location, though, in reality, this only happens in less than a fifth of organisations.
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Table 14: In your opinion/experience, what role(s) should/does HR play once the offshoring process has been completed?
Helping to develop employer brand in new location Recruiting employees in new location Retaining employees in new location Contributing to internal communication messages Contributing to external communication messages Developing community initiatives in new location Identifying training needs Managing ongoing training Developing HR policy in new location Monitoring service delivery objectives Risk management (eg data security) Managing relationship with third-party provider (where applicable) Initiating/managing secondments (to and from new location)
a b a b a b a b a b a b a b a b a b a b a b a b a b
40 18 46 35 46 32 62 42 38 21 29 14 53 36 49 30 50 36 18 11 24 10 30 16 41 34
20 10 38 36 42 34 52 38 38 20 28 18 52 32 50 26 44 34 12 10 24 10 26 14 38 36
25 0 25 25 25 25 50 50 25 25 0 0 25 25 50 25 50 25 0 0 25 0 0 0 25 25
55 25 54 37 52 34 69 46 39 24 30 12 54 42 50 36 60 42 21 12 25 12 31 18 45 34
29 0 29 14 29 14 57 29 29 14 14 0 43 14 43 14 43 14 0 0 29 0 14 0 14 14
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Conclusions and implications
The pressure to transfer UK-based business activities overseas is growing and is likely to increase further as organisations face up to the reality of increasing global competition. Advances in information and communication technology mean that almost any role now has the potential to be relocated overseas. The offshoring of manufacturing and call centre jobs has attracted most of the headlines to date, but a wide range of jobs are now being provided from overseas as organisations look to make their operations leaner and more cost-efficient and increasingly focus on their core business. IT development and support, accounts and financial backoffice support and product development jobs are among the many types of role which have been transferred to a growing range of overseas locations. The CIPD survey shows that so far only a small minority of organisations have offshored HR jobs or are considering such a move. The range of offshoring locations is also expanding. India remains the most likely destination but is soon likely to be challenged by second-placed China, where an estimated 300 million people are learning English. Closer to home, Poland, the third most popular location, underlines the increasing potential of the former Soviet bloc countries to provide low-cost offshoring locations in Europe. Reducing cost is, by some way, the main driver behind offshoring, followed by skills shortages and the need to improve business processes. However, organisations that decide to go down the offshoring road focused purely on cutting costs without taking account of the potential difficulties and pitfalls are likely to face considerable problems. The introduction of offshoring is liable to have a negative impact on staff morale and lead to UK job losses. Organisations must also take into account the potential difficulties created by language problems as A significant minority of organisations dont involve HR when strategic decisions about offshoring are being made, with the result that some of the real people management challenges that exist are not taken into account in the excitement over the potential cost savings. In many cases HR is not involved at all until the decision to go ahead with an offshoring project has already been made. This means that there is a real opportunity for greater strategic HR involvement in offshoring among many organisations. Organisations are more likely to involve HR in the planning/pre-offshoring phase, but the level of involvement of the function varies significantly. Our survey shows that there is more scope for the use of HR expertise in early consultation with union/employee representatives as well as in considering the scope for employee redeployment. At the planning stage HR should also already be contributing to the internal communication strategy and identifying training needs. Other reasons for bringing offshored business activities back to the UK include the need to improve customer loyalty and trouble with an outsourcing provider. These sorts of issue are reasons why it is essential that HR takes a lead role in managing offshoring projects and, where necessary, highlighting why such a move may not be the right one in the long term. In all, 15% of organisations with experience of offshoring have brought back to the UK business activities which were previously transferred overseas. The most common reason is an unsatisfactory level of service or product quality, followed by difficulty with management control and rapid turnover of overseas staff. well as the risk of disruption to the supply of services or products. The survey shows that a significant proportion of respondents indicate that they are only fairly satisfied with their offshoring experience, underlining the importance of organisations understanding the implications of such projects.
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Other roles that HR should play in the planning phase include designing new jobs arising out of offshoring and identifying potential risks, for example taking into account the implications of employment regulation both in the UK and in the overseas location. The role of HR does not stop once jobs have been transferred overseas if the level of service and/or product quality is to be maintained and if the right employer brand is to be developed. The function has a
vital part in developing HR policy in the new location, recruiting and retaining employees, contributing to internal communication messages, as well as in managing ongoing training and secondments to and from the new location. The survey provides strong evidence that HR should be involved at all stages of offshoring if organisations are to realise the business and cost benefits they had anticipated.
33
Background
In September 2005, a total of 10,000 questionnaires were sent out to a sample of senior-level people management specialists. The questionnaire included 29 questions on offshoring covering the trends, benefits and drawbacks associated with such projects. Manufacturing and production The survey asked questions about whether the pressure to offshore was growing, what types of business activities were most likely to be offshored, the impact of offshoring on jobs, as well as the business drivers behind the practice. It also included a number of questions on the role of HR when offshoring was being considered, when offshoring projects were being implemented and once they have been completed. A total of 589 usable replies were received a response rate of almost 6%. In all, 43% of responses were from the private services sector, just over 25% were from manufacturing and production organisations, 24% were from the public services sector and 9% were from the non-profit sector (see Table 15). Electricity, gas and water Engineering, electronics and metals General manufacturing Textiles Chemicals, pharmaceuticals and oil Mining and quarrying Construction Food, drink and tobacco Paper and printing Other Non-profit Housing associations Charity services Care services Other Private services Professional services Finance, insurance and real estate Hotels, catering and leisure IT services Call centres Media and publishing Retail and wholesale Transport and storage Communications Other Public services Local government (including police/fire) Central government (including defence) Education Health Other public services Sector
Number of respondents
Table 15: Distribution of responses, by sector
149 3 46 17 4 15 3 22 16 9 22 52 15 18 10 10 254 67 28 19 19 8 13 35 23 11 46 141 42 24 33 26 20
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We explore leading-edge people management and development issues through our research. Our aim is to share knowledge, to increase learning and understanding, and help our members make informed decisions about improving practice in their organisations.
We produce many resources on people management and development issues including guides, books, practical tools, surveys and research reports. We also organise a number of conferences, events and training courses. Please visit www.cipd.co.uk to find out more.
Chartered Institute of Personnel and

Development
151 The Broadway London SW19 1JQ

Tel: 020 8612 6200 Fax: 020 8612 6201
Email: cipd@cipd.co.uk Website: www.cipd.co.uk Incorporated by Royal Charter Registered charity no.1079797
Chartered Institute of Personnel and Development 2006
Issued: January 2006 Reference: 3600

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Survey report January 2006

OFFSHORING AND THE ROLE OF HR

Offshoring and the role of HR

Summary of key findings

Of these, 14% of respondents report that their

services to a third party overseas.

country as a direct employer

manufacturing and production.

that their organisation is under some pressure to offshore a business activity.

This is followed by IT support (24%), IT

Offshoring and the role of HR

Other significant disadvantages of offshoring

The impact of offshoring on jobs

by 27% of respondents as a current or future offshoring base.

Offshoring and the role of HR

The pressure to offshore

Offshoring and the role of HR

Offshoring and the role of HR

Case study: telecommunications firm

Offshoring and the role of HR

Offshoring and the role of HR

The types of offshoring

Offshoring and the role of HR

The business activities most likely to be offshored

Offshoring and the role of HR

Offshoring and the role of HR

Table 4: What types of job role were/are involved?

Offshoring and the role of HR

The reasons organisations consider offshoring

Table 5: Why did your organisation consider offshoring originally?

Offshoring and the role of HR

Offshoring and the role of HR

The most popular offshoring locations

Offshoring and the role of HR

Offshoring and the role of HR

Offshoring and the role of HR

Table 8: What does your organisation see as the disadvantages of offshoring?

Offshoring and the role of HR

The impact of offshoring on jobs

Table 9: Approximately how many jobs has your organisation offshored?

Offshoring and the role of HR

Offshoring and the role of HR

Offshoring and the role of HR

Offshoring and the role of HR

Reasons why offshoring is not an option

Offshoring and the role of HR

Offshoring and the role of HR

Offshoring and the role of HR

Offshoring and the role of HR

KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays

Offshoring and the role of HR

KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays

Offshoring and the role of HR

Case study: business services firm

Offshoring and the role of HR

Offshoring and the role of HR

Offshoring and the role of HR

KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays

Offshoring and the role of HR

Conclusions and implications

Offshoring and the role of HR

Offshoring and the role of HR