The Impact of Offshoring on the UK Service Sector - Essay Example

The Impact of Offshoring: A Research Proposal 1.) Problem Definition Offshoring the labour force is an attractive way for a firm to reduce costs through the dislocation of their service sector to countries where the cost of labour is less than the home country. Great Britain has seen a substantial increase in jobs that have been relocated in India, the Philippines, and other Asian countries. India plans to have 1 million workers in the business skills sector by the end of 2007 (Gowda et al. 2005, p.3). These jobs have in large part come from the financial service sector and the call centre business has been particularly impacted. Consider that a call centre representative in the UK can earn an average of £20,000 per year, while the employee in India may earn 10% of that amount (Daniel 2004, p.2). When administration costs are added, the current savings on labour is less than 50%, and that number is expected to shrink as offshore salaries rise (Lyons 2004, p.1) With these short term financial savings come the problems of employee morale, security concerns about consumer personal data, loss of customer loyalty, and reduced product quality. While research can measure the economic loss to the labour market the aspects of a perceived security risk and consumer confidence are less easily quantified. Determining the savings required to offset the indirect costs of the issues of consumer perception of quality and security has been an elusive parameter as the phenomenon of offshoring is relatively new and little research has been done to guide the firm that wishes to take advantage of a lower pay scale in a foreign country. The problem becomes attempting to determine the value or cost of productivity, customer goodwill, and risk involved with offshoring. While the financial savings look attractive, further inspection could reveal hidden costs that should be taken into account when making a decision to offshore. The microeconomic effects are magnified as a small problem that results in poor service can quickly escalate into an important issue, as most customers are predisposed with a negative view of offshoring (Smith 2006, p.252). Currently, almost half the companies surveyed had indicated that they are under financial pressure to offshore even if it isn’t in the best long-term interest of the firm (Lyons 2004, p.3-4). The problem facing Human Resource departments is having the data on the implicit and explicit costs incurred when making a decision on how best to allocate their labour resources. Without a clear picture of the adverse effects that a company may incur when offshoring jobs, the firm may face a situation in which a decision is made that has a long lasting negative effect on the firm. The company may lose skilled workers, damage employee morale, and risk tarnishing their image in the minds of the public. The real economic cost of job loss and its effect on the GDP have been estimated by some recent studies. However, one of the biggest challenges facing Human Resource departments is the task of evaluating the indirect and abstract costs associated with offshoring. 2.) Research Objectives This research will place an economic value of the aspects of morale, consumer perception, and perceived security risk that should be considered when making a decision to offshore. The study will measure the impact that offshoring has on the consumers of the product and the employees of the firm. The employee morale will be considered to determine the effect that offshoring has on the existing employee base within a firm. This will be accomplished through case study analysis of an appropriate number of employees and managers in a cross section of the financial service sector. The study will determine what, if any, effect that offshoring has on employee attitudes and productivity. It will further examine the employee’s perception of future job security and its impact on their level of company loyalty. Managers will be interviewed to gain a perspective on the effect that offshoring has had on absenteeism and employee discipline in an attempt to determine if it has had a detrimental effect on employee effectiveness. Brand reputation and consumer loyalty will be assessed through customer questionnaires designed to determine the level of confidence a consumer has in an offshore service centre. The study will quantify the cost of lost customers and lowered customer loyalty to a product or brand. In addition the research will evaluate consumer predisposition to having a negative view of offshore service centres. It will measure the tolerance a customer may have for poor service with an offshore company as compared to a UK based call centre. Customer perception of the risk involved when they expose their personal financial data to offshore employees will also be evaluated. This risk may be exaggerated in the consumer’s mind, but the perceived risk is what will impact the company from the standpoint of lost business. The research will assess consumer’s confidence in the safety, security, and accuracy of data that is accessed and maintained at an offshore site. Also it will assess whether the site of the service centre is a consideration of consumers who are purchasing a financial product. 3.) Justification Research to date on this topic has been inconclusive and anecdotal. Human Resource departments are pressured by the immediate financial concerns of the firm and have little data to make an adequate case for or against offshoring. Without this information the HR manager may make a decision that will negatively impact the company on a long-term and irreconcilable basis. An inappropriate allocation of labour resources can result in negative forces from the internal as well as the external environment. Employee productivity may suffer due to morale problems or a sense of perceived insecurity. Consumers may seek brands that have local call centres when considering a product. The customers may also be less tolerant of errors or inferior service when confronted with a bad service experience. In addition, the customer belief that their personal data may be at risk could be an insurmountable obstacle to gaining and maintaining customer confidence. The research is important due to the gravity of the topic as well as the inability of a firm to correct any potential damage done in a timely manner. Loss of reputation and trust can take years or a generation to correct. It could result in the company needing to spend additional money to relocate workers at a later date or rebuild their public image. This study would give Human Resource departments another tool to help them evaluate the value of offshoring when making this critical decision. References Daniel, E. 2004, ‘Offshoring: Jobs drain or skills gain?’, Management Focus, vol. 21, pp. 1-3 [Online] Available at http://www.som.cranfield.ac.uk/som/news/manfocus/downloads/focus21/Offshoring.pdf Gowda, S. et al. 2005, ‘Offshoring – Process, pain, or profit’, Report on the Workshop held under the auspices of the Adecco Professorship of Business and Society at London Business School, pp. 1-5 Lyons, R. 2005, ‘The impact on the developed economies: Analysis, best practice and policy recommendations’, Presentation for Session 2 at The Design Council, 34 Bow Street, London, pp. 1-5 Smith, D. 2006, ‘Offshoring: Political myths and economic reality’, World Economy, vol.29, no.3, pp. 249-256 Read More