New research forecasts offshoring of 750,000 more jobs

Corporations in the U.S. and Europe will move an additional 750,000 jobs in IT, finance, and other business services to India and other low-cost geographies by 2016, according to new research from The Hackett Group, Inc.

As noted in Supply Chain Management Review late last year, researchers were trying to determine if levels of additional offshoring in these areas would begin to decline by 2014.

This is indeed their conclusion. Furthermore, in the next 8-10 years the flow of jobs offshore is likely to cease, as companies simply run out of business services jobs suitable for moving to low-cost countries.

The Hackett Group’s offshoring research, which examined available data on 4,700 companies with annual revenue over $1 billion headquartered in the U.S. and Europe, found that by 2016, a total of 2.3 million jobs in finance, IT, procurement, and HR will have moved offshore. This represents about one third of all jobs in these areas. India is by far the most popular destination, with nearly 40 percent of the jobs being offshored headed there.

But The Hackett Group’s research sees additional offshoring levels in business services, which are currently at around 150,000 new jobs each year, leveling off or declining after 2014. The Hackett Group’s research also found that of the 5.1 million business services jobs remaining onshore at U.S. and European companies in 2012, only about 1.8 million have the potential to be moved offshore, with 750,000 of those moving by 2016. So by the end of the next 8-10 years, the traditional model of lifting and shifting work out of Western economies into low cost geographies will cease to be major factor driving business services job losses in the U.S. and European.

Hackett’s research also found that automation and other productivity improvements are another major factor driving job losses in business services at U.S. and European companies. Automation and other productivity improvements will have caused the elimination of 2.2 million business services jobs at these companies between 2006 and 2016, and these factors are currently driving the elimination of around 200,000 jobs annually.

“In the U.S. and Europe, offshoring of business services and the rapid transformation of shared services into Global Business Services, have had a significant negative impact on the jobs outlook for nearly a decade,” said The Hackett Group Chief Research Officer Michel Janssen. “That trend is going to continue to hit us hard in the short-term. But after the offshoring spike driven by the Great Recession in 2009, the well is clearly beginning to dry up. A decade from now the landscape will have fundamentally changed, and the flow of business services jobs to India and other low-cost countries will have ceased.”