More US Service Jobs Heading Offshore
The strike that crippled two of the nation's busiest shipping ports was settled this week, but the trend it spotlighted — the offshoring of service jobs — is expected to continue to grow across the USA.
The eight-day walkout by clerical workers at the ports of Los Angeles and Long Beach largely centered on the outsourcing of their jobs overseas and to elsewhere in the U.S., says Craig Merrilees, a spokesman for the International Longshore and Warehouse Union. Shippers denied outsourcing jobs, but the tentative settlement restricts the practice, according to the Associated Press.
Service companies have been sending jobs abroad in large numbers the past decade to cut labor costs — a trend that accelerated in the recession and is expected to continue the next few years before slowing after 2016. About 663,000 large-company jobs in information technology, human resources, finance and purchasing — the category that includes the port workers — have been offshored since 2002, according to The Hackett Group.
By 2016, the consulting firm estimates, another 375,000 jobs in the sectors will be moved abroad. More than a third of the U.S. jobs in those industries in 2002 will have moved offshore by 2016.
Most workers are employed directly by companies that previously used U.S. staffers, though some work for outsourcing firms. Hackett studied companies with at least $1 billion in annual revenue, noting they represent about 75% of the offshoring market.
India is the largest offshoring center. Service jobs also have gone to eastern Europe, the Philippines, China and Mexico.
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In other sectors, initially low-level jobs were offshored, such as handling payroll or tracking purchase orders. Employers typically can cut labor costs by about 75 percent, Dorr says. In recent years, a growing number of higher-level jobs have moved overseas, such as benefits analysis and vendor management, though the cost savings for offshoring those positions is only about 25 percent.The trend took off after companies began contracting with programmers in India to help with the massive preparations for the Y2K computer bug in 2000, says Hackett research director Erik Dorr.
"Organizations now feel more comfortable moving up the value chain," Dorr says, noting, for example, that India's education system is improving and turning out top-notch job candidates.
Since 2005, legal services such as document review, contract drafting and regulatory communication increasingly have been offshored, particularly to India, says Greg McPolin, managing director of Pangea3, a legal outsourcing firm. Indian attorneys handle work that in the U.S. is sometimes done by paralegals and at a 40 to 60 percent cost savings, he says.
Several thousand legal jobs have been offshored, estimates Edward Brooks, founder of The LPO Program, a legal consulting firm.
"In the current environment, it is more important than ever that … the support we provide to clients adds value without adding unnecessary cost," law firm Clifford Chance said in a statement.
Once services are offshored, there's little chance they'll come back to the U.S., Dorr says. By contrast, manufacturers have returned some production to the U.S. recently, largely because of a narrowing wage gap between the U.S. and China, rising shipping costs and falling U.S. energy costs — factors that generally haven't affected service jobs.
One exception: call-centers. About 500,000 of these jobs were offshored from 2006 to 2010, according to the Communications Workers of America. Many have returned to the U.S. the last few years because of cultural gaps between representatives and customers that hurt sales, says Hal Sirkin, senior partner of Boston Consulting Group.
Still, CWA spokeswoman Candice Johnson called the jobs that have come back "a drop in the bucket."