Survey report January 2006
OFFSHORING AND
THE ROLE OF HR
Contents
Summary of key findings
3
The pressure to offshore
5
The types of offshoring
9
The business activities most likely to be offshored
10
The reasons organisations consider offshoring
13
The most popular offshoring locations
15
The impact of offshoring on jobs
19
Reasons why offshoring is not an option
23
Offshoring and the role of HR
25
Conclusions and implications
32
Background
34
Offshoring and the role of HR
1
Summary of key findings This report sets out the findings of the CIPD’s 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
• Of these, 14% of respondents report that their
transferring previously UK-based business activities to
organisation has experience of offshoring one or
an overseas location. However, under this general
more business activity in the past five years and
definition there are various types of offshoring. For the
7% have not offshored to date but are currently
purposes of this survey report, we’ve defined them as:
considering it.
• the process of outsourcing business activities or
services to a third party overseas.
Offshoring models
• Outsourcing is the most common model of
offshoring, followed by moving business activity
• moving business activities or services to another
country as a direct employer
• moving business activities or services to another
overseas as a direct employer and moving business
activity overseas as an indirect employer.
Which business activities are most likely to be
country as an indirect employer (eg part of a parent
offshored?
group that’s providing the business activity/activities
• The business activity most likely to be offshored is
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
that their organisation is under some pressure to
manufacturing and production is the business
offshore a business activity.
activity they’re already offshoring or are likely to
offshore in the future.
• Organisations in the manufacturing and production
and private services sectors are most likely to feel
under pressure to offshore.
• This is followed by IT support (24%), IT
development (22%), call centres/customer services
(22%), financial and back-office support (19%),
• A significantly larger proportion of employers believe
product development (18%), and accounts (16%).
the pressure to offshore is continuing to increase
compared with those who believe that it’s decreasing.
The disadvantages
• The biggest disadvantage associated with
How many organisations are offshoring?
offshoring among organisations that have already
• In all, just over a fifth of organisations have
offshored or are considering it is the negative
offshored one or more business activity in the last
impact it could have on staff morale, with 55% of
five years or are currently considering doing so.
respondents identifying this as an issue.
Offshoring and the role of HR
3
• Other significant disadvantages of offshoring
The impact of offshoring on jobs
identified by respondents include the fact that
• The average number of jobs offshored by
managerial control is more difficult (48%), the
respondent organisations with experience
possibility of associated job losses in the UK (44%),
of offshoring is 370. Private services sector
language problems (33%) and the risk of disruption
organisations typically offshore the most jobs,
to supply (24%).
averaging 524, followed by manufacturing and
production employers, with 217 jobs. The mean
Reasons for offshoring
number of jobs offshored by non-profit and public
• The desire to cut costs is by far the biggest reason
sector organisations is significantly lower, averaging
for organisations to consider offshoring. In all, 86%
50 jobs for employers in both sectors.
of respondents whose organisations have offshored
or are currently considering it as an option identify
The role of HR
cost reduction as the main driver.
• Almost 60% of respondents whose organisations
have already offshored one or more business activity
• Skills shortages in the UK are the next most
or are considering doing so report that HR has been
significant reason for considering offshoring, cited
involved in strategic decisions about offshoring from
by 27% of respondents, followed by: the need
the point the idea was first raised as an option.
to improve processes (21%); as a result of a joint
venture (21%); achieving economies of scale
(20%); and increasing revenue (20%).
• In all, 70% of respondents with experience of
offshoring think HR should play a central part in
managing the change process when offshoring
The most popular overseas locations
projects are being implemented but less than half of
• India is, by some distance, the most popular
respondents report this as being the case in practice.
offshoring destination. More than half of
respondents with an interest in offshoring indicate
• The survey asked respondents to provide
that they have already offshored to India or are
information on the role they think HR should
considering doing so.
play during offshoring as well as on the role that
HR actually plays when such projects are being
• China is the next most common location, identified
planned, when they are being implemented and
by 27% of respondents as a current or future
once they have been completed. The survey shows
offshoring base.
that respondents believe there is more scope for HR
involvement during all stages if offshoring is to be
• Poland is the third most common offshoring
destination and the most popular European
location, with 18% of respondents having an
interest in the country.
4
Offshoring and the role of HR
managed successfully.
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?
Manufacturing and production employers are easily the
Just under a third of respondents (30%) report that
most likely to report that the pressure to offshore has
their organisation is under some pressure to offshore a
been increasing (32%), but 66% believe the pressure
business activity. Of these, 6% report that the pressure
is unchanged.
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.
Among private services sector respondents, 22% believe
the pressure to offshore has increased, but 71% see no
change and 2% identify a decrease.
Employers in the manufacturing and production and
private services sectors are far more likely to feel under
In the non-profit and public services sectors, just 8%
pressure to offshore. Among manufacturing and
and 6% of respondents respectively report an increase
production employers, 45% feel under some pressure to
in pressure to offshore, while more than 85% of
offshore, with 12% perceiving the pressure as very high,
respondents from both sectors believe the pressure is
17% as fairly high and 16% as low.
unchanged.
A total of 36% of organisations in the private services
How many organisations have offshored or are
sector are under pressure to offshore. Within this group,
considering doing so?
7% of respondents put the pressure as very high, 11%
Just over a fifth of organisations have offshored one or
as fairly high and 18% as low.
more business activity in the last five years or are
currently considering it (see Table 2 overleaf).
The survey revealed that there appears to be little
pressure to offshore business activities among
Of these, 14% of respondents report that their
organisations in the voluntary and public services
organisation has experience of offshoring one or more
sectors. Just 12% of voluntary organisations and 13%
business activity in the past five years and 7% have not
of public services sector organisations report any
offshored to date but are currently considering it.
pressure to offshore, with the level of pressure
overwhelmingly described as low.
A total of 4% of respondents have considered such an
initiative in the past and decided against it, while three-
Is the pressure to offshore increasing?
quarters say that offshoring isn’t seen as an option by
Nearly a fifth of survey respondents report that the
their organisation.
pressure to offshore has increased in the last two years,
75% report that it’s remained the same and just 1% say
Organisations in the manufacturing and production
the pressure has decreased (see Table 1 overleaf).
sector are more likely to have experienced offshoring
Offshoring and the role of HR
5
(25%) or to be considering it (9%) than the other main
Offshoring isn’t regarded as an option by the majority of
sectors. Just over 60% of respondents in the sector
non-profit organisations and public sector employers. As
don’t regard offshoring as an option for their
many as 92% of non-profit sector respondents and
organisation, while 4% have considered it in the past
94% of those in the public sector feel offshoring isn’t
and decided against it.
appropriate for their organisation. However, there is
some activity, with 6% of non-profit organisations and
In the private services sector, 18% of organisations have
3% of those in the public sector having offshored in the
offshored in the last five years and 9% are currently
last five years and 2% in both sectors currently
considering doing so. Offshoring isn’t seen as an option
considering it.
in 68% of private services sector organisations, with 6%
having considered such an initiative in the past and
decided against 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, it’s increased
19
32
8
22
6
No, it’s stayed the same
75
66
84
71
87
Yes, it’s decreased
1
0
0
2
1
Table 2: Which of the following statements best describes your organisation’s position with regard to offshoring?
Percentage of respondents
6
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
We have experience of
offshoring business activity in the
last five years
14
25
6
18
3
We haven’t offshored any
business activity before but we
are currently considering it
7
9
2
9
2
We’ve considered offshoring in
the past and decided against it
4
4
0
6
1
Offshoring is not seen as an
option for our organisation
74
62
92
68
94
Offshoring and the role of HR
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 company’s 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 company’s 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 HR’s role during the planning and implementation stage was around communication and
consultation with employees. The offshoring initiative led to 400 compulsory redundancies across the firm’s
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 company’s 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
company’s 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.
Offshoring and the role of HR
7
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
company’s 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.
8
Offshoring and the role of HR
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
Almost a third (31%) of organisations have moved or
has been carried out or is currently under
are considering moving business activity overseas as a
consideration?
direct employer.
There are essentially three different types or models of
offshoring. For the purposes of this survey report, we
have defined them as:
A quarter (26%) of respondents say their organisation
has moved or is considering moving one or more
business activity overseas as an indirect employer
• the process of outsourcing business activities or
services to a third party overseas
(for example part of a parent group that’s providing
the business activity 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 that’s 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.
Offshoring and the role of HR
9
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
Private services sector organisations are most likely to
have experience of offshoring business activities in the
offshore call centres/customer services and IT
last five years or are currently considering it as an
development. Among employers in this sector that have
option (see Table 3 opposite).
already offshored or are considering it, a third report
The business activity most likely to be offshored
offshoring these particular business functions.
they have already offshored or are considering
is manufacturing and production
A third (34%) of organisations offshoring or considering
The functions next most likely to be offshored by private
it indicate that manufacturing and production is the
services sector organisations are IT development (30%),
business activity they’re already offshoring or are likely
financial back-office support (24%), accounts (21%),
to offshore in the future.
and product development (19%).
This is followed by IT support (24%), IT development
There is also some interest among private services sector
(22%), call centres/customer services (22%), financial
organisations in offshoring manufacturing and
back-office support (19%), product development (18%),
production activity (10%), human resources (9%), and
and accounts (16%).
secretarial services/back-office support (9%).
Other business activities in which there is interest in
Of the small proportion of public services organisations
offshoring include secretarial services/back-office
that have experience of offshoring or are considering it,
support (8%) and research and development (6%).
the business activities most likely to be offshored are
The offshoring of HR services is still relatively
product development (43%) and call centres/customer
uncommon (7%).
services (29%).
From a sectoral perspective, not surprisingly, employers
Other functions that public sector organisations have an
in the manufacturing and production sector are
interest in offshoring are human resources, IT support,
overwhelmingly the most likely to have already
financial back-office support, and secretarial service/
offshored or to be considering offshoring manufacturing
back-office support.
and production activities (70%).
Among the few non-profit organisations that have
The other business activities most likely to be
already offshored or are considering it, human
offshored by manufacturing and production
resources, call centres/customer services, IT support and
employers are IT support, IT development and
financial back-office support are the functions most
product development, with 14% of organisations in
likely to be offshored.
this sector having already offshored or currently
considering offshoring these functions.
10
Offshoring and the role of HR
Table 3: Which of the following activities has your organisation offshored/is currently considering offshoring?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Manufacturing and production
34
70
0
10
0
Secretarial services/back-office
support
8
4
0
9
14
Research and development
6
8
0
5
0
Accounts
16
10
0
21
0
Financial back-office support
19
10
25
24
14
IT support
24
14
25
31
14
Product development
18
14
0
19
43
IT development
22
14
0
30
0
Insurance
1
0
0
1
0
Other financial services
3
2
0
5
0
Risk management
2
0
0
3
0
Call centres/customer services
22
8
25
31
29
Human resources
7
4
50
9
14
The relationship between the type of business
direct employer model (18%) and the indirect employer
activities that are considered for offshoring and
approach (16%).
different models of offshoring
Organisations that have offshored manufacturing and
Where HR offshoring is involved, the most common
production activities or are considering it as an option
model is offshoring the function as an indirect employer
are more likely to do so as a direct employer (41%)
(13%), followed by providing the activity overseas as a
rather than outsource the activity to a third party
direct employer (8%) and outsourcing (4%).
overseas (35%) or move the activity overseas as an
indirect employer (28%).
The CIPD has published an Executive Briefing, HR
Organisations that have already offshored IT support or
address some key questions about HR outsourcing
Outsourcing: The key decisions, to help organisations
are considering doing so are marginally more likely to
(it can be ordered from www.cipd.co.uk/bookstore).
do so as an indirect employer (28%) than as a direct
The Institute has also produced an online tool on the
employer (26%) or through outsourcing to a third party
issue entitled Outsourcing HR: A framework for decisions,
overseas (22%).
which is available to download at www.cipd.co.uk/tools
IT development offshoring is most likely occur in cases
What type of job roles are involved?
where employers provide the service overseas as a direct
Our survey has also provided information on what job
employer (26%), followed by offshoring the activity as
roles are typically involved when different business
an indirect employer (25%) and outsourcing (19%).
activities are offshored (see Table 4 overleaf).
For organisations with an interest in offshoring call
Administrative jobs are the most likely to be needed
centres/customer services, the most common approach
when customer services activities are offshored, with
to offshoring is outsourcing (30%), followed by the
22% of respondents reporting that these roles were/are
Offshoring and the role of HR
11
involved, followed by supervisory jobs (16%), technical
Technical jobs are the types of role most commonly
jobs (13%), middle management (8%) and senior
involved when manufacturing and production activities
management (2%).
are offshored (27%), followed by supervisory roles
(20%), administrative and middle management jobs
Proportionately more middle and senior management
(18%), and senior management (10%).
roles are involved when marketing, business
development and sales activities are offshored. Of the
IT offshoring also places a priority on technical jobs,
respondents commenting on this, 7% identify that
with 33% of respondents indicating that these roles are
middle management jobs are likely to be involved and
involved, followed by administrative jobs (21%),
5% indicate that senior management roles are needed,
supervisory (19%), middle management (18%) and
compared with just 3% of respondents saying that
senior management (5%).
supervisory roles are likely to be involved and 4% who
identified technical and administrative-level jobs.
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
2
8
16
13
22
Marketing/business development
and sales
5
7
3
4
4
Operations
10
13
17
20
17
IT
5
18
19
33
21
Finance and accounting
6
12
13
17
19
Manufacturing and production
10
18
20
27
18
Product development
1
4
2
9
2
Risk management
1
3
1
1
0
Research and development
2
4
3
6
3
Secretarial
0
1
4
5
8
Human resources
2
6
4
6
9
*Based on those respondents whose organisations have already offshored or are considering it
12
Offshoring and the role of HR
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
currently considering it as an option identify cost
organisations to consider offshoring. In all, 86% of
reduction as the main driver (see Table 5).
respondents whose organisations have offshored or are
Table 5: Why did your organisation consider offshoring originally?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Skills shortages in the UK
27
18
50
37
29
Restrictive regulation in the
UK/Europe
6
2
0
8
0
Joint venture with
overseas businesses
21
28
25
13
57
Economies of scale
(bringing together activities in
one location)
20
14
25
22
0
To improve level of service/
product quality
15
10
50
18
43
To access higher calibre of
employee
10
6
0
13
0
To increase focus on core business
18
26
50
10
29
To increase revenue
20
24
25
18
14
To reduce costs
86
84
50
90
14
To improve customer satisfaction
13
14
25
12
14
To improve processes
(speed, quality, accuracy, etc)
21
18
0
24
14
To gain close proximity to new
customers
9
20
0
2
0
To increase stock price
5
2
0
8
0
To access improved IT systems/
infrastructure
9
8
0
10
0
Offshoring and the role of HR
13
Skills shortages in the UK are the next most significant
Public sector employers are most likely to consider
reason for considering offshoring, cited by 27% of
offshoring as a result of a joint venture overseas. More
respondents, followed by: the need to improve
than half cite this as a reason. The other most
processes (21%); as a result of taking part in a joint
significant reasons identified by public sector
venture (21%); achieving economies of scale (20%);
respondents are: to improve levels of service; to increase
and increasing revenue (20%).
focus on core business; and skills shortages. However,
cost reduction isn’t a main driver of offshoring among
Among manufacturing and production employers, apart
public sector organisations.
from the drive to cut costs, the most significant reasons
for considering offshoring are: the result of a joint
Of the small number of non-profit organisations
venture with an overseas business (28%); to increase focus
involved in offshoring or considering it as an option, the
on core business (26%); and to increase revenue (24%).
main reasons to offshore are: skills shortages; to
improve the level of service; to increase the focus on
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.
14
Offshoring and the role of HR
core business; and to reduce costs.
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
Reasons for choosing particular offshoring
destination. More than half of respondents with an
locations
interest in offshoring indicate that they have already
When choosing an offshoring location, lower costs are
offshored to India or are considering doing so (see
the main attraction for more than three-quarters of
Table 6 overleaf).
employers, closely followed by the availability of a skilled
China is the next most common location, identified by
(see Table 7 on page 17).
workforce, identified by almost 70% of respondents
27% of respondents as a current or future offshoring base.
Other reasons for choosing a particular country to
Poland is the third most common offshoring destination
offshore to include English language capability (38%),
and the most popular European location, with 18% of
other language capability (22%), employees’
respondents having an interest in the country.
willingness to take on mundane jobs (19%), and
economies of scale, that is bringing together activities
The next most popular offshoring destinations are the
in one location (18%).
Czech Republic (12%), Malaysia (10%) and South
Africa (9%).
Additional factors also taken into account are the host
government’s support for the industry (17%), different
Manufacturing and production respondents are more
time zones, which mean that it’s easier/more cost-
likely to regard China as an offshoring location (48%)
effective to provide 24/7 services (15%); and proximity
than those from the other main sectors. Respondents
to customers (14%).
in this sector are also more likely than the survey
average to have already offshored or be considering
Manufacturing and production employers are more
offshoring in Poland (28%).
likely than those in the other sectors to look for a
Private services sector organisations are clearly the most
availability of a skilled workforce (56%), proximity to
likely to have offshored to India or to be considering
customers (24%), and the host government’s support
doing so (70%).
for the industry (22%) are also regarded as important
location to provide cost savings (82%). However, the
reasons for choosing an offshoring location.
The most popular offshoring locations among public sector
organisations are Malaysia and China.
Among private services sector organisations, the biggest
pull to an offshoring location is the availability of a
The few non-profit organisations with an interest in
skilled workforce (84%), followed by lower costs (75%),
offshoring are most likely to choose India, South Africa
and English language capability (52%).
and Poland.
Offshoring and the role of HR
15
Table 6: Which country/countries has your organisation offshored to or is in the process of considering offshoring to?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Czech Republic
12
20
25
6
14
Estonia
2
4
25
3
14
Europe
Hungary
6
6
0
5
0
Ireland
6
4
50
9
14
Latvia
3
6
0
0
14
Lithuania
1
2
0
0
0
Poland
18
28
50
13
29
Portugal
2
2
0
3
0
Romania
4
6
25
3
14
Slovakia
2
2
25
2
14
Slovenia
2
2
0
0
0
Spain
6
6
25
8
14
Argentina
2
2
0
2
0
Australia
2
2
0
2
0
Brazil
4
8
0
2
0
Canada
2
2
25
2
14
Chile
2
2
0
2
0
China
27
48
0
10
43
Rest of the world
Costa Rica
1
2
0
0
0
India
53
38
50
70
29
Malaysia
10
10
25
9
43
Mexico
4
4
25
5
14
New Zealand
2
2
0
3
0
Phillipines
6
6
25
6
14
Russia
3
4
25
5
14
Singapore
7
6
25
9
29
South Africa
9
12
50
9
29
Taiwan
2
2
0
2
0
Thailand
5
6
0
5
0
Turkey
6
14
0
0
0
Vietnam
2
2
0
3
0
125
50
4
67
7
Base (number of organisations
responding to question)
16
Offshoring and the role of HR
Table 7: What are/were your organisation’s reasons for considering that country/those countries?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Language capability
22
12
25
30
14
English language capability
38
20
25
52
29
Low levels of regulation
9
14
25
8
14
Availability of a skilled workforce
69
56
25
84
29
Host government’s support for
the industry
17
22
25
13
43
Lower employment costs/total
costs
77
82
50
75
14
Employees’ willingness to take on
mundane jobs
19
16
0
24
0
Proximity to customers
14
24
0
5
14
Better resource/asset utilisation
6
8
0
5
0
Different time zones mean that
it is easier/more cost-effective to
provide 24/7 service
15
6
0
24
0
Same time zones (as the UK)
3
2
25
2
0
Economies of scale/bringing
together activites in one location
18
18
25
19
0
To benefit from new or existing
centres of expertise
15
16
0
16
0
Superior level of service/product
quality
9
8
0
10
0
The considerations most likely to influence public sector
is more difficult (48%), the possibility of associated job
organisations’ choice of offshoring locations are the host
losses in the UK (44%), language problems (33%), and
government’s support for the industry, availability of a
the risk of disruption to supply (24%).
skilled workforce and English language capability.
Other concerns over offshoring include worries about
Non-profit organisations’ choice of offshoring locations is
data security (23%), damage to employee/union
mainly affected by factors such as low costs, availability of
relations (21%), and losing customer loyalty (19%).
a skilled workforce and English language capability.
Manufacturing and production employers are more
The disadvantages of offshoring
likely than the survey average to regard job losses in the
The biggest disadvantage associated with offshoring
UK as the main disadvantage associated with offshoring,
among organisations that have already offshored or are
with 50% identifying this as a concern.
considering doing so is the negative impact it would
have on staff morale, with 55% of respondents
Respondents in this sector identify other major
identifying this as an issue (see Table 8 overleaf).
disadvantages associated with offshoring as: a negative
impact on employee morale (48%); difficulties over
Other significant disadvantages of offshoring identified
managerial control (44%); the risk of disruption to
by respondents include the fact that managerial control
supply (36%); and damage to employee/union relations.
Offshoring and the role of HR
17
Manufacturing and production respondents are less
Public service organisations regard the main
likely to be concerned by the impact offshoring might
disadvantages associated with offshoring as language
have on how the organisation is perceived by customers
problems, political implications, managerial control, and
or on the effect it might have on the employer brand.
negative impact on staff morale.
The negative impact offshoring has on staff morale is by
The risk of disruption to supply, language problems and
some degree the biggest concern private services sector
negative impact on staff morale are the main
respondents have regarding offshoring. This is followed
disadvantages of offshoring according to respondents
by worries over managerial control, job losses in the UK
from non-profit organisations.
and negative impact on customer loyalty.
Table 8: What does your organisation see as the disadvantages of offshoring?
Percentage of respondents
18
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Security risks
17
16
0
15
29
Data security risks
23
26
25
25
14
Political risks
17
16
50
16
57
Negative impact on staff morale
55
48
50
61
29
Negative impact on customer
loyalty
19
6
25
31
14
Negative publicity
14
8
25
19
14
Negative impact on employer
brand
10
6
0
12
14
Appropriate skills not available
10
12
25
8
0
Managerial control more difficult
48
44
25
49
29
Job losses/redundancies in the
UK
44
50
25
37
14
Language problems
33
34
50
30
71
Time-zone problems
17
22
0
13
14
Risk of disruption to supply
24
36
50
15
29
Damage to employee/union
relations
21
30
0
13
28
Inferior level of service/product
18
24
0
16
0
Offshoring and the role of HR
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
Our survey has also provided information on the impact
organisations with experience of offshoring is 370. Private
offshoring business activities has on respondent
services sector organisations typically offshore the most
organisations’ UK workforces.
jobs, averaging 524, followed by manufacturing and
production employers, with 217 jobs. The number of jobs
The average number of UK jobs lost from respondent
offshored by non-profit and public sector organisations is
organisations as a result of offshoring is 180. Private
significantly lower, averaging 50 jobs for employers in
services sector employers lost the most UK jobs as a
both sectors (see Table 9).
result of offshoring, with an average of 205 job losses.
The average figure for UK job losses among
Respondents were asked to estimate what percentage
manufacturing and production employers is 171. Job
of their UK workforce they had offshored.
losses among non-profit organisations and public
Manufacturing and production organisations and private
services employers are much lower, with averages of
services sector employers have offshored on average
17 and 13 jobs respectively.
10% of their UK workforce, while the figure for nonprofit and public services sector employers is 4%.
Table 9: Approximately how many jobs has your organisation offshored?
Percentage of respondents
Number of jobs
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
100 or less
37
41
75
35
80
101–250
12
21
0
7
0
251–500
6
6
0
7
0
501–1,000
5
3
0
6
0
1,001–3,000
5
3
0
7
0
3,000 or more
1
0
0
2
0
Not stated
34
26
25
36
20
Average (jobs)*
370
217
50
524
50
Number of organisations
86
34
4
46
5
*The average was obtained by averaging the mean score for the different ‘number of jobs’ catagories.
Offshoring and the role of HR
19
How many UK jobs have been created as a result
What types of job have been lost in the UK as a
of offshoring?
result of offshoring?
In spite of the potential for job losses (see above),
Respondents identify skilled jobs as the category most
offshoring business activities also leads to the creation
likely to be lost in the UK as a result of offshoring, with
of new jobs. Among our respondent organisations, an
29% reporting losses at this level within their
average of 58 jobs were created in the UK as a result
organisation. A quarter of respondents report that semi-
of offshoring.
skilled jobs had been lost as a result of offshoring, while
19% indicate that managerial jobs had been lost,
Private services organisations benefit from the creation of
compared with 15% of organisations shedding unskilled
the biggest number of new jobs in the UK as a result of
jobs. Just 8% of organisations report that graduate jobs
offshoring, with an average of 95 jobs created.
had been lost in the UK as a result of offshoring.
Offshoring resulted in the creation of 18 new UK jobs on
Manufacturing and production employers are most likely
average among manufacturing and production
to lose managerial positions in the UK following
organisations.
offshoring, with 27% of employers in this sector
Non-profit and public services sector organisations
also more likely than the survey average to shed semi-
benefit from the creation of more jobs than they lose as
skilled (32%), unskilled (24%) and graduate jobs (12%).
reporting losses at this level. Employers in this sector are
a result of offshoring. The survey shows that on average
33 new jobs were created in non-profit organisations as
Private services sector employers are most likely to lose
a result of offshoring, compared with an average loss of
skilled jobs as a result of offshoring – 30% of
17 jobs. Public services sector organisations saw the
respondents indicate losses of this type.
creation of 25 new jobs as a result of offshoring, against
a loss of 13 jobs. This might be explained by the fact
Organisations in this sector are less likely than the
that the cost savings provided by offshoring enable non-
survey average to lose all other categories of job:
profit and public services sector organisations to recruit
managerial (13%); semi-skilled (20%); unskilled (7%);
additional UK staff to meet service needs here.
and graduate (7%).
What types of job have been created offshore?
The small number of non-profit sector and public services
Our survey provides information on the types of job
sector organisations responding to this question report
typically created offshore. Almost half of respondents say
the loss of skilled jobs only.
that offshoring led to the creation of skilled jobs overseas
and a third report that semi-skilled jobs were created. In all,
What type of job have been created in the UK as a
19% of respondents reveal that managerial and unskilled
result of offshoring?
jobs were involved in their offshoring operations, while
Managerial jobs are the jobs most likely to be created in
13% indicate that graduate jobs were created overseas.
the UK as a result of offshoring, with 19% of
respondents indicating the creation of such positions in
Manufacturing and production employers are more
their organisation.
likely to create managerial jobs offshore (24%) than
employers in the other main sectors and are also
The other types of job most likely to be gained in the UK
significantly more likely than the survey average to
as a result of offshoring are, in order, skilled (14%),
create semi-skilled jobs (44%).
graduate (8%), semi-skilled (8%) and unskilled (2%).
Private services sector organisations and public services
Private services sector organisations are more likely than
sector organisations are more likely to create skilled jobs
the survey average to see the creation of almost all
overseas as a result of offshoring, with, respectively, 48%
levels of job as a result of offshoring – apart from
and 60% of these respondents reporting the generation of
unskilled jobs. More than a quarter of respondents in
such roles.
this sector report the creation of managerial jobs and
20
Offshoring and the role of HR
17% indicate skilled jobs being created. Graduate jobs
Private services sector organisations are most likely to
had been created at 11% of organisations and
report the benefits of offshoring as being less than
offshoring resulted in new semi-skilled jobs in 9% of
expected (20%). In all, however, 39% of respondents in
private services sector employers. However, there is no
this sector report that offshoring had delivered the
evidence of new unskilled positions in this sector as a
benefits expected and 7% indicate that offshoring had
result of offshoring.
delivered more benefits than they had expected.
Manufacturing and production employers are most
Manufacturing and production employers are more
likely to create managerial and skilled positions in the
likely than the survey average to be content with
UK, with 12% of respondents in this sector reporting
offshoring – 53% report the benefits to be just as they
new jobs in these categories resulting from offshoring.
had anticipated. A total of 15% of respondents in this
In all, 6% of respondents indicate new semi-skilled
sector report disappointment with the actual benefits
and graduate positions in the UK as a result of
gained, while 6% say the benefits of offshoring
offshoring, while only 3% of manufacturing and
exceeded organisational expectations.
production organisations saw the creation of new
unskilled jobs.
Among the small number of public services
organisations responding to this question, 40% report
Public services and non-profit respondents reveal that
the benefits of offshoring to be as anticipated, 20% feel
the only type of job created as a result of offshoring is
the benefits exceeded their expectations and the same
semi-skilled positions.
proportion of respondents indicate that offshoring had
not delivered all the anticipated benefits.
Do the actual benefits of offshoring compare to
the anticipated benefits?
Respondents from non-profit organisations are evenly
Although almost a third of respondents didn’t reply to
split between those that report the benefits of
this question, nearly half of those who did, and whose
offshoring to be just as they had expected, those that
organisations had experience of offshoring, report the
are disappointed with the benefits delivered and those
benefits of offshoring as being the same as they had
for whom the benefits exceeded their expectations.
anticipated before the initiative.
How satisfied are organisations with their
However, 17% of the respondents report that the
offshoring experiences?
actual benefits of offshoring were not as great as they
More than 60% of organisations are fairly satisfied
had hoped. And, for 6% of organisations, offshoring
(48%) or very satisfied (13%) with their offshoring
had exceeded their expectations.
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?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Very satisfied
13
9
0
15
20
Fairly satisfied
48
59
50
41
40
Not very satisfied
8
6
25
11
20
Completely unsatisfied
0
0
0
0
0
Not stated
31
26
25
32
20
Offshoring and the role of HR
21
with their experience of offshoring, while no
Respondents also cite as reasons: the desire to improve
respondents reported that their organisation had been
corporate profile; concerns over disruption of supply;
completely unsatisfied with offshoring. Just over 30%
language problems with the overseas workforce; and a
of respondents whose organisations had experience of
need to distribute workloads more evenly between the
offshoring did not answer this question.
overseas and UK locations.
Has your organisation brought back to the UK
Among private services sector organisations, the top
any previously offshored activity/activities?
two reasons for bringing back offshored business
In total 15% of organisations with experience of
activities to the UK are: difficulties with managerial
offshoring have brought back to the UK business
control; and a need to improve customer loyalty. Other
activities that had been offshored.
significant factors are unsatisfactory levels of service;
Manufacturing and production employers are more
improve corporate profile.
language problems; normal business change; and to
likely to have done this (18%) than private services
sector organisations (15%).
The main factors cited by respondents from
There was only a very small number of responses to this
turnover of staff; unsatisfactory product quality;
question from public services and non-profit
disruption of supply; trouble with an outsourcing
organisations. Three of the five public services
provider; and normal business change.
manufacturing and production organisations are: rapid
organisations that responded to this question reported
that they had brought back previously offshored
Respondents from the public services and non-profit
business activities, as did two of the four respondents
organisations report difficulties over managerial control as
from non-profit organisations.
the most significant factor for bringing back to the UK
previously offshored activities. Other key factors cited by
What were the reasons for bringing previously
respondents from both sectors include: concerns over
offshored activities back to the UK?
data security; a need to improve customer loyalty; and
The most common reason for bringing back offshored
language problems.
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%).
22
Offshoring and the role of HR
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 don’t consider offshoring
Nine in ten public services sector respondents indicate
as an option is that it is not judged to be suitable for
that offshoring isn’t seen as an option because of the
the nature of the business (see Table 11 overleaf).
nature of the organisation. Other significant reasons
Among respondents whose organisations were not
why public services sector organisations don’t consider
already offshoring and were not currently considering it,
offshoring include concerns over security risks (16%);
87% indicate that offshoring isn’t suitable for their
job losses in the UK (15%); the negative impact on staff
organisation’s business.
morale (15%); damage to employee/union relations
(14%); and the negative impact on organisational
The other key reasons why organisations don’t consider
reputation (13%).
offshoring include concerns over the negative impact it
would have on morale (12%); difficulties over
Respondents from the non-profit sector are most likely
managerial control (12%); concerns over the level of
to regard offshoring as unsuitable for the nature of the
service or product quality (11%); the negative impact it
organisation – 94% say this is the case. In addition,
would have on customer loyalty (11%); and the
other factors against the use of offshoring cited by
negative impact on corporate reputation (10%).
respondents from this sector include: the negative
impact on organisational reputation (13%); concerns
In all, 84% of manufacturing and production
over the level of service (10%); and the negative impact
organisations that were not already offshoring and were
on staff morale (10%).
not currently considering it report that it isn’t 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 isn’t 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.
Offshoring and the role of HR
23
Table 11: What are the main reasons your organisation has not offshored any business activity?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Not suitable for the nature of the
business
87
84
94
86
90
Managerial control more difficult
12
13
4
14
10
Negative impact on customer
loyalty
11
12
10
12
10
Negative impact on corporate
reputation
10
9
13
9
13
Negative impact on staff morale
12
15
10
11
15
Damage to employee/union
relations
8
11
4
5
14
Job losses/redundancies in the UK
10
12
6
6
15
Security risks
8
6
4
6
16
Data security risks
5
3
0
6
8
Concerns over possible disruption
of supply
7
15
0
4
7
Concerns over cost control
4
4
2
3
5
Time-zone problems
4
4
0
5
3
Language problems
5
5
2
6
5
Too much foreign travel
2
1
0
2
2
Excessive training costs
2
2
0
2
2
Having already outsourced in the
UK
4
3
4
4
3
Concerns over level of service/
product quality
11
10
10
12
10
This question was answered by organisations that do not have experience of offshoring and are not currently
considering it.
24
Offshoring and the role of HR
Offshoring and the role of HR
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
What role should HR play during the
offshoring
pre-offshoring planning stage and what role does
Almost 60% of respondents, whose organisations
HR actually play?
have already offshored one or more business activity or
The survey asked respondents to provide information on
are considering doing so, report that HR is involved in
the role they think HR should play during offshoring as
strategic discussions about offshoring from the point
well as on the role that HR actually plays when such
the idea is first raised as an option.
projects are being planned, when they are being
implemented and once they have been completed. The
Manufacturing and production organisations are most
survey shows that respondents believe there is more
likely to involve HR at the earliest possible stage when
scope for HR involvement during all stages if offshoring
offshoring is first proposed, with 66% of respondents in
is to be managed successfully (see Table 12).
this sector reporting this to be the case.
At the planning stage for offshoring projects, 80% of
Among private services sector organisations, 56% of
respondents identify consulting with unions/employee
respondent organisations involve HR in strategic
representatives as being central to the role that HR
decisions about the possibility of offshoring from the
should be playing. Other areas regarded as integral to
point the issue is first raised.
the role HR should play during the pre-offshoring stage
are: manpower planning (75%); considering the scope
Public services sector and non-profit organisations
for employee redeployment (77%); contributing to the
with experience of or an interest in offshoring are less
internal communication strategy (78%); and identifying
likely to involve HR in early strategic discussions about
training needs (76%).
offshoring, with just over a quarter doing so.
About two-thirds of respondents also believe that at the
Is HR involved in strategic decision-making about
planning stage HR should play a role in: taking into
the introduction of offshoring?
account the implications of employment regulation both
HR is more likely to be involved once offshoring is
in the UK and overseas; helping to identify risk; and
being seriously considered and the specific
beginning work on the design and redesign of jobs
requirements of such an initiative are being
arising out of offshoring.
considered. At this stage, almost 69% of
organisations involve HR. Manufacturing and
However, there is a considerable contrast between the
production employers are most likely to involve HR at
role that respondents believe HR should play and the
this point (72%), followed by private services sector
role that HR actually plays during the planning stage for
organisations (67%), non-profit organisations (50%),
offshoring. About two-thirds of respondents report that
and public services organisations (43%).
HR actually has involvement in union/employee
consultation and discussions about the scope for
Offshoring and the role of HR
25
Table 12: In your experience, what role(s) should/does HR play during the pre-offshoring/planning stage?
Percentage of respondents
Manpower planning
Helping to identify service
delivery objectives of
offshoring proposal
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
a
75
72
50
76
57
b
57
56
50
57
43
a
35
24
50
40
57
b
17
8
0
25
0
Helping to develop timeframes
for the project
a
54
48
25
60
29
b
38
34
0
43
14
Considering scope for
employee redeployment
a
77
74
75
80
43
b
63
56
75
71
29
Consulting with unions/
employees
a
80
70
75
85
71
b
67
58
75
76
43
Contributing to internal
communication strategy
a
78
68
100
88
71
b
59
56
75
66
29
a
51
48
25
57
43
b
34
32
0
39
0
Contributing to external
communication strategy
Designing new jobs arising
from the introduction of
offshoring
a
62
60
50
61
71
b
35
30
25
37
14
Redesigning new jobs
arising from the introduction
of offshoring
a
65
54
25
70
57
b
40
36
25
42
14
Identifying training needs
a
76
70
75
79
85
b
56
48
50
63
29
a
64
50
25
75
14
b
42
30
0
55
0
a
65
58
75
70
57
b
57
52
75
63
43
Identifying risk
Anticipating employment
regulation implications
(TUPE, information and
consultation etc and/or the
requirements of regulations
in new overseas location)
KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays
employee redeployment. And only 59% of respondents
HR’s role when offshoring projects are being
indicate that HR contributes to internal communication
implemented
strategy at the pre-offshoring stage. HR is also
There is also considerable contrast between the role that
significantly less likely in practice to be involved in
survey respondents feel HR should play when offshoring
manpower planning (57%) and identifying training
projects are being implemented and the role that the
needs (56%).
function actually fulfils (see Table 13).
26
Offshoring and the role of HR
Table 13: In your opinion/experience, what role(s) should/does HR play in the implementation of offshoring projects?
Percentage of respondents
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
Contributing to the agreement
of service delivery objectives
a
29
18
25
39
29
b
13
12
0
13
0
Managing the change process
a
70
68
50
73
29
b
48
44
25
52
0
a
60
48
50
70
14
b
32
24
25
40
0
a
70
60
75
76
57
b
58
50
75
67
29
a
73
70
75
75
57
b
60
58
75
64
29
Monitoring the effectiveness
of the change process
Considering scope for
employee redeployment
Consulting with unions/
employees
Managing redundancies
a
72
64
75
78
57
b
64
56
75
73
29
Contributing to internal
communication messages
a
70
60
50
78
43
b
58
52
50
67
14
Contributing to external
communication messages
a
46
46
25
48
43
b
31
30
25
34
14
a
55
50
50
58
43
b
35
38
25
34
0
a
56
48
25
60
29
b
38
38
25
39
0
a
62
56
25
69
29
b
50
46
25
55
14
a
57
56
50
61
29
b
44
40
25
49
14
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
a
57
44
75
70
29
b
45
38
50
52
14
Managing risk
a
51
42
50
60
14
b
39
30
0
47
0
a
51
44
100
58
57
b
42
32
75
51
29
Meeting employment
regulation obligations (TUPE,
information and consultation
etc and/or the requirements
of regulations in new overseas
location)
KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays
Offshoring and the role of HR
27
In all, 70% of respondents with experience of
comes to consulting with unions/employees (73%) and
offshoring think that HR should play a central part in
managing redundancies (72%) and the role that the
managing the change process when offshoring projects
function plays in practice in relation to these matters
are being implemented, but less than half of
(60% and 64% respectively).
respondents report this as being the case in practice.
Almost two-thirds of respondents believe that HR
About two-thirds of respondents believe HR should help
should be responsible for monitoring the effectiveness
to identify training needs at this stage of offshoring and
of the change process, although this only happens in
57% see a role for the function in managing the
about a third of respondent organisations where
provision of ongoing training. However, HR is actually
offshoring projects had been implemented.
involved in identifying training needs in only half of
respondent organisations and managing ongoing
Seven in ten respondents think that HR should be
training in just 44%.
involved in considering the scope for redeployment
and in contributing to internal communication
More than half of those surveyed with experience of
messages at this stage of offshoring, while 58% report
offshoring identify the design and redesign of new jobs
this actually happening.
resulting from offshoring as two areas that HR should
be involved in at the implementation stage. In reality,
There is less of a gap between the proportion of
though, HR’s involvement in job design and redesign is
respondents who believe HR should play a role when it
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 customer’s growth plans and maintain progress on cost reduction, a
number of back-office processes that could be transferred to India were identified. The organisation’s 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.
28
Offshoring and the role of HR
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 organisation’s 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 firm’s UK managers who is on long-term assignment in Chennai, reporting to the
Indian general manager and the operations director in the company’s UK headquarters.
The firm’s 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.’
Offshoring and the role of HR
29
The role HR plays once the offshoring process has
once offshoring projects are in place include: identifying
been completed
training needs (36%); managing ongoing training (30%);
The most common role played by HR once offshoring
and developing HR policy in the new location (36%).
has been completed is in contributing to internal
communication messages, a function carried out by HR
In contrast, about half of respondents believe that HR
at 42% of organisations that have experience of
should play a central role in all these activities once
offshoring (see Table 14). However, two-thirds of
offshoring projects have been completed.
respondents believe that HR should play an ongoing
role in internal communications to help integrate
Four in ten of those surveyed think HR should help
offshoring operations once they’re in place.
develop the employer brand in the new overseas
location, though, in reality, this only happens in less
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
30
Offshoring and the role of HR
than a fifth of organisations.
Table 14: In your opinion/experience, what role(s) should/does HR play once the offshoring process has been completed?
Percentage of respondents
Helping to develop employer
brand in new location
Total
Manufacturing
and production
Non-profit
organisations
Private services
sector
Public services
sector
a
40
20
25
55
29
b
18
10
0
25
0
Recruiting employees in new
location
a
46
38
25
54
29
b
35
36
25
37
14
Retaining employees in new
location
a
46
42
25
52
29
b
32
34
25
34
14
a
62
52
50
69
57
b
Contributing to internal
communication messages
42
38
50
46
29
Contributing to external
communication messages
a
38
38
25
39
29
b
21
20
25
24
14
Developing community
initiatives in new location
a
29
28
0
30
14
b
14
18
0
12
0
Identifying training needs
a
53
52
25
54
43
b
36
32
25
42
14
a
49
50
50
50
43
b
30
26
25
36
14
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
50
44
50
60
43
b
36
34
25
42
14
a
18
12
0
21
0
b
11
10
0
12
0
a
24
24
25
25
29
b
10
10
0
12
0
a
30
26
0
31
14
b
16
14
0
18
0
a
41
38
25
45
14
b
34
36
25
34
14
KEY: (a) Role(s) HR should play; (b) role(s) HR actually plays
Offshoring and the role of HR
31
Conclusions and implications
The pressure to transfer UK-based business activities
well as the risk of disruption to the supply of services or
overseas is growing and is likely to increase further as
products. The survey shows that a significant proportion
organisations face up to the reality of increasing global
of respondents indicate that they are only ‘fairly’
competition.
satisfied with their offshoring experience, underlining
the importance of organisations understanding the
Advances in information and communication
implications of such projects.
technology mean that almost any role now has the
potential to be relocated overseas. The offshoring of
In all, 15% of organisations with experience of
manufacturing and call centre jobs has attracted most
offshoring have brought back to the UK business
of the headlines to date, but a wide range of jobs are
activities which were previously transferred overseas.
now being provided from overseas as organisations look
The most common reason is an unsatisfactory level of
to make their operations leaner and more cost-efficient
service or product quality, followed by difficulty with
and increasingly focus on their core business. IT
management control and rapid turnover of overseas staff.
development and support, accounts and financial backoffice support and product development jobs are
Other reasons for bringing offshored business activities
among the many types of role which have been
back to the UK include the need to improve customer
transferred to a growing range of overseas locations.
loyalty and trouble with an outsourcing provider.
The CIPD survey shows that so far only a small minority
These sorts of issue are reasons why it is essential that
of organisations have offshored HR jobs or are
HR takes a lead role in managing offshoring projects
considering such a move.
and, where necessary, highlighting why such a move
may not be the right one in the long term.
The range of offshoring locations is also expanding. India
remains the most likely destination but is soon likely to be
A significant minority of organisations don’t involve HR
challenged by second-placed China, where an estimated
when strategic decisions about offshoring are being
300 million people are learning English. Closer to home,
made, with the result that some of the real people
Poland, the third most popular location, underlines the
management challenges that exist are not taken into
increasing potential of the former Soviet bloc countries to
account in the excitement over the potential cost
provide low-cost offshoring locations in Europe.
savings. In many cases HR is not involved at all until the
decision to go ahead with an offshoring project has
Reducing cost is, by some way, the main driver behind
already been made. This means that there is a real
offshoring, followed by skills shortages and the need to
opportunity for greater strategic HR involvement in
improve business processes.
offshoring among many organisations.
However, organisations that decide to go down the
Organisations are more likely to involve HR in the
offshoring road focused purely on cutting costs
planning/pre-offshoring phase, but the level of
without taking account of the potential difficulties and
involvement of the function varies significantly. Our
pitfalls are likely to face considerable problems.
survey shows that there is more scope for the use of
HR expertise in early consultation with union/employee
The introduction of offshoring is liable to have a
representatives as well as in considering the scope for
negative impact on staff morale and lead to UK job
employee redeployment. At the planning stage HR
losses. Organisations must also take into account the
should also already be contributing to the internal
potential difficulties created by language problems as
communication strategy and identifying training needs.
32
Offshoring and the role of HR
Other roles that HR should play in the planning phase
vital part in developing HR policy in the new location,
include designing new jobs arising out of offshoring and
recruiting and retaining employees, contributing to
identifying potential risks, for example taking into
internal communication messages, as well as in
account the implications of employment regulation both
managing ongoing training and secondments to and
in the UK and in the overseas location.
from the new location.
The role of HR does not stop once jobs have been
The survey provides strong evidence that HR should be
transferred overseas if the level of service and/or
involved at all stages of offshoring if organisations are
product quality is to be maintained and if the right
to realise the business and cost benefits they had
employer brand is to be developed. The function has a
anticipated.
Offshoring and the role of HR
33
Background
In September 2005, a total of 10,000 questionnaires
were sent out to a sample of senior-level people
Table 15: Distribution of responses, by sector
management specialists. The questionnaire included 29
questions on offshoring covering the trends, benefits
Sector
and drawbacks associated with such projects.
Manufacturing and production
Number of
respondents
149
The survey asked questions about whether the pressure
Electricity, gas and water
3
to offshore was growing, what types of business
Engineering, electronics and metals
46
activities were most likely to be offshored, the impact of
General manufacturing
17
offshoring on jobs, as well as the business drivers
Textiles
4
behind the practice.
Chemicals, pharmaceuticals and oil
15
Mining and quarrying
3
It also included a number of questions on the role of HR
Construction
22
when offshoring was being considered, when
Food, drink and tobacco
16
offshoring projects were being implemented and once
Paper and printing
9
they have been completed.
Other
22
Non-profit
52
Housing associations
15
Charity services
18
Care services
10
Other
10
Private services
254
Professional services
67
Finance, insurance and real estate
28
Hotels, catering and leisure
19
IT services
19
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).
34
Offshoring and the role of HR
Call centres
8
Media and publishing
13
Retail and wholesale
35
Transport and storage
23
Communications
11
Other
46
Public services
141
Local government
(including police/fire)
42
Central government
(including defence)
24
Education
33
Health
26
Other public services
20
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,
Issued: January 2006 Reference: 3600
events and training courses. Please visit www.cipd.co.uk to find out more.
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Development
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