The Impact of Offshoring on the UK Service Sector Essay

The Impact of Offshoring on the UK Service Sector - Essay Example This research will begin with the statement that offshoring the labor force is an attractive way for a firm to reduce costs through the dislocation of their service sector to countries where the cost of labor 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. These jobs have in large part come from the financial service sector and the call center business has been particularly impacted. Consider that a call center representative in the UK can earn an average of  £20,000 per year, while the employee in India may earn 10% of that amount. When administration costs are added, the current savings on labor is less than 50%, and that number is expected to shrink as offshore salaries rise. With these short-term financial savings come the problems of employee morale, security concerns about co nsumer personal data, loss of customer loyalty, and reduced product quality. While research can measure the economic loss to the labor 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 to a negative view of offshoring. 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. 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 labor 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 offsho ring.