We must beware the offshoring skills wave

For some years, CEOs have sought to divest the parts of their business that have become commoditised, and therefore of limited competitive advantage, writes David Roberts, chief executive of the Corporate IT Forum.

For some years, CEOs have sought to divest the parts of their business that have become commoditised, and therefore of limited competitive advantage, writes David Roberts, chief executive of the Corporate IT Forum.

Many outsourcing and offshore firms have prospered because they offer Western CEOs the services they need, but at a cost far less than they could get at home. A perfect partnership you would think.

So why am I so concerned about the West's increasing reliance on the East to supply large portions of its business processes and IT expertise?

Caution needed

In the rush to offshore and save costs, businesses must be cautious not only of considering the East as a limitless pool of inexpensive resource, but also of weakening their home skills market should they ever need the necessary skills again.

It is clear that the honeymoon period of inexpensive IT and process expertise is coming to an end, as the price of offshoring is rising. As businesses increasingly seek to outsource to offshore providers, they must be aware that offshoring is not quite the "no brainer" solution it once was.

Local economies are creating their own demands for skills, and IT experts are learning the value they can command. Some UK companies have already moved their offshore operations back home, and in some destinations, such as India, offshore suppliers are having to pay good staff more.

This is no different to what is happening in the UK. Here, a shortage of enterprise architects means that market rates have climbed to six-figure salaries.

In India, customer relationship managers with strong language and interpersonal skills are in short supply. However, coding skills are now being bought more cheaply in Asia and China - thereby protecting and growing India's own margins.

The skills wave

This means that a "wave" of skills demand is slowly being pushed around the world. As each skills market becomes too expensive, it moves on to the next lower-cost supply base. Soon, there may be nowhere else to go.

If global price differentials even out, the demand will start coming home. If this happens, we should make sure we are in a position to benefit.

However, I fear that while a skills wave is circling the world, a skills vacuum is being left behind at home. Moving the work of 150,000 people a year to another country leaves a similar number who have to find alternative work.

For every skills wave, a corresponding trough is left behind, expressed in early retirement, re-skilling, redundancy and downsizing. And with each move east, this trough grows in size.

While there is little we can or should do to stem the skills demand that flows inexorably east, we have to ensure that if demand lands on our shores once again we are ready. Hopefully, what goes around comes around.

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