America's largest companies could save $58 billion a year by moving nearly 1.5 million back-office jobs overseas over the next decade, according to research conducted by The Hackett Group, a business consultancy.
That translates to $116 million in annual savings and the transfer of nearly 3,000 full time-equivalent jobs abroad for the typical Fortune 500 company, Hackett says in a report to be released Nov 7. Hackett provided a summary of the report to InformationWeek.
Moving about half of general and administrative jobs abroad represents an evolution in offshoring. Until a year ago, the overwhelming number of jobs sent abroad were for short-term projects, often involving IT. Now a growing number of permanent back-office jobs are being targeted to relocate offshore. Some 15% of the Fortune 500 already offshore G&A jobs, says Michel Janssen, the Hackett managing director who headed the study.
A sign of the times, Janssen says, is the growing number of large American companies that have created in the past year executive positions such as VP of global development to address the globalization of corporate resources.
Among the job functions targeted for offshoring are: application management and technology infrastructure within IT; general accounting and revenue-cycle activities within finance; data management reporting, compliance, and payroll administration within human resources; and purchase order processing within procurement.
Janssen estimates that the 1.47 million G&A jobs that will move offshore represent about half of all G&A positions within the Fortune 500. But the savings will be less than half, proportionally speaking, compared to the number of jobs being cut. This is because most of the positions being relocated are among transactional workers at the lower end of the pay scale, he says.
About half of the workers employed in the G&A jobs moving abroad will remain employees of the Fortune 500; the other half will be employed by outsourcing firms, Janssen says.
Large companies can ill-afford to ignore the savings realized by offshoring back-office jobs. Hackett points out that offshoring could save companies nearly 60% in labor costs. "Offshoring is not a requirement of doing business," Janssen says, "but to have a cost structure that's globally competitive, it's an expectation."
A global IT infrastructure coupled with a growing, educated workforce in places like India, China, the Philippines, Pakistan, Eastern Europe, Brazil, and other emerging countries will propel this shift of back-office workers.
Size matters in offshoring back-office jobs. Because of their size, smaller companies wouldn't realize the same savings benefits as would the Fortune 500, and thus Janssen wouldn't encourage many of them to do so.