Attempts to arrest the ‘inexorable phenomenon’ of offshoring through legislation will not stop finance directors taking advantage of cheaper foreign labour, according to analyst firm Frost & Sullivan.
A study found that companies bound by legislation limiting their use of outsourcing will be put at a competitive disadvantage to those companies facing no such limitations. As a result, companies will use their multinational structures to get around the law.
‘Multinational corporations can and will use offshore subsidiaries to circumvent the law in other parts of the world when profitability is at stake, provided executives cannot be held legally liable in the home country,’ said Frost & Sullivan industry analyst Jarad Carleton.
He warned that national governments that implement rules to curb offshoring could be ‘inadvertently legislating the destruction of millions of additional jobs’.
Currently the UK has no plans to implement such rules – but experts warned that the Data Protection Act and employment issues must be taken seriously before any deals are struck.
The outsourcing of finance functions has become more popular in recent years, as companies realised the cost savings that could be made through farming out more menial tasks.
Carleton warned FDs of the importance of the stringent UK data protection laws when outsourcing areas such as invoice processing and credit control. ‘If you’re outsourcing, and not able to keep track of data, you face criminal penalties and fines,’ he said.
Deloitte research director Chris Gentle confirmed the take-up of offshoring had ‘significant momentum’, but also issued a warning to FDs. ‘You must consider the four Cs of offshoring: costs; complexity; culture; and compliance. Make sure the risks are fully understood and managed.’
Carleton said that those countries attempting to stem offshoring would be putting their own business community at a competitive disadvantage to the rest of the world and would end up ‘hobbling its own businesses’.
The Frost & Sullivan research was taken across 14 countries, including the UK, France, Germany, Hong Kong, Japan and the US. It found that job exports in the IT sector will have increased by 5.9% between 2002 and the end of 2004.
In 2004, a total of 826,540 IT jobs are expected to be exported by France, Germany, Hong Kong, Japan, the UK and the US to lower cost countries, amounting to a combined value of $51.6bn (£29.1bn).
Of the low-cost countries examined by Frost & Sullivan, including China, Brazil, Mexico, Malaysia, Poland, Romania and Russia, India emerged as the single largest recipient of IT jobs. UK businesses were found to have exported software development and testing positions abroad more than any other IT position.
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