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Automating: The New Outsourcing?

14th November 2012 - Author: Harry Deacon

Beginning in the 1990’s with the true advent of the global economy, offshore outsourcing became an increasingly popular solution considered by businesses looking for new ways to reduce costs. Today its attractiveness is as strong as ever and Forrester estimates a further 750,000 UK jobs could be moved overseas by 2015.

The business benefits of outsourcing are clear. Due to cost savings, productivity and competitiveness can increase 10- to 100- fold and in a recent survey, 90% of firms cited outsourcing as crucial to their growth strategies.

Most experts agree that the greater specialisation brought about by outsourcing together with lower prices for consumers, is good for the economy in the long term. If a task can be outsourced, the person performing that task is free to apply for more higher-paying skilled positions, in a demand created by companies moving forward using money saved by outsourcing. In the year 2005, the UK was running a trade surplus in services of £33 billion, which has more than doubled to reach in excess of £76 billion in 2011.  Offshoring increases the competitiveness of the UK service industry, which at £1 trillion now accounts for 77% of UK GDP.

However the cost savings of outsourcing are shrinking as more businesses make the jump and qualified resources in developing countries become harder to find, with the demand for their skills pushing wages up. IT salaries in India are expected to rise 12% over 2012.

The scope and depth of automation software has grown in leaps and bounds over the last decade. Today many definable, repeatable processes can be automated and performed just as well as a human, freeing staff up to think and work on higher-level tasks to the point that it now poses a threat to the multi-billion pound outsourcing industry. S. Gopalakrishnan, the chief executive of Infosys, one of India’s biggest technology companies, predicts that IT automation will largely replace offshore outsourcing within the next “20 to 30 years”. 

But why wait that long? If repetitive IT tasks were automated now rather than outsourced overseas, the positive impact to employment, business and the economy could be huge.

References

http://www.economist.com/media/globalexecutive/outsourcing_revolution_e_02.pdf)
http://www.tutor2u.net/economics/revision-notes/as-macro-balance-of-payments.html
http://www.ons.gov.uk/ons/rel/naa1-rd/united-kingdom-national-accounts/the-blue-book--2012-edition/united-kingdom-national-accounts---blue-book--2012-edition.pdf
http://economix.blogs.nytimes.com/2009/11/04/should-india-worry-about-jobs

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