Outsourcing and offshoring remain significant global trends of economic development. Shared service centres are more and more frequently opened in foreign countries. These trends move forward, despite the growing new and threatening political direction which has been gaining momentum during the past couple of years: some states urge bringing back jobs to native countries; partial isolation takes place (which predetermined Brexit); the presence of the rhetoric of the President of America, which immediately suggests hostility. The situation is aggravated by the potential exit of other European member states from the EU. It is very hard to forecast the way it will impact free trade in the future; however, political logics will hardly conquer business logics. Especially when the transfer of a certain activity or a functional branch is not always determined by economic purposes: often it is the way of solving the issue of staff shortage. Currently, the world becomes more and more open, while being influenced by technological progress; therefore, it is much easier to make use of emerging opportunities. A possible cause of these present trends is various interest groups, some of which are pro more openness, others want it less. It is hard to say how these trends will change, but one thing is clear: we have to be open, flexible and fast; that is why outsourcing and offshoring will become more and more topical.
Consequently, the question emerges whether this influence really becomes smaller and more companies will shift to insourcing and nearshoring, or in the future it will be the same. We will take a look at it through the prism of different circumstances and trends.
Influence of Social Trends
Social trends make a huge impact on business, as the sufficiency of employees depends upon them. The main trend is the aging of employees. For quite some time, sociologists speak about the aging of population, which will soon show its downside through the shortage of different-level experts. Even today there is a big lack of qualified, technology-wise, critically and analytically thinking employees. Another trend of the generation shift is worrisome, too: there is a fear we will lack managers in certain areas because we will not have enough time to grow new talent. Due to the rapid decline in the population, a demographic break will occur: young people will not have gained experience as the top positions are occupied, and elderly employees will withdraw from the market within next years. The level of professionalism and psychology of future generations of employees is disturbing; the current youths (Z and Alpha generations) understand work in a completely different way: they do not want to do physical jobs, they want to be appreciated and get high salaries, but in essence they are not ready to offer added value to enterprises due to the lack of experience; it is complicated to manage them; in other words, we sort of have change, but probably “softer” than we need at the moment. The systems will certainly adapt, but there will be turbulence, too. These issues will only grow bigger in the future, that is why companies will be forced to optimise operations and look for ways to attract talent from different parts of the world. The solution to these problems is obvious: either transferring part of operations to third parties which will have employees with required qualification, no matter whether they will be local or in another country, or to relocate the branches to countries which will have employees with required qualification. These trends will further influence the growth of outsourcing and offshoring – and probably geographical expansion, as companies will search for talent globally.
Influence of Political Environment
The last three years have been particularly turbulent; there are plenty of crises and tensions around the world. Apart from the usual hot spots, the events in Ukraine took place; the crises in Russia and the European Union; the exit of the United Kingdom and the growing risk of the withdrawal of other member states from the European Union. The war map has expanded greatly, which has led to the new movement of peoples, also referred to as the problem of Muslim refugees. All of these issues arose due to vast inequality of wealth, government’s disregard for ordinary people, which lead to populist parties power gain. They promise a better life, jobs brought back from abroad and strict policy. Thus global tension grows and revolutions begin. Right now we really do not live during the best of times. Supply and service chains face security problems: geography of the potential transfer of operations narrows down; politics spread unfavourable rhetoric which may affect trade, and overall global insecurity raises many questions. If this situation lasts long, it will definitely have negative influence, i.e. it is possible we shall move towards growing insourcing; the map will potentially change; the companies will seek closer or safer alternatives; processes and operations transferred to other countries might change. Politics and geopolitics are very hard to forecast; in my opinion, the above-mentioned trends will have a negative influence short-term; long-term, however, taking into consideration that trade will continue and nobody will escape it, competition will not go away as well, social challenges will have a more serious impact, all of which will encourage the growth of outsourcing and offshoring.
Influence of Sustainable Development Idea
Sustainable development is the today’s buzzword, as the green movement generally makes an increasing impact to people and business. Companies are forced to respond to the following factors: negative impact to environment; abuse of citizens in underdeveloped countries; social responsibility; reduction of pollution sources; reduction of gas emissions etc. It is necessary to change, improve and rectify operations with respect to these trends. There is still no final agreement regarding this matter; the activists point their fingers, while China and other emerging markets do not support it – even the new President of the USA argues that “people should slow down with this green movement”. It is not yet clear what path companies and different countries will take, whether they will change their supply chains, approaching their own markets, or perhaps they will invest in the infrastructure of production companies abroad and thus improve their indicators; companies will likely pay more taxes, or maybe they will leave it as it is, or make only superficial improvements. It is truly difficult to forecast, but then again, we have to consider the fact that the money is already invested and fast implementation of changes is not the strong suit of any organisation, especially because, as I have mentioned earlier, companies are transferred to other countries not only for cost-saving reasons, and salaries in emerging markets continue to grow.
Influence of Technological Trends
Many people think that technologies can solve the issue of staff shortage and their prolong their time in the labour market, but the impact of technologies is still unclear, i.e. how soon we will be reached by technologies reducing the need of staff, eg. Robots, more innovative big data and analytics etc., which will allow to complete the same work faster, more efficiently, and will allow the aging population to stay in the labour market longer. Undoubtedly, they will come at some point, but it is still not clear how soon they will reach the technological level and prices which will allow them to enter the market and be in bigger demand than live labour force. Especially when this development depends not only on technology, but also on political will, as it is very unlikely that, let’s say, today we have all the necessary technology and as of tomorrow we fire all employees and begin applying them. We should not forget and ought to take into account the resistance of various groups, like people who will lose their jobs; business which is not related to or will not have any benefit from these technologies; professional unions and many others. Surely, it will influence politicians and their decisions, even more so because looking at the global population, in my view, more people will be harmed (at least in the beginning) instead of benefitting. Therefore, politicians will try to please their electors, and, let’s be honest, through legislative mechanisms politicians may control processes related to technological development. Especially when technological development will firstly allow to use own labour force in a simpler and more efficient way and raise the level of outsourcing that is why this process will become cheaper.
So far, only large companies could use outsourcing opportunities, as it is quite expensive, particularly when opening branches in a foreign country. Due to control and quality requirements, only part of processes could be outsourced in the past; currently, technological development allows to transfer practically all processes to other countries and use all outsourcing opportunities for smaller companies, too. These processes will continue to develop, more SMEs will join and the variety of transferred processes will increase. In the past, only some production units would be transferred abroad; later IT-related operations followed; and current technologies allow transferring practically all processes – what you need is imagination. There is a growing number of companies in other countries, which provide not only production-related services, but also various operation-related ones, eg. logistics, operations, implementation, control services etc.
Influence of Increasing Competition
The main reason for companies transferring their operations to foreign countries is gaining competitive advantage. These days, competition is huge; every product has analogues; it is likely that competition will only grow in the future. International trade has reached its peak: technologies allow purchasing goods from any part of the world; logistics chains are developed to the point that products from China are delivered in less than a week. Scope, speed and growth of trade are immense, and competition is brutal. To compete effectively, it is not enough to offer good price, automated sales process by advertising on Facebook, Google, to publish an article, to receive an order, to send out a survey, to inquire if everything went smoothly or to wait until computer algorithms will bring you bunches of customers. This used to work when it was novelty, but customers know about it these days, and it is less effective, which makes it increasingly harder to make sales. In the near future, to sell goods one will have to invest more attention, effort and imagination in the quality or price of a product (unless it is a premium-class product), in consistent information, simple presentation, operative delivery and after-sales relationship. That means more processes will appear, the handling of which is smarter to transfer to a third party.
Considering the growing competition, social and economic trends, the volumes of outsourcing and offshoring should increase. The following factors impede further development: political situation in different countries of the world and the development of sustainability ideas, although we cannot directly state it will have negative impact, as it will potentially alter the map itself and will force to invest in technologies, to pay higher taxes and to increase salaries for employees in underdeveloped countries. Currently, it is popular to transfer technological processes, a part of production, transportation services etc., but continuously improving technologies already allow transferring practically all processes. Technological development and negative social trends enable to conclude that the number of transferred functions will increase together with opened functional units in foreign countries. It is already noticeable that more and more companies open their operations, technology, finance, engineering, call centres and others abroad. In the future, other centres will emerge and more companies will provide such services to foreign clients.