March 27, 2012

New Hackett Research Forecasts Offshoring of 750,000 More Jobs In Finance, IT, Other Key Business Services Areas by 2016

  • But Levels of Offshoring Should Begin to Decline in 2014, and Cease by 2022, As Companies Run Out of Jobs to Move to India, Other Low-Cost Labor Markets

MIAMI & LONDON, March 27, 2012 - Corporations in the U.S. and Europe will move an additional 750,000 jobs in IT, finance, and other business services to India and other low-cost geographies by 2016, according to new research from The Hackett Group, Inc. (NASDAQ: HCKT). But levels of additional offshoring in these areas will begin to decline by 2014, and in the next 8-10 years the flow of jobs offshore is likely to cease, as companies simply run out of business services jobs suitable for moving to low-cost countries.

The Hackett Group's offshoring research, which examined available data on 4,700 companies with annual revenue over $1 billion headquartered in the U.S. and Europe, found that by 2016, a total of 2.3 million jobs in finance, IT, procurement, and HR will have moved offshore. This represents about one third of all jobs in these areas. India is by far the most popular destination, with nearly 40 percent of the jobs being offshored headed there.

But The Hackett Group's research sees additional offshoring levels in business services, which are currently at around 150,000 new jobs each year, leveling off or declining after 2014. The Hackett Group's research also found that of the 5.1 million business services jobs remaining onshore at U.S. and European companies in 2012, only about 1.8 million have the potential to be moved offshore, with 750,000 of those moving by 2016. So by the end of the next 8-10 years, the traditional model of lifting and shifting work out of Western economies into low cost geographies will cease to be major factor driving business services job losses in the U.S. and European.

Hackett's research also found that automation and other productivity improvements are another major factor driving job losses in business services at U.S. and European companies. Automation and other productivity improvements will have caused the elimination of 2.2 million business services jobs at these companies between 2006 and 2016, and these factors are currently driving the elimination of around 200,000 jobs annually.

"In the U.S. and Europe, offshoring of business services and the rapid transformation of shared services into Global Business Services, have had a significant negative impact on the jobs outlook for nearly a decade," said The Hackett Group Chief Research Officer Michel Janssen. "That trend is going to continue to hit us hard in the short-term. But after the offshoring spike driven by the Great Recession in 2009, the well is clearly beginning to dry up. A decade from now the landscape will have fundamentally changed, and the flow of business services jobs to India and other low-cost countries will have ceased."

Productivity, Growth and Offshorable Jobs, 2001 - 2016

CHART ABOVE - Productivity, Growth and Offshorable Jobs, 2001 - 2016

"This situation presents a challenge for U.S. and European companies, who have come to depend on increased offshoring to help drive down their costs in IT, finance, and other business services areas," said Mr. Janssen. "But other opportunities for improving efficiency still exist, particularly automation, and also end-to-end process improvements to streamline how business services are provided."

According to The Hackett Group's 2012 Key Issues research, companies are currently adapting their business models and priorities in response to economic changes in regional global markets. To be most effective, they need to fully understand the benefit that comes from adopting global standards and organizational models that allow optimal execution by leveraging both skill and scale more broadly. But the increased volatility in demand across global regions has also made it more critical than ever for companies to truly understand how each region should operate while still gaining the advantages that comes from a global process operating platform.

Hackett's research highlights two driving factors behind the offshoring trend. By far the most important force has been the consolidation of the delivery of business services into global business services (GBS) organization, as a next-step beyond shared services. Having already moved more than 50 percent of their transactional work into single-function shared services, companies are now expanding the services into non transactional knowledge centric processes, and creating multi functional GBS organizations. The second driver is the broad-based globalization of all aspects of businesses' operating model. As companies' product/service lines, go-to-market strategies and supply chains are becoming more global, the portfolio of business services needed to support these global operations have become more global as well, so the center of business services delivery no longer naturally lies in the traditional domestic market.

The Hackett Group's latest offshoring research is available, with free registration, at: www.thehackettgroup.com/research/2012/offshoring-update/.



About The Hackett Group, Inc.

The Hackett Group (NASDAQ: HCKT), a global strategic business advisory and operations improvement consulting firm, is a leader in best practice advisory, business benchmarking, and transformation consulting services including strategy and operations, working capital management, and globalization advice. Utilizing best practices and implementation insights from more than 8,400 benchmarking studies, executives use The Hackett Group's empirically-based approach to quickly define and implement initiatives that enable world-class performance. Through its REL group, The Hackett Group offers working capital solutions focused on delivering significant cash flow improvements. Through its Archstone Consulting group, The Hackett Group offers Strategy & Operations consulting services in the Consumer and Industrial Products, Pharmaceutical, Manufacturing, and Financial Services industry sectors. Through its Hackett Technology Solutions group, The Hackett Group offers business application consulting services that help maximize returns on IT investments. The Hackett Group has completed benchmark studies with over 3,500 major corporations and government agencies, including 97% of the Dow Jones Industrials, 84% of the Fortune 100, 87% of the DAX 30 and 48% of the FTSE 100.

More information on The Hackett Group is available: by phone at (770) 225-7300; by e-mail at info@thehackettgroup.com.


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