Expanding Opportunities: How offshoring affects the Australian Economy

Introduction

Offshoring, as a business strategy, is still considered controversial. Myths and misperceptions plague the concept that, with some simple investigation, can be quite easily debunked.
Two myths businesses are likely to encounter are that it takes job opportunities away from the local workforce and it negatively impacts on the Australian economy.

There is no doubting that it does have an impact on local jobs, but this is dependent on how the strategy is executed at a local level.

In many cases, businesses leverage offshore teams to supplement their local employees by removing time-consuming and low-value tasks.

Research conducted by leading organisations has identified that employees spend 80% of their time on low-value tasks, whereas they’re only able to spend 20% on the tasks that grow businesses – dealing with client queries, providing a high level of service or working on strategic objectives aligned with organisational goals.

Offshoring may have an impact on entry-level opportunities for new graduates, but the actual impacts on the workforce for experienced workers are negligible. In fact, offshoring actually allows businesses to scale up growth rapidly and ultimately hire more employees when it does reach critical mass.

Points to ponder

Some of the key points identified in ‘The State of Offshoring 2017’ research report include:

  • Cost pressures is the main factor driving businesses to offshore
  • Offshoring has a critical role in making businesses more competitive
  • Offshoring has a positive impact on the economy as it allows businesses to compete globally
  • There is enough local talent within Australia, however, it is not easily accessed due to cost pressures
  • There is a balanced view that offshoring impacts on local job prospects
  • Offshoring does not impact existing local employees
  • Local employees accept offshore workers willingly as it allows them to offshore process oriented tasks and focus on value-added ones
  • Turnover of employees is comparable to that of local workers
  • Lack of understanding and quality of work have stopped companies from offshoring

 

Factors driving businesses to offshore

Offshoring perhaps brings significant cost savings to most Australian companies. One good example of labour cost comparison is engaging the services of a virtual assistant. In Australia, an executive assistant could command a salary of more than $55,000 per year, and that’s not including all of the fixed costs associated with it. Compare this to around $20,000 annually for a virtual assistant based in the Philippines; the likely savings could be more than 70%.

However, offshoring involves a complex decision process which is not dictated simply by cost benefits. Although most Australian companies perceive cost pressure as main factor driving them to offshore, other important factors include gaining access to highly-skilled talent pool; and taking advantage of innovative processes and practices.

In fact, due to cost pressures and other significant factors mentioned earlier, most Australian companies resort to offshoring as key to becoming more competitive not just locally but also globally. This is due to increased profitability from cost savings garnered from labour costs and other fixed costs associated with it.

Impacts on the Australian economy

BBased on the survey conducted by Diversify, 66.67% indicated that they think offshoring does not have any negative impact on the Australian economy. In fact, as the cost of doing business in Australia continues to rise with rising labour costs, leading businesses are looking alternatives (i.e., offshoring) to become more competitive.

66.67%
33.33%
No negative impact on the Australian economy
Had a negative impact on the Australian economy

To stay competitive, businesses have started considering offshoring

Offshoring allows them to access cost-effective and highly skilled talent enabling them to enhance their competitiveness without increasing their cost bases significantly – by minimising spend on certain roles and task, businesses can invest these savings into growing their businesses, which is ultimately good for the economy in general.

60%
40%
Disagreed
Agreed

One of offshoring’s primary advantages is it brings big savings to your company

In terms of employment prospects, 40% of Australian companies felt that offshoring took a toll on them. Although majority disagreed and felt that offshoring did not negatively obscured employment prospects, it will continue to be a fairly controversial practice as certain roles and functions will continue to be offshored.

Impacts on local workforce

48.60% indicated that no local jobs were lost as offshore labour complements the local workforce through allowing them to offshore process and labour intensive tasks, be skilled or low-skilled. This in turn allows local businesses to allocate employees to strategic initiatives that deliver more value within the organisation or the client. However, it is important to take note that 24% indicated that they did not make any local employees redundant but did freeze local hiring activity.

48.6%
24.32%
16.22%
10.81%
Had no impact an no local jobs were lost
Had an impact and have stopped hiring locally
Had an impact and have not stopped hiring locally
Had to make roles redundant

Local employment benefits from an offshoring strategy

In terms of local staff acceptance, any offshoring program would only be successful if assimilating the team in, is done properly. In fact, majority of Australian companies indicated that their local staff positively responded to their respective offshore team members. It is important to take note that transparency is an essential element to successfully achieve this harmonious relationship between one’s local team and offshore team.

91.67%
8.33%
Yes
No

Local teams working well with offshore teams means increased benefits for companies

When it comes to staff turnover, more than half indicated that they felt offshore labour turnover was similar to that of local turnover.

57.76%
35.14%
7.1%
Turnover is similar
Local turnover is greater
Offshore team turnover is greater

Hiring offshore is like hiring locally but with additional advantages

Once engaged, offshore employees can become long-term, value-adding workforce that can complement the local ones.

Plans on taking offshoring as business strategy

By looking at the factors that drive businesses to offshore and the impacts on the economy and local workforce, a company that is yet to consider and still weighing in if offshoring will become beneficial to its respective business, faces grueling issues that need to be appropriately addressed.

Based on the survey conducted by Diversify, there were four primary reasons that impede their decision to offshore. The largest, of which accounts to 45.45% was due to a lack of understanding. Learning and understanding the nuts and bolts of offshoring, the political and legal implications of the country where the offshore team will be housed at, plus understanding the culture could be one of the many factors that should be included to address this issue.

Other three key issues include implementing an offshore program and quality of work which accounts for 36.36%, negative perception of offshoring 27.27%, and the language barrier 22.73%. Many of these issues can easily be linked to the general lack of understanding regarding offshoring as a practice. By learning and understanding the nuts and bolts of what it is and how it is being accomplished, will definitely help these issues be resolved.

Conclusion

In summary, the impact of offshoring towards the Australian economy implies different perspectives. But overall, offshoring does not take away jobs from local workforce and does not impede the growth of the economy; rather, such misconceptions are due to lack of understanding about what offshoring is and how it is successfully implemented.

By learning and understanding beforehand what this practice can do for your business, creating a transparent and cooperative working environment between your offshore team and local team will definitely lead to a successful offshoring program that is not only beneficial to your business but also to the economy.

Disclaimer

Australian companies used in this material pertain solely to those who answered the survey Diversify have previously conducted. This term does not represent the entirety of the companies based in Australia.

For more details on the real impact of offshoring in the country, download our report on the State of Offshoring in Australia today.

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