The Hindu Business Line : Offbeat outsourcing from Europe

Some, if not all West European Governments are gradually realising that offshoring/outsourcing is not a choice for Europe. It is a reality that they have to come to terms with, not only for their survival, but to improve their bottomlines.

Vladimir, Igor and Olga are from Ukraine and they visit us each year, from early spring to end of autumn. They labour in our garden and home for a number of hours, each week.

They are part of the enormous number of seasonal farm workers who migrate each year from Central and Eastern European Countries (CEEC) to Germany.

It is an established system of circulative labour migration without evidence of permanent immigration. Within the European farm labour market, an official and an informal sector exists. The informal sector was created because German farmers could not afford to pay the official German wages.

Cost Reductions

Seismic changes are occurring in European offshoring and offshore outsourcing, generating more trade, frequently in new sectors, goods and services. Some, if not all West European Governments are gradually realising that offshoring and offshore outsourcing is not a choice for Europe — it is a fact. That it is survival. That they are only to profit from it. And that it is an opportunity, rather than a hazard. Corporate Europe is already gearing up, with the right mindset, to gain from offshoring and offshore outsourcing.

Europe's top 500 companies could potentially save Euro 50 billion annually, or almost Euro 100 million on average per company, by offshoring many of their back-office activities.

Today, European companies are turning to established offshore resources that deliver labour cost reductions while maintaining or even improving the skill level of staff. Here are some trends.

Offshoring HR jobs

More than 200,000 human resources across Europe have moved to low-cost countries including India. The continent's top 500 companies have saved Euro 42 billion a year by offshoring back-office functions. This involves each organisation replacing an average of 300 internal HR employees with workers in countries such as India, China and the Czech Republic.

We are going to see a move towards more offshoring of HR. The savings are so overwhelming that European firms will find them difficult to ignore. Europe's acme firms have offshored IT, finance, procurement and HR. These organisations are currently focusing on data reporting, rewards administration and payroll. But, in the future, even more HR functions could be sent abroad.

HR could even go on to repeat the greatly offshored financial services industry. There is much more to happen. HR offshoring is an emergent trend, and where finance goes, HR often follows. Many more will follow.

Law Firms

European Law firms are moving jobs to offshore locations. The accounting and IT functions are expected to be outsourced as legal firms are launching shared service centres, outside Europe.

They are standardising and centralising many of the routine business processes and are looking for ways of working that provide a more flexible cost model, greater responsiveness to clients' needs, plus increased efficiency, and a better business continuity capability. A general feeling in corporate Europe is that most organisations that offshore business services have little to do with improving services and everything to do with cutting costs. Skills shortages in Europe are another reason for deciding to offshore certain functions. Deutsche Bank has already boosted revenues by over Euro 3 billion through its ongoing programme to offshore back-office jobs to India

The move highlights the growing trend to offshore high-value activities, instead of traditional areas such as call centres and IT support. By the end of 2007, the investment bank will have moved almost half of its sales and trading operation's back-office jobs — more than 2,000 — to India.

Film subtitling

First, it was banking, then it was book-keeping. Outsourcing then became more unconventional when it moved into the realm of train times and animation. Now the latest service to be offshored is film subtitling — often, with hilarious results. In a film, the phrase `flying into an asteroid field' became `flying into a steroid field'.

Present-day Europe faces challenges in the form of low productivity growth and low labour utilisation/high unemployment. European economies cannot simply opt out of either outsourcing or offshoring, and the two will substantially increase the costs to Europe.

Today, Europe, through offshoring and outsourcing, is feeling the triumph over the outside world that has raised its game, in terms of competitiveness and human talent, to new heights. This rapid development of the world around them has made European decision-makers realise that the status quo is now even less sustainable. If Europe stands still now, it will be run over.

This is evident in Europe's largest economy — Germany. The country as a whole is benefiting from rising exports. It is in the increased use of sourced intermediate goods, that Germany is already reaping some of the benefits from offshoring, offshore outsourcing, and globalisation, in general, through improved competitiveness, rising exports, and creation of higher domestic value-added.

Offbeat Offshoring

I was in Rome last week attending the International Advisory Board meeting of a well-known American bank. It took the exclusive luxury hotel where I was staying, twenty-four hours to have my suit cleaned, pressed and delivered. And the service cost me seventy euros. My haircut last month, in Copenhagen, cost me a whopping fifty euros!

A serious idea for Indians to consider would be to establish offshore dishwashers, laundries and barber-shops aboard ships, yachts, or off-shore platforms, outside the territorial waters of Europe.

(The author is former Europe Director, CII, and lives in Cologne, Germany. Feedback may be sent to mohan.murti@t-online.de)

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