Potential offshoring of ICTintensive using occupations

1
Potential offshoring of ICT-intensive using
occupations

• UNI conference11 May 2005
• Graham Vickery
• OECD DSTI-ICCP

2
International Sourcing Terminology

• Focus on international sourcing of IT and
  ICT-enabled services (often referred to as
  offshoring)
• Offshoring includes
• Insourcing to foreign affiliates
• Outsourcing activities are contracted out to
  independent parties abroad
• Media focus is on offshoring (of jobs), but in-
  and outsourcing can also take place domestically

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Offshoring/outsourcing/insourcing
2x2 matrix based on location and control
Anecdotal evidence suggests following breakdown
Outsourcing 2/3 domestic, 1/3
international Offshoring 2/3 insourcing, 1/3
outsourcing
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International services sourcing

• Offshoring not new, but it is increasingly taking
  place in the services sector (enabled by ICTs)
  and affects white collar jobs (both high and low
  skill) previously considered untouchable
• Occurs in response to
• Increased competition, resulting from trade and
  investment liberalisation and reinforced
  pressures to cut costs, combined with rapid
  technological change, making services
  increasingly tradable
• Skills shortages ? ensuring a skills base is in
  place increasingly becomes a locational
  determinant of economic activity

5
Data and measurement issues (1/2)

• No official data measuring the extent of
  offshoring, only anecdotal evidence and
  projections
• Measurement complicated and unlikely to easily
  capture the phenomenon
• If offshoring (international outsourcing) is
  concerned with activities that were previously
  carried out within the domestic economy (within
  the firm) ? When does offshoring (outsourcing)
  stop being offshoring (outsourcing)?
• Person filling out questionnaire at the firm may
  not know that the activity used to be carried out
  in the country or within the firm
• ? measure it as a one-off event/phenomenon?
• Collection of data on offshoring will depend on
  the purpose of the data collection (what do we
  want to analyse with the data?)
• ?Are we in fact interested in all foreign
  activity?!

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Data and measurement issues (1/2)

• Use indirect sources instead
• Trade data
• Employment data
• Input-output tables
• Trade in intermediates
• But, these indirect sources can also be difficult
  to use and interpret
• Difficulties with collection of data on trade in
  services
• It is not possible to know which part of the
  trade (and investment) data is related to
  offshoring

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? Indirect measures

• Trade in services (Information Technology
  Outlook, Chapter 2 van Welsum (2004))
• if service activities are sourced
  internationally, the country receiving the
  international in- and/or outsourcing must export
  services back to the country of origin
• Employment data (Information Technology Outlook
  Chapter 6 and ongoing work on ICT skills and
  employment)
• occupations that use ICTs intensively could be
  more exposed or vulnerable to offshoring trends
• ICT-enabled services ? services production
  activities become increasingly location-independen
  t

8
Trade data show

• Imports
• Significant positive effect from production
  relocation on U.S. imports of services
• Exports
• Some of the countries often mentioned in the
  outsourcing debate have experienced strong export
  growth (e.g. India, Romania, Estonia, Ireland,
  China).
• But, the exports of most of these countries are
  growing from a low base (only India and Ireland
  are among the 10 countries with the strongest
  growth rates and the largest shares)

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Share of reported total exports of other business
services and computer and information services,
1995, 2002 (IMF BoP data)
Source 2004 OECD Information Technology Outlook,
Chapter 2
10
Growth of exports of other business services and
computer and information services
Source 2004 OECD Information Technology Outlook,
Chapter 2
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Recently released trade data for 2003 show

• Rapid growth of exports of other business and
  computer and information services for certain
  countries ? confirmation of these countries as
  offshoring locations?
• Top 15 of available OECD and selected other
  countries

But India, Mexico excluded and data are in
current USD so affected by exchange rates
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What can be learnt from employment data?

• No official numbers of jobs that have moved
  abroad only anecdotal evidence and projections
• Published numbers vary widely, but even the
  largest projections of jobs lost to offshoring
  are small in comparison to normal churning
• U.S. BLS occupational employment projections for
  2002-2012 show that
• ICT jobs are expected to continue to grow,
  despite fears of these jobs moving abroad, but
  projections have been revised downward from the
  projections for 2000-2010
• Certain other jobs, that use ICTs intensively,
  are projected to decline e.g. telemarketers,
  data entry, certain types of clerks, word
  processors and typists
• However, some of these jobs may be lost anyway as
  a result of digitisation and automation

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Potential offshoring of ICT-intensive using
occupations

• Use data on employment x occupation x industry
• Select occupations that use ICTs intensively and
  could potentially be offshored (but
  classifications are not harmonised across
  countries)
• Calculate the share in aggregate employment as
  well as at the sectoral level (i.e. across all
  sectors of the economy)
• Analysis currently carried out for EU15, USA,
  Canada, Australia (and preliminary Korea)

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• Occupations selected on outsourceability
  attributes
• Intensive use of ICTs
• Output can be traded or transmitted with the help
  of ICTs (ICT-enabled trade in services)
• Work has high information or knowledge content
• Work does not necessarily require face-to-face
  contact
• Other factors that could also be important
  (Bardhan and Kroll, 2004)
• High wage differential
• Low set up barriers
• Low social networking requirements

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Results at the aggregate level

• Close to 20 of total employment could possibly
  be affected (EU15, USA, Canada, Australia)
• For comparison other studies for the U.S.
  identify occupations/jobs at risk
• Bardhan and Kroll 11 at risk of outsourcing
• Forrester Research 44 threatened by
  offshoring
• Evolution over time the share increases in EU15
  (aggregate and individual countries), decreases
  in USA, Canada and Australia
• Possible explanations
• Offshoring
• Differences in rate and speed of technology
  adoption and integration
• EU offshoring mainly within Europe, and
  compatible with increasing employment in the
  services sector

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Aggregate illustration the share of employment
potentially affected by offshoring in total
employment, EU15, USA, Canada and Australia,
1995-2003/4
The differences in the levels are difficult to
interpret because the classifications have not
been harmonised, but the trends are revealing!
(USA 2003 is an estimate)
17
Results at the sectoral level

• Many business services have a very high share of
  employment potentially affected by offshoring, as
  do some manufacturing sectors
• Illustration for EU15, sectors with a share gt30

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Further work in this area includes

• Decompositions of employment potentially affected
  by offshoring (for example, clerical vs.
  non-clerical occupations) and analysis of
  underlying trends
• Econometric analysis of the trends of potentially
  offshorable employment
• In-depth analysis of the trade data, both imports
  and exports

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Expected impact of international sourcing

• Efficiency gains and cost savings
• Possible initial job losses in the country from
  which the offshoring originates, and job creation
  in the host country
• Greater economic efficiency, induced and enhanced
  by greater competitiveness, and increased
  productivity growth in both home and host
  countries
• Should create new employment and growth
  opportunities in the home and host countries

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Policy responses

• Avoid a protectionist response and remain
  committed to liberalising trade in services
  (including through GATS Mode 4 movement of
  persons)
• Manage the adjustment process and compensate for
  adjustment costs where necessary
• Adjust education and training programmes to train
  and retrain workers and enable them to take
  advantage of new employment opportunities
• Ensure good labour standards and welfare
  provisions in home and host countries

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Conclusions

• International sourcing is not new, but now
  increasingly affects the services sector, and
  high and low skilled jobs are concerned
• It offers opportunities to both developed and
  developing countries
• It comes with increased trade in services and
  competition, and is facilitated by rapid
  developments in ICTs ? ICT skills become
  increasingly important in the new economy
• ICT skills are widespread throughout the economy,
  but are relatively more important in services
  sectors ? ensuring their supply is crucial for
  future competitiveness
• ?Geographical dimension the development and
  diffusion of ICTs impacts the spatial
  distribution of economic activities, and the
  presence of an adequate skills base increasingly
  becomes a locational determinant

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References

• 2004 OECD Information Technology Outlook
• Chapter 2 Globalisation of the ICT sector and
  international sourcing of ICT-enabled services
• Chapter 6 ICT skills and employment
• Potential offshoring of ICT-intensive using
  occupations, Document prepared the Working Party
  on the Information Economy, Forthcoming
• OECD Observer, November 2004, No.245, p.5
• van Welsum, D. (2004), In search of
  offshoring Evidence from U.S. imports of
  services, Birkbeck Economics Working Paper 2004
  No.2, Birkbeck College, London
• Bardhan and Kroll (2004), The new wave of
  outsourcing, University of California Berkeley,
  Fisher Centre Research Report No.1103
• Forrester Research as cited by Kirkegaard (2004),
  Stains on the white collar, Institute for
  International Economics, Washington, mimeo.