Why your business needs to get to grips with offshoring

Every single business in Australia will become significantly affected by offshoring/outsourcing in the next five years. For some it will be at the root of their biggest expansion, but for many others, it will be the cause of their failure. The prevalence of high skills, low cost “white collar” workers in Asia will soon become recognised as Australia’s single biggest challenge in modern times.

This is NOT the shift of manufacturing jobs – that’s old and familiar news, although it continues to have a significant impact on Australia’s manufacturing sector, which is still a major employer.

Rather, we are talking here about office-based jobs: admin, finance, IT, estimating, drafting, sales support, customer service, account management, the list goes on. I could list 50 positions which are already being successfully done offshore to the same standard they can be done in Australia, and at an average of one fifth of the price of Australian wages. The big wave (volume) is about to hit. 25,000 Australian jobs went to the Philippines alone last year, and my estimates for 2014 is that it will be at least double that.

It’s tempting to think that this is “un-Australian” and that only big companies would do that, but the reality is different. Businesses of all sizes are shifting work offshore for a variety of reasons, including that it can make their businesses stronger and more efficient.

What created this perfect storm?

The availability of cheap technology to connect these remote workers and the prevalence of top quality English and education has combined to put millions of willing and skilled workers in our backyard. It was only a matter of time before capitalism determined that there were many jobs that were no longer going to be done in Australia when our wages were five times that of a comparable solution.

I try to avoid proclaiming judgements on this as either good or bad – it’s just the world we now live in, and like any other aspect of business, something we need to adapt to. It is the inevitable result of Australia wanting high living standards and cheap products and services.

Right now, there is a growing divide between Australian businesses who understand offshoring and have implemented an offshore team (perhaps years ago), and those businesses who are unaware, or who think it does not apply to them, or who make dangerously incorrect assumptions about offshore skills and ethics. That divide will soon turn into the difference between businesses succeeding or failing, and will be the reason behind aggregation in many industries, as strong globally-resourced businesses snap up weak Australian-only businesses.

What size businesses are offshoring/outsourcing?

By size, it is smaller businesses with less than 50 staff that are the fastest movers into establishing offshore resources to help build their Australian businesses. They are doing this because they get a cost advantage which helps them to grow their small businesses more rapidly and shore up their margins. They are nimble enough to move quickly. Any room of small businesses owners that I present to will typically find 20% of them have already started experimenting offshore, or have stable offshore teams.

Most large businesses already made changes a decade ago, as we recall with offshore call centres and processing centres, and they continue to optimise and grow their teams offshore. Telstra, as a great example, started with a call centre in India many years ago, and it now has over 10,000 staff in the Philippines and more shifting on a regular basis.

The medium-sized businesses are the slowest to move because they tend to have more stable margins, and they have often lost the entrepreneurial thinking which allows for experimentation and rapid shifts of strategy. The estimates from my seminars suggest only around 10% of these businesses are currently experimenting offshore, or have a stable offshore team.

What industries are offshoring office-based jobs the quickest?

By industry, the fastest movers into outsourcing and dedicated offshore teams are industries which are under margin pressures, such as construction, and manufacturing. Also moving quickly are industries which are almost entirely office-based, for example accounting, legal, recruitment and IT.

What does this mean for our businesses?

As a nation we have been very slow to recognise the threats and opportunities; in the USA these issues have been debated in Congress for many years now, while here there is still political silence.  Only last week the first significant story on the scale of the issue was broken by reporter Mike Bruce, and as the media starts to comprehend the scale of the challenge, it will eventually become one of the biggest political issues under debate.

The solutions are complex and will require re-visioning of Australia’s future within a competitive global environment. I have seen no evidence of political leadership on this topic, and very little recognition yet of the scale of the issue. For example, there are no accurate government figures that are tracking the volume of jobs going offshore. It’s a hard thing to track actually, for reasons I describe in my book, but right now there are not even any significant attempts to track it. 

But I have resolved to not wait for political leadership – we don’t have the luxury of time. I published a book over a year ago which seeks to inform all Australians on the changes ahead. Its simple language provides a common understanding for rigorous debate on how we should deal with the changes; at a national level, at a business level, and at a family level.

Having transformed my own businesses to a modern global-workforce approach, and having worked with many companies of all sizes on similar transformations, I have a wealth of insights to share with SmartCompany readers on how business has changed for all of us, and what works offshore and what does not. 

I fundamentally believe that strong, modern, profitable, Australian-owned businesses are better for Australia than weak, outdated, failing businesses which cannot compete with foreign-owned companies entering Australia with a much lower cost base. I want every business to understand these changes while they still have time to choose how they will respond to the inherent threats and opportunities.

So I am very pleased to be writing this regular column for SmartCompany, a publication which I have long respected for its very practical approach to business acumen. Over the coming weeks and months I will provide more insight into how the changes around offshoring and outsourcing will impact our businesses, how quickly the changes are occurring, and how we can adapt to the realities of the global marketplace.

Scott Linden Jones built several businesses in the IT industry since 2002. He is the founding adviser at Easy Offshore (www.easyoffshore.com.au), providing offshore educational and implementation services to Australian businesses. In 2012 he authored a book on globalism called The Third Wave.