APPENDIX 8
Supplementary memorandum by the Department
of Trade and Industry
OFFSHORING
INTRODUCTION
1. The issue of offshoring, ie the outsourcing
overseas, of service activities such as call-centres, back office
processing, administration and especially IT, has attracted increased
media and Parliamentary attention in recent months, following
a number of high profile announcements of work being relocated
from the UK to other countries, particularly India.
2. Globalisation and increased competition
are good for consumers and good for our economy overall, although
the Government recognises that the effects on some individuals
and communities can be painful. Offshoring, whether of manufacturing
production or of service sector activities, allows UK companies
to remain competitive, ensuring that, over the longer term, the
UK economy continues to generate new and sustainable jobs and
new business opportunities.
3. The Government takes this issue very
seriously and shares the concerns of those immediately affected
by plans to offshore services work. Safeguarding employment in
the UK is a priority for Government and this can never be achieved
through protectionism. The UK is both the second largest global
recipient of Foreign Direct Investment behind the US, and the
second largest exporter of services. We rely on open export markets
for our own services, and need to ensure that the UK remains one
that encourages businesses to invest and prosper.
4. Offshoring is not, however, a new issue.
For example, BA has been offshoring its flight ticket reservations
to India for several years. What is new is the profile that offshoring
has gained within the last year. The Government takes the view
that decisions about offshoring are commercial matters for companies.
However, we also recognise the need for both Government and business
to be ready to deal with the consequences of offshoring, for example;
redundancies, redeployment, reskilling and the regional impact
of these decisions. We also welcome the co-operation or consultation
arrangements that some companies have established with their unions
to ensure that employees are fully consulted about company plans
in this area.
5. Offshoring is not a zero sum game. Many
companies are choosing to remain in the UK or relocate here. We
welcome the announcements by those companies that have chosen
not to offshore, or that are creating new jobs in the UK.
6. Cost is not the only factor companies
are taking into account in their decisions. Quality of service
and the need to be close to their customers are other important
considerations.
THREE DTI INITIATIVES
7. We know that while it is the announcements
of job losses that hit the headlines, there is much more we need
to know about the broader picture of what is really happening.
The Government recognises the need to be better informed about
the impact of offshoring on the UK. On 5 December 2003, the Secretary
of State for Trade and Industry, Patricia Hewitt, announced three
initiatives. First, DTI published a public consultation paper
"Services and Offshoring: The Impact of Increasing International
Competition in Services", on which comments were invited
by 30 January 2004. The responses to this consultation, will,
we hope assist us in our understanding of the impact of Offshoring
on the UK economy. We will also be consulting business and unions
in order to understand more about why some firms are choosing
to offshore whilst others are choosing to stay and expand in the
UK.
8. Second, we have also commissioned a study
to examine the key factors contributing to the relative competitiveness
of the UK's Call Centre industry. Call centres are used across
a huge range of industry and service sectors and the public sector
for a wide variety of roles. Existing information largely fails
to capture the full picture—in particular there are widely
conflicting predictions and views on future growth prospects and
the potential impact of overseas competition. The study will seek
to identify the main areas of strength and weakness in the UK
industry; where UK call centres add value; the areas and activities
most vulnerable to, and affected by overseas competition; and
the potential future impact of offshoring. Analysis from the study
will help to inform any proposals for actions that can be taken
by the industry alone, or in partnership with government, in response
to the increasingly competitive global market for call centre
services. Depending on progress study findings should be reported
in April.
9. Third, Patricia Hewitt hosted a round-table
discussion on offshoring on 2 February 2004, with representatives
from trade associations, unions, academics, companies that are,
or plan to offshore, and companies that have chosen to retain
their operations in the UK. The aim of the round table was to
gain a better understanding of the issues behind the debate in
order to identify the way forward for both Government and business.
10. We aim to issue a public response to
our consultations by the end of April.
THE NEED
FOR MORE
RESEARCH
11. We have received a number of enquiries
asking whether the Government has made an assessment of the impact
of various aspects of the offshoring debate. The Government acknowledges
that more needs to be done to understand the full future potential
impact of offshoring on the UK economy.
12. For example, the Government does not
collect official statistics on the overall numbers of people employed
specifically in call or contact centres. Estimates reported in
the Labour Force Survey are, we believe, a significant underestimate
due to a number of problems of definition in the survey. Estimates
conducted by other bodies connected with the contact centre sector
are also subject to wide variation, although DTI believes that
the figure of 400,000 estimates by Datamonitor is reasonably reliable.
The DTI does not have clear information to estimate what the trend
of future employment in the contact centre sector will be. We
hope that the study into call centres will help towards this goal.
13. Other areas where further research will
be needed include:
THE WAY
FORWARD
14. Taking all this together, we hope that
by the end of April, we will have developed a clearer understanding
of the concerns surrounding offshoring, and what the Government
can and should do to address them. We hope that by consulting
with business and unions, we can work together to ensure that
those affected as a result of offshoring can obtain the necessary
support required to get them back into the workplace as soon as
possible.
15. Already, we can say that protectionism
is not an appropriate response. As one of the world's leading
service exporters, we need open export markets. At a time when
we are encouraging growth and development in developing countries,
including through the DDA negotiations in the WTO, protectionism
is not the solution. If developing countries like India can build
on their comparative advantage in these sectors to gain a larger
share of the market, their ability to trade with developed countries
increases.
16. The main direction is to make the UK
more competitive, to provide the right conditions to encourage
companies to locate, or continue to locate, in the UK.
17. The comments we receive from the three
initiatives we are already pursuing will help set an agenda for
future policy making in order to help us address the issues raised
by the current offshoring debate.
Department of Trade and Industry
February 2004
| 
