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You have kindly invited me to talk to you today about off-shoring. This
is an issue that is making headlines in the UK and other countries, with
announcements of planned moves to relocate work abroad, particularly
plans to move call centres to places such as India and China.
The resulting job losses in the UK have raised a number of
justifiable concerns, particularly from the very people who are losing
them. Much emphasis was placed on this by the Secretary of State,
Patricia Hewitt, at the recent CBI Conference.
And of course the Government very much shares the concerns from those
immediately affected by plans to offshore services work. We take the
local employment effects very seriously.
But we need to put all this into perspective. What you see in the
media is not the whole story. Nothing is written there about the number
of jobs created by companies choosing to locate in the UK. Or the number
of companies that look at outsourcing and choose to stay. The UK is the
second largest global recipient of Foreign Direct Investment behind the
US. In the year 2002 to 2003 alone, inward investment created over
34,000 new jobs in the UK.
We read about 4,000 back-office jobs being relocated to the Far East
by HSBC, but not the 1 million people employed in the UK financial
services sector.
We read about call centres being moved abroad, but we have 5,500 call
centres in the UK employing around 400,000 workers. The UK's strong IT
and telecommunications infrastructure is probably the reason why
companies like Arvato, Vertex and ING are choosing to expand their
customer service centre operations in the UK.
The service sector is one of the UK's strengths - there are over 2
million more service sector jobs now than in 1997, helping to ensure we
have one of the highest employment rates in Europe. But to remain
competitive, companies are forever looking at ways of reducing their
costs. This is one reason why companies look carefully at their location
decisions and may consider locating some of their activities abroad -
although the recent survey by the CBI indicated that less than half of
UK companies have even considered off-shoring, and even fewer have
actually undertaken any off-shoring.
Companies' decisions about where to locate - as many of you will be
aware - are very complex. Cost factors are not the only consideration.
Falling communication costs, coupled with the spread of technology
across developing countries, has made it easier for some service sector
activities to be provided across long distances and international
borders. But the vast majority of service sector activities cannot be
undertaken abroad because they are produced and consumed locally;
activities such as haircuts or restaurant meals require that suppliers
and consumers need to meet face to face.
Plus some companies - like Dell - that have tried outsourcing have
found that it doesn't work for them, and have taken operations back to
their home countries. Others believe that a local presence in the
market, in which they are in contact with their customers, is more
valuable to them than the immediate cost savings from relocating work.
It is worth noting that off-shoring is affecting countries like the
US and UK more than others. This may be due to the advanced nature of
our service sectors and the more highly developed competitive climate in
which services are provided. It may be due to language, and the fact
that English is a more internationally used language, so services such
as call centres are more susceptible to offshoring than other services
and other countries. Where job losses do occur, we must do everything we
can to help people find new jobs and, if necessary, new skills as
quickly as possible, calling on the services of Job Centre Plus, and
their Rapid Response Service.
We are just beginning to understand all this and weighing up its
implications. And in order to do this, we need to speak to those
involved on all sides, to draw on their varying perspectives and
knowledge. We are planning to hold an internal seminar soon to
brainstorm the issue, to which we will be inviting the CBI, unions and
others to help us collectively understand the issues, consequences and
potential policy responses. And we are planning to publish a paper very
shortly which will discuss the economic issues surrounding off-shoring,
which will identify a number of key areas for further research -
including improving our understanding of which areas and groups will be
most affected, and how best to equip the UK economy to respond to the
challenges.
Protectionism is clearly not the right response. UK exports are worth
£270 billion a year - including £86 billion of service exports - and
many jobs depend upon open markets abroad. Given its leading position as
a global exporter of services, we need to keep pressing for further
opening up of markets for our exports. We cannot therefore at the same
time adopt a protectionist response to off-shoring at home.
Moreover, as a Government we are committed to the development of the
poorer nations in this world, which is why we have strongly pushed for
reform of inequitable world trading arrangements. We cannot now sanction
a protectionist approach that would only harm these developing economies
- as well as the UK.
Nor indeed could we stop companies from outsourcing. This is a
commercial decision, and companies will relocate whatever action we
might be minded to take consistent with our EU and international
obligations.
Instead, we need to enable and encourage firms in the UK to invest in
new technology, workforce skills and to move into advanced, high value
activities. We need to continue to make the UK an attractive place to
invest and do business.
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