Covid-19 speeds offshoring of middle-income jobs

The secret is out: Many middle-income jobs that were previously considered impossible to ‘offshore’ can now be considered strong candidates for transfer to lower-cost markets. Shareholders need to ask the critical question about why such jobs remain in expensive locations, when all the evidence now says that those roles can be successfully moved offshore via remote working.

If Covid-19 has taught us anything, it’s that these office jobs can be undertaken entirely remotely with equivalent or higher levels of productivity (New York Times June 9th, 2020: “Miserable as it can often be, remote work is surprisingly productive — leading many employers to wonder if they’ll ever go back to the office”).

Over the last decade, many large financial services firms have honed their offshoring procedures and targeting of jobs to move, but many of these firms also hit a wall of resistance for certain types of jobs. When I worked in Banking, one of the large global firms based their offshore targeting on a ‘zero-based’ budget. In other words, each job was examined on the basis of ‘why can’t this job be off-shored?”.

Nevertheless, even using this stringent, bottom-up approach it was still difficult to break-through the permafrost of many mid-level and middle-management jobs, particularly those jobs tagged as being required to be based locally. This local category of jobs have generally been as outlined in the table below, and were retained locally for the reasons stated:

Job-types tagged as ‘local-only’Reasons previously given for retaining roles locally    
Customer face-to-face interaction  Branch-based or other local interaction
Regulator face-to-face interactionRegulator meetings, particularly for company executives and representatives
Product and Project ManagementComplexity; interaction with local providers or partners; exentsive training requirement
Human Resource Management and Training  Requiring face-to-face interviews or interaction
Handing of locally secure transactions  Such as vault management
Supervisory/Middle-management roles  Proximity to local country Executives
Property Management and SecurityManagement of local property resources  

While many of the ‘reasons’ for retaining these roles on-shore (especially when it’s within commuting distance to the regional or head-office location) have always been tenuous, Covid-19 has shown us that many of these ‘explanations’ are simply no longer valid and are really just excuses for inertia:

Job-type tagged as ‘localCovid-19 Accelerated Trend  Offshoring Impact
Customer face-to-face interaction  Social distancing and the take-up of Digital interaction has shown that the need for branch banking is shrinking fast. Reliance on online servicing has increased greatly. KPMG:  Catalyst for change for bank branches.An exchange of roles from local branch-based to digital build and support offshore.
Regulator face-to-face interactionRegulator meetings are being conducted online..This is unlikely to change, particularly at the executive level.
Product ManagementProductivity solutions such as Zoom, Skype, Slack, Teams, Asana Office360, Google Docs, and many others have demonstrated that team productivity can be maintained remotely.Remote working during Covid-19 has shown that aside from experience the majority of these roles can be off-shored. The experience required can be extensive, but it can also be trained and now their are plenty of online tools are available to help.
Human Resource Management and Training  Hiring has continued albeit at much lower levels. (HR Director: New Roles..)Remote interviewing and hiring  during Covid-19 has shown that many of these roles can be offshored.
Handing of locally secure transactions  Such as vault managementThis is unlikely to change while local secure transactions are required.
Supervisory/Middle-management roles  Productivity solutions such as Zoom, Skype, Slack, Teams, Asana, Office360, Google Docs, Sheets, Citrix Desktop, and many others have demonstrated that team productivity can be maintained remotely.Remote working during Covid-19 has shown that aside from experience the majority of these roles can be offshored.
Property Management and SecurityManagement of property resources is generally tied to the locality  This is unlikely to change while local offices are needed. The obvious question is whether local offices are required, such as the current density of branch offices, or large sprawling Head Office buildings.

So the net impact of our recent experiences of working during Covid-19 has been the discovery that a lot of these roles, previously tagged as ‘local-only’ can actually be performed just as well through the use of remote collaboration tools. Aside from any genuine requirements for face-to-face contact that can’t be resolved through Xoom, Jabber or Skype (etc), the biggest impediment cited to offshoring is usually the ‘experience gap’. But in truth, with the online tools available today and a robust training plan, the vast majority of product and project roles can be successfully off-shored.

Sometime language and culture are cited as problems, but for English speaking developed countries, finding a matching country to outsource too shouldn’t be hard. The Philippines has very good English and attitudes in the service sector, while India has good English and technical skills in the tech sector. Vietnam is another favorite where I have seen very good sucess in the tech field. Malaysia – while more expensive – and outliers such as Poland and Egypt are also potential choices. Timezone challenges can be resolved; in some crowded urban markets like Manila, many staff greatly prefer a night-shift commute.

When global financial institutions such as Insurance Companies and Banks do their 2021-2023 planning, and are looking for new cost reduction initiatives, I expect that there will be an acceleration in offshoring many of these middle-income roles. The objections that are usually given by local management against offshoring: Complexity; Productivity; Need for face-to-face interaction; Time-zone restricted; and, difficulty of training, have simply melted-away as a result of the practical experiences that many of us have witnessed since the pandemic has forced us to stay at home.

The latest generation of team collaboration and secure remote working tools has finally broken through the last defenses of local-job retention; we should expect to see a flood of new and hitherto local-only jobs moving offshore to lower cost markets. The socioeconomic impacts may be severe for the developed markets, but the secret is now out, and an accelerating trend to offshoring is unavoidable.

Shareholders deserve that firms make the best use of their capital; Financial Services CEOs need to explain why they cling to bloated head office staffing models, when the Covid-19 pandemic has demonstrated that there are no good reasons not to offshore the vast majority of these roles.