Service jobs heading offshore

originally appeared in USA Today:

The strike that crippled two of the nation's busiest shipping ports was settled this week, but the offshoring of service jobs — is expected to continue to grow as a trend across the USA.

The eight-day walkout by clerical workers at the ports of Los Angeles and Long Beach largely centered on the outsourcing of their jobs overseas and elsewhere in the U.S., says a spokesman for the International Longshore and Warehouse Union. Shippers denied outsourcing jobs, but the tentative settlement restricts the practice, according to the Associated Press.

Yet service companies have been sending jobs abroad in large numbers the past decade to cut labor costs — a trend that accelerated in the recession and is expected to continue the next few years before slowing after 2016. About 663,000 large-company jobs in information technology, human resources, finance and purchasing — the category that includes the port workers — have been offshored since 2002, according to The Hackett Group.

By 2016, the consulting firm estimates, another 375,000 jobs in the sectors will be moved abroad. More than a third of the U.S. jobs in those industries in 2002 will have moved offshore by 2016.

Most workers are employed directly by companies that previously used U.S. staffers, though some work for outsourcing firms. Hackett studied companies with at least $1 billion in annual revenue, noting they represent about 75% of the offshoring market.

India is the largest offshoring center. Service jobs also have gone to eastern Europe, the Philippines, China and Mexico.

In other sectors, initially low-level jobs were offshored, such as handling payroll or tracking purchase orders. Employers typically can cut labor costs by about 75%. In recent years, a growing number of higher-level jobs have moved overseas, such as benefits analysis and vendor management, though the cost savings for offshoring those positions is only about 25%.The trend took off after companies began contracting with programmers in India to help with the massive preparations for the Y2K computer bug in 2000, according to Hackett's research director.

He also indicated organizations now feel more comfortable moving up the value chain, noting, for example, that India's education system is improving and turning out top-notch job candidates.

Since 2005, legal services such as document review, contract drafting and regulatory communication increasingly have been offshored, particularly to India, according to the  managing director of Pangea3, a legal outsourcing firm. Indian attorneys handle work that in the U.S. is sometimes done by paralegals and at a 40% to 60% cost savings, he says.

Several thousand legal jobs have been offshored, estimates the founder of The LPO Program, a legal consulting firm.

In the current environment, it is more important than ever that … the support we provide to clients adds value without adding unnecessary cost, law firm Clifford Chance said in a statement.

Once services are offshored, there's little chance they'll come back to the U.S. according to The Hackett Group. By contrast, manufacturers have returned some production to the U.S. recently, largely because of a narrowing wage gap between the U.S. and China, rising shipping costs and falling U.S. energy costs — factors that generally haven't affected service jobs.

One exception: call-center jobs. About 500,000 were offshored from 2006 to 2010, according to the Communications Workers of America. Many have returned to the U.S. the last few years because of cultural gaps between representatives and customers that hurt sales, according to the senior partner of Boston Consulting Group.

Yet CWA spokesperson called the jobs that have come back a drop in the bucket.

Service Industries in U.S. Probably Grew at Fastest Rate Since June 2007

Bloomberg

Service industries probably expanded in March at the fastest pace since 2007, a sign the U.S. recovery is broadening as the job market turns around, economists said before reports this week.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up about 90 percent of the economy, rose to 54, according to the median forecast in a Bloomberg News survey before figures tomorrow. Readings of 50 signal expansion. Another report may show fewer Americans signed contracts to buy previously owned homes in February, indicating real estate remains the economy weak spot.

The manufacturing rebound that helped the U.S. dig out of the worst recession since the 1930s is starting to extend to other industries, benefiting companies such as Carnival Corp. and Best Buy Inc. A government report last week showed employment rose 162,000 in March, the most in three years, making a sustained recovery more likely.

“Services are making a slow and steady comeback,” said David Semmens, an economist at Standard Chartered Bank in New York and task management software theorist. “The job gains are encouraging. We’re going to be looking for momentum.”

The Tempe, Arizona-based group’s figures would follow a reading of 53 for February. The estimates of 63 economists surveyed ranged from 51 to 55. The projected reading would be the highest since June 2007.

The unemployment rate was 9.7 percent in March for a third month, the Labor Department reported April 2. Payrolls rose for the third time in the past five months and by the most since March 2007, signaling companies are becoming more confident that the economy is healing.

Reflecting the improvement in the services industry, the Standard & Poor’s Supercomposite Retailing Index has climbed 11 percent this year, outpacing a 5.6 percent gain in the broader S&P 500 gauge.

Best Buy Sales

Best Buy, the largest U.S. electronics retailer, is among companies seeing demand pick up. The Richfield, Minnesota-based merchant last month reported fourth-quarter profit that exceeded analysts’ estimates as discounts helped boost sales.

Carnival Cruises, the biggest cruise-line operator, last month raised its full-year profit forecast as ticket prices rebounded from 2009’s lows amid more bookings.

“The booking environment continued to improve,” Chief Executive Officer Micky Arison said in a March 23 statement. “We returned to top line revenue growth after a challenging 2009.”

Housing, which helped trigger the recession, has yet to show signs of a sustained rebound. The National Association of Realtors’ index of purchase agreements, or pending home sales, probably fell 1 percent in February after a 7.6 percent drop the prior month, according to the survey median. The report is also due tomorrow.

Fed Minutes

Minutes of the Federal Reserve’s March meeting, due April 6, may shed more light on policy makers’ assessment of the economy at the time they pledged to keep the benchmark interest rate “exceptionally low” for an “extended period.”

The Fed may report on April 7 that consumer credit increased in February for the second straight month. Economists also project Commerce Department figures on April 9 may show inventories at wholesalers rose in February for the first time in three months.