Benefits March 31, 2004

Offshoring Just Keeps Getting Bigger

March 31, 2004 (PLANSPONSOR.com) - More than a quarter (27%) of all companies in a new survey expect to increase the amount of work sent offshore while 61% of those already sending work offshore report they plan to do more of the same.
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The March quarterly CFO Outlook Survey, conducted by Financial Executives International (FEI) and Duke University’s Fuqua School of Business, found that only 4% expect to cut their number of off-shore employees.

All in all, the CFOs report that their companies are satisfied with the quality of work being performed offshore. Over half (53%) say that the work quality is above average or excellent, and another 40% say it is at least average.

Offshore employment is most notable among manufacturing firms and among firms that have at least half of their sales in foreign markets. The survey found that a key driver of offshoring is to:

  • reduce wages (73%)
  • reduce health care costs (31%)
  • support overseas operations (27%)
  • expand hours of service (17%).

The jobs being sent overseas are generally low- to moderate-skill. The tasks sent overseas vary and include manufacturing jobs, tech support, programming, engineering, back-office administration, and call and data center functions, according to the survey

“The trend of increased offshore employment is worrisome from a long-run domestic employment perspective,” noted John Graham, professor of finance at Duke University and the director of the survey, in a statement. “However, so many other forces can come into play, like robust U.S. economic growth and even legislative change, that there’s no clear view on the long-term future of offshore employment.”

Also touched on in the survey was the fact that chief financial officers of U.S. companies predict higher levels of capital spending and employment growth than they have for more than three years.

An increase in capital spending is expected at 69% of companies over the next 12 months, with an average increase of 11%, more than double the 5% increase expected last quarter. This quarter’s cap-ex forecast is dramatically higher than predictions of just a year and a half ago when companies were looking at a contraction in spending.

The CFO Outlook Survey, covered 216 CFOs of U.S. companies electronically the third week of March 2004.

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