An End to ‘Outsourcing’ of British Jobs – Cause for Optimism?

By Dr Steven McCabe

For the last decade or so there has been a worrying trend for companies to decide to move their administrative or production facilities abroad.

 

There was no great secret as to why they did so; economics. Or more particularly the fact that workers abroad were willing to work for less.

The first to do this were banks who used the introduction of information technology to automate processes and transfer the jobs which still required human interaction to India. BT also has done so and when we had problems with our broadband a couple of years ago we were assisted by a really helpful person whose commitment to customer service was second to none.

Viewed from a corporate perspective this represented good business as reducing costs is always a major imperative to ensure you can break even.

However, announcements made in recent years by large corporations of the increasingly phenomenal profits they have made have caused some to question in whose interest the outsourcing of jobs has been in?

Given that these corporations are able to use their ability to be ‘footloose’ and are frequently accused of not paying what many consider to be their fair share of tax, they have been subject to increased hostility and opprobrium.

Some have argued that why should British people to continue to consume their services or buy their products if they persist with their strategy of closing down facilities here and putting workers on the dole?

So the news that some companies are now considering reversing the decision to move either production or administration abroad is good.

The latest to take this step is Hornby which also owns Airfix; names that evoke childhood memories of incredible train sets which I dreamed of owning and the models I laboriously put together.

For many the news that Hornby was moving its production to China and India was believed to herald the end of a once-great toymaker.

Hornby is apparently returning some of its manufacturing back to this country because the costs of producing abroad are no longer so attractive.

As companies such as Hornby are finding, Chinese workers are no longer willing to work for very low rates of pay which meant that even allowing for the costs of moving production you could make higher profits.

And this is also happening in other developing countries such as India

It’s worth acknowledging that in this country there has been a corresponding drop in the rates of pay; especially since the effects of the global financial crisis have taken hold.

Naturally whilst this is good news for job prospects in this country it has had consequences for spending on the high street which is manifested in the fact that in some areas up to a quarter of premises are vacant.

However, the positive results of what is referred to as ‘re-shoring’ can only bode well and, it is hoped, to ensure that manufacturing continues its renaissance.

As Lee Hopley who is the chief economist at manufacturers’ organisation the EEF believes the return of manufacturing jobs will assist in our economic recovery both in terms of investment in plant and new premises and, of course, any reduction in unemployment and associated increase in tax revenues.

Though there has been a recent reduction in the trade gap there is a belief that this is simply due to domestic demand declining due to continuing economic uncertainty.

Therefore it is essential that everything that can be done to assist in the revival of manufacturing is indeed implemented; including making sure that there is sufficient finance to support new companies which are engaged in developing innovative ideas.

A recently published report, Making at Home, Owning Abroad, A Strategic Outlook for the UK’s Mid-Sized Manufacturers, which was authored by Dr Finbarr Livesey from Cambridge University and Julian Thompson, Director of Enterprise at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) and supported by Lloyds Bank suggests that trend by companies to ‘re-shore’ production will continue.

The report believes that as costs of production in developing countries go up – including wages and energy used – companies that carry out design in the UK will also employ workers here to make the goods. Additionally, they argue, the advent of new forms of technology will assist.

What is really worthy of attention is this report is the belief of the authors that over the next ten years there could be a potential for an extra 200,000 jobs to be created with a consequential £20 billion reduction in the trade deficit.

However Livesey and Thompson believe that as a country more needs to be done to ensure manufacturing jobs return to this country.

So whilst there are certainly reasons to be optimistic about the revival of UK manufacturing, we must hope that everyone involved in supporting ‘re-shoring’, particularly the government, is equally enthusiastic.