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Reserch results indicate that offshoring of IT is a reality for many Swedish companies today. There is nothing indicating a decrease, rather the contrary; statistical as well as qualitative evidence points towards an increasing trend in offshoring. Sweden is a country with a long history of being open to the world. But are we doing enough to meet and to take advantage of this new wave of globalization? The conclusion of this report is that there are policy areas where actions should be considered.
In the Anglo-Saxon world especially, there have been widespread fears of job losses when firms increasingly relocate production to low-cost countries. In Sweden, the debate is still fairly limited even though there seems to be an increase lately.
What do we know of what types of jobs and markets that are affected? Which are the main motives and driving forces for Swedish companies that offshore activities? What are the experiences of Swedish companies? What do we know of the consequences of offshoring and what are the benefits and challenges for Sweden?
There are a number of factors that drive the new trend of offshoring of services: technological development has lowered the price of communications and made it possible to transmit digitized information across the globe, trade and markets have been liberalized and the supply of well-educated, often English-speaking labor has become available.
Many studies also point to the beneficial effects of offshoring, leading e.g. to increased competitiveness for the firms that offshore part of their production.
Even though we have no statistical evidence, most activities offshore seem to be lower level development tasks. Judging from the development in the U.S, it is not unlikely that we will see an increase also in higher level tasks and R&D.
When it comes to the particular Swedish market, there is a need to make it a market characterized by high levels of competence. The importance of creating a sophisticated and demanding home market for IT services is underlined. And also, Sweden must continue to strive for open markets, embracing the labor market, production as well as in education. And if Sweden wants to lead the competition, there is a need for dynamic and innovative environments where Swedish companies, in cooperation with the public sector and foreign talent, can create new ideas and new innovations, thus climbing the value chain.
“The Swedish IT and telecoms industry is one of Sweden’s most important industries. IT and telecommunications play an important role in promoting innovation, employment and exports within business and the public sector.”
“The international competitive IT and telecoms industry in Sweden contributes to Sweden’s world-leading position as an IT society. One important foundation for this is constituted by the breadth of the home market and its demanding and advanced customers, who power products, services and systems providing high customer benefit. The industry has developed strong positions and alliances in the global market and in the international development of knowledge. This is demonstrated by new products and services for export and a world-leading position within telecommunications. The industry is thereby contributing to growth, employment and a sustainable society in Sweden and globally.”
IVA — the Royal Swedish Academy of Engineering Sciences — has initiated a project called “IT without borders”.The objective is to discuss and formulate a basis for decisions on actions that can contribute to improving Swedish competitiveness in the ICT field. Particular attention will be paid to education and research.
According to Dunning, there are three main motives as to why an enterprise may choose to locate activities abroad. First, a company can choose to relocate in order to profit from lower costs at other locations. These may be costs related to labor or other production costs. Second, the motive can be primarily related to the access to new and/or growing markets. And third, the relocation can be due to the fact that the company is looking for special competencies, advanced technologies, good infrastructure etc.
First, technological developments have lowered the price of communications and made it possible to transmit digitized information. It is now possible for companies to work on common projects, 24 hours a day in different locations around the world. Certain tasks are also becoming more standardized, making them easier to be performed at a distance which leads to greater location independence.
A third factor is that in some of these and other countries there is an abundant supply of well-educated, skilled and often English-speaking labor. In a report on the Emerging Global Labor Market, McKinsey estimates that, in theory, eleven percent of worldwide service employment, translating into 161 million jobs out of 1,46 billion service jobs, could be performed remotely in low-wage countries.
Looking more closely at the IT services sector, McKinsey estimates that this sector will relocate jobs offshore to a higher degree than the average. Of the 160 million potentially offshored jobs, 2.8 million are found in the IT services sector which is equivalent to 44 percent of the employment in this sector. In 2003, the estimated offshore> employment was 371 000, a number that was expected to increase to 700 000 by 2008.
The competence motive, to get access to competence that is not available in the home market, does not seem to be a major reason to offshore production either. If the issue of competence is mentioned it is not that the specific competence is not available in Sweden but rather that the price is too high, hence it is actually an issue of cost. Since the bubble burst in Sweden at the beginning of 2000, the supply of labor is generally considered to have been sufficient. However, it is beginning to show that the Swedish market is picking up, wages are on their way up and it is beginning to be more difficult to recruit key personnel.
From IT-using sectors we also hear that the IT-suppliers themselves are driving outsourcing and offshoring. Companies should focus on their core business and should not deal with IT, the argument goes. Once again, cost-cutting that has been central to many offshoring discussions is attractive to any board.
On the question of where production is located today and what regions will be of interest in the future, there were no surprises. Countries like India, China, the Baltic states, and Russia are mentioned.
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