One of the central planks of globalisation – offshoring – has been found to have no effect on unemployment and on the whole boosts jobs in the home country.
A study of nearly 6,000 European service multi-nationals by Nigel Driffield, of Warwick Business School, Vijay Pereira, of the University of Wollongong, and Yama Temourib, of Aston University, found no evidence that offshoring – the relocation of part of the business to another country – led to an increase in unemployment at home.
In fact, since the global financial crisis in 2007-08 the researchers found offshoring led to an uplift in employment for the company on its home soil.
Professor Driffield said: “Unsubstantiated claims of loss of employment due to offshoring have played a part to the UK voting for Brexit and the rise of right wing protectionist governments across the world, so it is imperative that we have some proper evidence on the issue.
“Most research has been on manufacturing companies, but with the service sector making up around 80 per cent of UK employment we have focused on services.
“Thus, we have looked at thousands of multi-national firms across Europe over a near 20-year period and calculated the impact of their offshoring activities.
“Not only is there no evidence of a reduction in employment at home, but on the whole offshoring in these sectors led to an increase in employment at home, particularly after the financial crisis.”
The study, Does offshore outsourcing impact home employment? Evidence from service multinationals, due to be published in the Journal of Business Research, investigated the impact of offshoring by 5,746 European multi-nationals from 1997 to 2016, so taking in the pre-crisis and post-crisis periods.
These companies – ranging from retailers and hoteliers to financial services and telecommunications – offshored to 9,416 subsidiaries in 87 countries around the world, with Germany, Spain, France and Sweden hosting the majority of parent firms (66 per cent) followed by Belgium, Denmark, Finland and the UK.
They found the vast majority of the subsidiaries – 7,635 – were located not in developing countries, but in high income economies in Western Europe, North America or Japan and Australia.
Professor Driffield and his colleagues also found companies offshoring to move into a new market, such as Walmart opening branches in another country, actually saw employment grow in their home country. These ‘location intensive’ firms make up 62 per cent of the multi-nationals studied.
Interestingly, offshoring by ‘information intensive’ companies – those with high levels of technology and knowledge like a UK advertising agency opening an office in Frankfurt – saw a drop in employment when offshoring before the financial crisis, but since then it has not impacted on unemployment.
“Since the financial crisis these ‘information intensive’ companies have engaged in labour hoarding to avoid the impact of skill shortages,” said Professor Driffield. “The study also shows that is worthwhile policymakers encouraging ‘location intensive’ service firms to invest abroad, particularly in high income countries as that will generate more employment back home.
“It is possible that the effects of offshoring on jobs are being felt on the companies’ supply chain and this needs investigating.
“But our results suggest something of a breakdown of the traditional models of ‘job exporting’. In the short term, this is perhaps driven in the West by skill shortages, and the reluctance of firms to shed scarce labour.
“In the longer term, however, we may see a return to the pre-crisis norm, especially if higher levels of protectionism force firms to move nearer to their customers.”
Warwick Business School, located in central England, is the largest department of the University of Warwick and is triple-accredited by the leading global business education associations – the first in the UK to attain this accreditation. Offering the full portfolio of business education courses, from undergraduate through to MBAs, and with a strong Doctoral Programme, WBS is the complete business school. Students at WBS currently number around 6,500, and come from 125 countries. Just under half of faculty are non-UK, or have worked abroad.
Nigel Driffield is a Professor of International Business at Warwick Business School, having held a similar post at Aston Business School for 10 years. He is also Deputy Pro Vice Chancellor for Regional Engagement. As well as pursuing academic research, Professor Driffield works with a number of stakeholders, both locally and nationally on issues relating to inward investment and economic development. He was on the Executive for the (Heseltine) Greater Birmingham Project with the Greater Birmingham and Solihull Local Enterprise Partnership, and held a similar role in the production of the Strategic Economic Plan. Professor Driffield is also on the editorial review board of the Journal of International Business Studies, and was a member of the Management and Business Panel for REF2014. He has held 5 ESRC awards, and has carried out research and consultancy projects for UNCTAD, OECD, World Bank, European Commission, and in the UK several Government Departments including UKTI and BIS, and several local Regional Development bodies in the UK and elsewhere.