Study forecasts increase in relocation of smart working but warns of risks

Companies in developed economies may look to relocate so-called ‘smart working’ jobs to emerging countries in a bid to reduce cost. However such virtual offshoring comes with political and social risks that companies should consider, according to a recently released report.

The study, titled The risks and opportunities of virtual offshoring, was produced by French credit insurer Coface and sets out the drivers for relocation, the likely numbers involved and the most suitable locations among emerging nations.

The pandemic and subsequent large-scale introduction of smart working have opened new frontiers of work organisation for businesses. If delocalisation has been a particular feature of manufacturing during recent decades, the current experience may lead more businesses to consider outsourcing administrative and commercial activities too.

According to current EU data, within countries such as Italy, France, Germany or Ireland, the proportion of work that could be performed by telecommuting ranges from 35% to 40% of all jobs. This percentage increases to 40% to 43% in Sweden and Benelux.

In addition, according to figures from the International Labour Organisation, 27% of the world’s jobs could be performed through smart working in high-income countries, compared to 13% in developing nations.

Business owners are undoubtedly attracted to a strategy such as smart working that reduces costs, but it remains to be seen how and in what fields smart working may be applied if it involves staff members residing abroad.

Just as we have seen manufacturing jobs move abroad, such a change may well come to pass when it comes to more skilled roles that can be performed virtually, even if the drivers will be different.

Initial interest for virtual delocalisation may be driven by the same cost-containment goals. However, while manufacturing jobs can use a low-skilled workforce, so-called ‘intellectual’ work calls for more select personnel.

It is one thing to have people who have grown within the company, have been trained for a specific role and know the internal processes, as has been the case during the pandemic. But Looking for people with the same skills despite being completely disconnected from the company is altogether different.

Globalisation has led to some uniformity in the skills connected with the use of technological tools but differences persist in relation to work habits, contracts, operational processes, knowledge of national regulations, company procedures or communication protocols with customers.

The first step towards delocalisation and offshoring was taken many years ago by locating call centres and ICT tools abroad. The next step would involve core procedures that are much more connected to company identity and expertise. Headhunting is a completely different subject: smart working is a real opportunity in such cases, as it frees both enterprises and workers of the supply-and-demand loop in any given area.

Such a perspective may be a further key to the development of emerging economies, which can already offer a significant level of training where their intellectual workers are concerned.

In relation to the risks and opportunities of virtual delocalisation, the Coface study estimates that 160 million jobs may be shifted towards smart working in high-income economies, while 330 million workers may potentially move towards telecommuting within low- and medium-income economies.

Moving several activities towards telecommuting may bring a real economic advantage to companies in reducing labour costs. For example, if French companies were to delocalise 25% of their jobs to smart working, they would have savings of 7%, German enterprises would see savings of up to 6% and British businesses about 9%, according to Coface.

In order to identify the countries that may better comply with the features required to delocalise through smart working, Coface has set up an indicator based on four key benchmarks: human capital, labour cost competitiveness, digital infrastructure and entrepreneurial context.

A comparison with the realities of developing countries has highlighted southeast Asia as a high-potential area, especially India and Indonesia. By the same token, Brazil and Poland are also in pole position. Likewise, Russia and China could also join the club, notwithstanding the complex political relationship between these two countries and the west.

However, some geopolitical and social observations should be factored in when considering a new form of globalisation. Coface highlights how industrial delocalisation has enabled the growth of those countries providing the offshored workforce – so much so that the centre of consumption points eastwards now.

The same might happen in developing countries through the growth of a new middle class, operating from home on behalf of western companies. In contrast, economic hardship in the West may increase. Workers have already vented their political opinion on the relative benefits of globalisation and the delocalisation of jobs, resulting in political instability, increased social tensions and strengthened nationalist political parties.