Risks and opportunities of outsourcing virtual work

Risks and opportunities of outsourcing virtual work

The Covid-19 crisis has led to a massive expansion of telecommuting. When the crisis is past, this cultural shift could keep impacting the economy. A Coface study suggests that tens of millions of jobs in rich countries are at risk of being virtually relocated to emerging countries. The rise of telecommuting has shown that what local employees did at home, foreign telecommuters can now do from home at much lower costs.

Here are the risks and opportunities of virtual offshoring, according to this research conducted by the French insurance company Coface.

160 million jobs endangered in developed countries

According to the International Labour Organization, only 13% of jobs are delocalized, while in higher-income countries such as France, 27% of jobs would be affected. The European Commission even announces a rate of 37%. Not all of these jobs can be virtually offshored, however. Some tasks require a partial presence in the office, physical contact with clients or particular skills that only domestic workers can master.

The French insurance company Coface has estimated the total number of teleworkable jobs in the developed world at about 160 million. About 330 million people in emerging countries will be able to do them.

Huge savings on labor costs

During the last decades, outsourcing their industrial plants has allowed companies to increase their productivity. However, these yields and efficiencies have been declining for several years. To continue to gain competitiveness, the relocation of teleworkable jobs to countries with lower labor costs is proving to be an excellent solution. The French company Coface has calculated that relocating 1 out of 4 teleworkable jobs to other countries would allow French companies to save 7% of their labor costs.

Many companies may be tempted by virtual offshoring because of the rise in their debt in 2020 and the easing of reluctance to telework during the crisis. In a sample of 330 large companies in the U.S., 36% said they would even consider full-time telecommuting, compared to 12% before the Covid-19 period.

A number of emerging countries are favourable to offshoring

While large-scale virtual offshoring can be a political risk for the rich countries, it can be a development opportunity for emerging economies. However, the host countries must meet certain conditions in order to make this transfer of activity a real success. They must have a good level of education, low wage costs, technological infrastructure and a legal and fiscal environment that is favourable to business.

Many countries fulfill all of these criteria. India, Indonesia and Brazil are at the top of the list because of their large number of potential teleworkers and their very competitive labor costs. Next is Poland, which offers a favorable business climate and a strong digital infrastructure. Lastly, while China and Russia are theoretically prime virtual offshoring destinations, the growing geopolitical risk and cybersecurity issues with the West will largely disqualify them.
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