UK business under pressure to relocate overseas

Companies are under growing pressure to relocate parts of their business overseas, the CBI says.

It said the benefits of offshoring outweigh the drawbacks, claiming the process increases productivity, profitability and economic growth.

Speaking at the CBI annual conference in Birmingham, Digby Jones, CBI director-general, said: “Offshoring is now part-and-parcel of doing business in the global economy.

“Make no mistake, this is a survival issue. Anyone who believes that firms have a great deal of choice are naive. Companies know if they don’t do it, somebody else will. If competitors act and they don’t respond, they may put their business at risk.

“It is short-sighted simply to see all this as a bad thing. Globalisation was made for Britain. Offshoring means greater productivity and more efficient goods and services. It also means UK jobs will be of higher quality, more skilled and in many cases more secure.

“Globalisation means that jobs will come, jobs will go and nothing remains the same forever. The challenge is to create more jobs than we lose – which we are doing – and to ensure people have the skills to take advantage of them, which remains a problem.”

A new survey by CBI and Alba – the electronic goods and power tool specialist – shows the main reason to offshore is to cut costs, followed by improving the speed and quality of services. But restrictive regulation is having a growing impact – 26 per cent of respondents currently considering a move said legislation was a reason.

Fifty-one per cent of respondents said pressure to relocate has increased over the past two years, with 21 per cent describing these pressures as “very great”. Thirty per cent said they have already taken some activities overseas and almost one in four are considering doing so in future.

The survey shows the trend increasingly extending beyond manufacturing to areas like information technology, financial services, design, research and development.

The survey confirms that China and India remain the most popular offshore locations, each cited by around half of respondents. But firms see Eastern Europe as an increasingly attractive alternative, with Poland and the Czech Republic the leading options.

The CBI says the most important reasons for choosing a country were low employment costs and the availability of a skilled workforce.

It says low-skilled, low cost labour was once the main strength of the emerging economies, but this is changing as they produce more English-speaking, highly trained, graduates.

The CBI survey shows there are drawbacks to offshoring, notably difficulties exercising managerial control and the risk of supply disruption. Smaller companies were less likely to offshore than larger companies.

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