Some Possible Implications of ’Brexit’ to the Outsourcing and Offshoring Landscape

Michael Mol & Bent Petersen
Department of Strategic Management and Globalization
Copenhagen Business School

Indisputably, "Brexit" -- the UK’s forthcoming withdrawal from the EU – will have a major impact on the economic and political relations between the UK and the EU (and presumably the rest of the world as well). But how will the Brexit affect the outsourcing and offshoring landscape specifically? In this brief note we take a look into the crystal ball and try to make some educated guesses about the effects. 

Overall, we can foresee various direct and indirect effects of ‘Brexit’ – pulling in different directions and to some extent offsetting each other. We first discuss direct and indirect outsourcing and offshoring implications to UK firms and thereafter implications to firms from other countries.  

Implications to UK firms

Direct effects

The EU offers stronger regulation of labor and the environment than the UK has historically offered, and particularly more than the current UK government would like to offer. After Brexit, less protection will make it easier for firms to outsource activities, which will lead to more outsourcing. In the UK there has long been a discussion of the so-called "zero hour" contracts, and these kinds of contract are likely to flourish without EU regulation. 

Bent PetersenWe could also expect more offshoring by UK firms, to the extent that Brexit presumably will make it more difficult to employ non-British citizens onshore (i.e. in the UK). As an example, if IT people from EU-countries like Rumania and Bulgaria cannot obtain or renew work permits in the UK, some British firms may choose to offshore IT services to these countries.

In principle, people from the Commonwealth countries, including India and Pakistan, are not directly affected by the Brexit, and may therefore make up for the EU guest workers that leave the UK. However, the widespread British antagonism towards "guest workers" (perhaps the main reason for the Brexit) makes a full substitution unlikely. The possible adoption of a green card point system à la that of Australia most likely implies a more restrictive policy towards guest workers from both EU and Commonwealth countries. Therefore, UK firms will be forced to offshore more to access low-cost, high-skilled labor.  

Indirect effects

A weakening of the British Pound as a result of Brexit pulls in the opposite direction: Labor costs in the UK fall compared to those in offshoring destinations. In other words, the arbitrage advantages of offshoring diminish. It is an open question if lower labor costs will neutralize, or even outdo, the positive offshoring effect mentioned above. 

Implications to foreign/non-UK firms (including Danish firms)

Direct effects

As perhaps the most serious consequence of Brexit, non-UK firms with production subsidiaries in the UK may relocate to EU member countries in anticipation of rising trade barriers between the UK and the EU. The larger the extent to which the existing production sites in the UK are serving the EU as a whole (rather than the UK market), the higher the likelihood of relocation of these sites. As an example, the Japanese car producer, Toyota may choose to relocate its production plants to an EU country.

To our knowledge, no Danish manufacturing firms are using the UK as a production ‘hub’ for the European market. Major production units in the UK operated by Danish MNCs, such as Arla and Carlsberg, are mainly serving the British market. Thus, the Brexit is unlikely to trigger a relocation of these production sites.

Indirect effects

Over time, the UK will adopt a different regulatory regime. Again, the wish not to follow all EU regulations was a big driver of Brexit votes. This means that firms will have to start to consider the EU and the UK as separate markets, each with their own rules. Offshoring operations will have to follow suit, so firms will be setting up two parallel operations, one for the EU and one for the UK. 

TON at LEGO: Peer Learning in Outsourcing and Offshoring

We shared an active and engaging day at our latest TON program which was hosted by LEGO at their headquarters in Billund, Denmark.

Our peer-learning network of client organisations had a chance to hear about LEGO’s learnings from their journey through outsourcing and offshoring in addition to input from Xellia Pharmaceuticals, IO Interactive and Arla Foods. Our LEGO Serious Play session encouraged us individually to use LEGO bricks to express our insights to truly successful outsourcing and offshoring.

Using LEGO bricks, we first expressed “The Manager From Hell” and then “The Most Important Learning From Working With Outsourcing and Offshoring.” While it will surprise few that the first exercise produced evil-looking figures holding whips, the second exercise developed metaphors such as building bridges, connecting over distances, and setting a vision.Truly a highlight. 


IAOP's European Outsourcing Summit Takes On Contracting and Technology Developments

Outsourcing is hitting record levels in Europe, with more contracts than ever before. By some counts volumes are ahead of those in the US as a whole. In Europe, the focus on smaller but more numerous deals is being driven by increased use of multi-sourcing and the impact of automation. European buyers are seeking shorter and smaller contracts with niche providers as well as avoiding larger, longer-term contracts as they plan their digital strategies amid a wave of new technologies and operating models. 

These and other trends will be key session topics at the IAOP's 2016 European Outsourcing Summit (EOS16), part of the Outsourcing World Summit Conference Series, taking place November 6-8 at the Renaissance Hotel and Conference Centre in Amsterdam.

"We have sessions on everything from governance and selecting vendors in the EU to working with the Y and K Generations," says Amanda Safdar, IAOP's Director of Global Events.

IAOP’s Nordic Chapter will be leading a panel on sourcing and procurement strategies. There are also breakouts focusing on The State of the Industry in Benelux as well as Outsourcing in Germany.  Additionally, a keynote session will focus on Outsourcing Regulations in Europe. The global consultancy ISS will present its "2020 Vision – The Future of Services" in a separate keynote.

The agenda includes a networking lunch being held in the exhibit area, as well as a Welcome Reception on Monday evening.  IAOP’s Awards Luncheon and Farewell cocktails are scheduled for Tuesday.

Details are here...

IAOP Schedules COP Master Class at ISS in Copenhagen, Dec. 5-7

The International Association of Outsourcing Professionals (IAOP) will conduct its Certified Outsourcing Professional (COP) Master Class, December 5-7, at the offices of ISS, Buddingevej 197, 280 Søborg, Copenhagen.

The COP Master Class and Outsourcing Governance Workshop training are designed for outsourcing customers, providers and advisers at all levels. This intensive training integrates project management, shared services and outsourcing best practices with the Outsourcing Professional Body of Knowledge (OPBOK), to enable participants to understand how to implement a common framework within their own organizations and build collaboration to ensure outsourcing success.

Professionals work together using electronic Project Plan Templates that leverage IAOP’s Big Bank Case Study.

Participation in the COP Master Class includes:

  • A seat in the 3 day COP Master Class
  • Breakfast, lunch and daily snacks and refreshments
  • All printed class material
  • Electronic copy of the Outsourcing Professional's Body of Knowledge (OPBOK)
  • Electronic templates from the OPBOK

Click to download the Master Class brochure from IAOP

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