Benefits January 24, 2005

Offshoring/Outsourcing Affects Overemphasized, Study Shows

January 24, 2005 (PLANSPONSOR.com) - The negative affects of offshoring and outsourcing may be exaggerated, according to a Challenger, Gray & Christmas study that ranked these reasons as last in a long list for job cuts in 2004.
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Coming in as the primary reason for job cuts in 2004 was cost cutting, according to the company’s poll, with 40% of the over 1 million jobs being cut in 2004 occurring due to this reason. Second, at 20%, was the closing of facilities, units, offices, or entire companies, according to a press release from the consulting firm.

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Out of a list of 13 reasons, offshoring – which refers to jobs operations outsourced to outside the US – and outsourcing – referring to jobs filled by an outside provider within the US – came in last, being cited as reasons for only 0.4% of job cuts in 2004. Of these two, offshoring was cited as the overwhelming reason for job termination.

Other major reasons for job cuts were reorganization/consolidation (approximately 20%), merger/acquisition (around 6.5%) and relocation (about 4%).

In 2005, Challenger expects mergers and acquisitions to account for more job terminations, as the market picks up and more companies decide to get into M&A. As these actions happen, many companies cut jobs to eliminate redundancies between companies and maximize value, according to the release. Examples of such moves in 2004 came with the Oracle/Peoplesoft and Cingular/AT&T deals. The former caused over 5,000 jobs to be terminated, while the latter is expected to cause the loss of 7,000 jobs over the next 18 months.

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