Moving German Service to Foreign Shores

In the early 1900s, Henry Ford revolutionized manufacturing when he introduced the assembly line to build cars. The 1980s saw the next revolution: subcontractors took over part of the manufacturing process. Outsourcing has now taken hold of the service sector, where it's called "offshoring." Deutsche Bank and the IT organization BITKOM presented a study on the effects of this change for the German workforce on Tuesday in Berlin that suggests that German IT students may want to shift their emphasis.

Germany's offshoring sales volume currently amounts to about 600 million euros ($723 million). An increase of more than 20 percent is expected over the next five years, and it's a development that can't be halted, according to BITKOM Vice President Jörg Menno Harms.

"We can decide whether we want to react to globalization passively -- as victims -- or actively by having a say in the future division of labor in the world," Harms said. "Offshoring shouldn't be a taboo topic. We've got to acknowledge that companies use offshoring to keep up and to improve their international competitiveness."

Due to the change, young computer scientists with fresh degrees in hand are likely to discover they can only get work in the sector as highly specialized experts with experience in project management or as consultants and customer advisors. Mere programmers are simply not needed in Germany, since their work is now done in India, Ireland and Israel.

Relocating jobs abroad continues to be at the heart of heated discussions in Germany. The fact that only 570 of the 4,000 companies contacted for the study participated illustrates how touchy it is. Despite promises of anonymity, many companies were concerned about their image.

But, the study actually showed that offshoring doesn't necessarily have a negative effect on the jobs that remain in Germany. On the contrary, the savings allow the companies to grow and to hire more employees, Harms said.

Not always feasible

Though India is still the main destination for offshoring projects -- it has 90 percent of the western European market -- contractors from eastern Europe are gaining ground, the study showed.

"We do feel a cultural proximity to eastern European countries," one of the study's authors, Jürgen Schaaf, said. "The great advantage the US and Britain have in India is a common language. That's an advantage Germans don't have in India. But in many eastern European countries, German is spoken well enough to communicate on a working level."

In its own attempts to send jobs offshore, Deutsche Bank discovered firsthand the importance of language for the service sector. The bank tried to establish a call-center abroad, but ended up leaving again because customers weren't satisfied.

"You learn that many languages are spoken all over the world, but often in such a manner that only locals can understand them, not our customers," said Deutsche Bank chief economist Norbert Walter (photo).

Now, one of the bank's two global call-centers is located in Berlin.

The way of the future?

But it's not only customer services, bookkeeping and personnel that are prey to offshoring. About 40 percent of the firms questioned in the study said they'd partly offshored research and development as well. But in this case, cost efficiency wasn't the only reason. There just aren't enough highly specialized experts in Germany and that's what the country needs, Walter said.

In view of all the schools that -- due to Germany's low birth rate -- are expected to stand empty in the future, the country could start making a name for itself as a global contractor of education," Walter suggested. Germany could make a name for itself for "inshoring" instead of offshoring.