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In praise of outsourcing

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Outsourcing will become ubiquitous within five years and has the potential to increase UK gross domestic product by a cool £16bn and close the country's productivity gap by 10 per cent.

This upbeat assessment was voiced in a study published today by LogicaCMG which focuses on the macroeconomic impact of outsourcing in the UK.

According to the study, UK companies have the potential to outsource 46 per cent more than current levels by 2008. If they do so they will improve their productivity levels by 2.7 per cent and the UK's historic 28 per cent productivity gap with its main global competitors would be cut by 10 per cent.

The management and consultancy firm's research, The Potential Economic Impact of Increased Outsourcing, estimates British business could see £1.7bn in additional profits while GDP could rise by £16bn if more companies outsourced over the next five years.

The report indicates that real consumer expenditure could be boosted to £4.4bn by 2008, equating to an extra £177 per household, per year, in the UK.

Outsourcing is fast becoming an intrinsic part of how we do business globally, according to Kirk Smith, outsourcing strategist, LogicaCMG. "In five years, we could see the terms 'business process outsourcing' and 'offshore' becoming standard business practice and we will no longer have to label them," he said.

"The increased use of outsourcing will lead to the development of global service networks. Companies will no longer be preoccupied with where services are delivered from, as long as the supplier (or chain of suppliers) meets their current and changing business requirements."

Douglas McWilliams, chief executive, cebr, which wrote the report on behalf of LogicaCMG, cited government data showing that UK productivity grew at 1.9 per cent per annum between 1995 and 1999. He said the study suggests that if companies in the UK were to fully embrace outsourcing, the rate of productivity growth could increase to 2.4 per cent per annum.

"Overall, the benefits of outsourcing for individual companies and their shareholders have been well documented, but I think a lot of people will be surprised to see how the benefits could extend across, and strengthen, the entire economy over the longer term," he said.

Kirk Smith added that the trend towards outsourcing is inexorable, as the prevailing harsh economic climate demands that companies must keep shareholders happy in their use of capital and willingness to slash operational costs: "The critical long-term benefit of outsourcing is in enabling a business to focus this core talent on where and how it can create the greatest value," he said. ®

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