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2021: Russian "remote workers" are not allowed into the international labor market by politics
Pandemic the crisis with widespread lockdowns and the transition of a large number of employees to udalenka the world business clearly showed that the work of staff in a remote format is no less productive than when all employees are assembled in one office. Experts from an international group Coface specializing in trade insurance risk management and management believe that now Western employers will increasingly hire remote employees abroad to reduce staffing costs the European the American , and Russian specialists have every chance to "intercept" a large number of attractive jobs in the rich and companies, but geopolitical differences between Russia the West and Russia can prevent them from doing so. More information about the future of remote work and what the economic consequences of the "overflow" of remote jobs from developed countries to developing countries may be, according to a review of the results of the Coface study, published July 19, 2021.
Large-scale campaigns to vaccinate the population against COVID-19 suggest that the pandemic will soon end, but the trends that developed or accelerated greatly during the pandemic crisis will affect the landscape of world markets for many years to come. Among the most important among them is the tendency for a large number of office employees to move to a remote location - widespread lockdowns forced the business to go on a bold experiment to transfer their employees' workplaces from office to house, and this forced experiment helped quickly debunk many prejudices about remote work.
Permanent work in a remote format has become one of the options for the norm in the labor market, and, according to Coface experts, now an increasing number of employers from developed countries will hire office workers abroad - especially in emerging markets. Many third world countries are quickly catching up with Europe and the United States in terms of the quality of education and the level of technological development, and the cost of labor in them is still an order of magnitude lower.
Companies from developed countries will withdraw an increasing number of places abroad, Coface analysts are sure, as this will allow them to greatly reduce labor costs. The growing popularity of this phenomenon, which experts call "personnel offshoring" is due to strong financial considerations - for example, French companies moving one out of every four places abroad would reduce staff spending by about 7%, Coface comments.
According to economists of the company, as of July 2021 in rich developed countries there are about 160 million jobs that do not require the presence of an employee in the office. Developed low- and middle-income countries, in turn, already have about 330 million professionals who could successfully take these remote jobs.
However, the large-scale withdrawal of jobs abroad is associated with serious political risks for developed countries, experts warn. A sharp increase in competition for office jobs can be a source of severe economic stress for skilled professionals in developed countries, and such stress, Coface notes, often spurs political polarization in society and radicalization of political views. For developing countries, personnel offshoring can become one of the main engines of economic development.
To find out which states can "pull" the largest number of remote jobs from rich countries, Coface analysts used a special index, which took into account factors such as the personnel potential of a particular country, the average cost of wages, the level of development of its technological infrastructure and the business climate.
The top rankings of potential centers of attraction for remote jobs from rich countries belong to states with low labor costs and a large number of specialists who can apply for office positions - for example, India, Indonesia and Brazil. Countries with slightly higher labor costs, solid human resources and a developed technological infrastructure - for example, Poland - are also among the promising hubs of personnel offshoring. Russia and China, Coface notes, could be considered suitable candidates for the status of world centers of attraction of remote jobs from developed countries, but the picture for them is overshadowed by geopolitical friction with the West and problems in the field of cybersecurity.
In 2020, global corporate debt volumes rose sharply, so you can expect that in the next few years, business will try to reduce its costs to a minimum more diligently than ever before, Coface analysts say. One of the main ways to reduce costs for the corporate sector will be personnel offshoring - that is, the transfer of work processes that require the participation of qualified personnel to countries with lower labor costs.
The tendency to transfer some functions to foreign specialists from developing countries cannot be called completely unknown - for example, India and the Philippines have long become global hubs for outsourcing tasks in the field of IT. What has changed with the onset of the pandemic is the prevalence and demand for remote work. For example, during the first lockdown in the second quarter of 2020, about 40% of all workers in the EU countries somehow worked remotely. Employers were very pleasantly surprised by how productive the work in the remote format turned out to be, so the attitude towards the remote woman quickly changed for the better.
It would be wrong to say that any remote work can be taken abroad to countries with cheaper work, Coface said, but in general, the corporate sector finds the idea of at least a partial "globalization" of the labor force increasingly attractive. If before the pandemic, only 12% of the 330 large American companies surveyed were ready to take remote employees abroad, then after the crisis this figure increased to 36% - that is, three times. A large number of firms in developed countries will look for remote specialists in developing countries, analysts say. At the same time, Coface notes, the phenomenon of personnel offshoring does not necessarily need to become a universal norm in order to significantly affect the global economy.
The pandemic crisis clearly demonstrated that employers greatly underestimated the productivity potential of a completely remote state. According to a survey conducted in the United States by the Pew Research Center in October 2020, as many as 62% of Americans with higher education said that their work can be completely translated into a remote format. At the same time, only one in five of these respondents reported that they regularly worked remotely before the pandemic.
Observations show that the more significant the role of the professional services sector in a particular country's economy, the greater the share of jobs can be removed, Coface experts say. According to the International Labour Organization (ILO), in developing countries, the proportion of jobs that do not require the employee's personal presence in the office is about 13% of the total, while in richer countries - about 27%. The European Commission gives even bolder estimates - according to its data, on average in the EU countries, the share of such jobs is 37%. At the same time, according to a Coface study, the highest share of jobs that remote workers can occupy is observed mainly in those sectors in which the cost of labor is high.
Not all remote jobs can, however, be taken abroad, since many activities involve the presence of a specialist in the office at least from time to time, personal meetings with customers (albeit outside the office) or a deep understanding of the specifics of the market of a particular country. As an example of such activities, Coface economists cite advertising and PR - organizing advertising campaigns and PR events requires specialists to thoroughly know the intricacies of local culture and mentality of the country's residents, analysts comment.
Some more remote jobs can be taken abroad, but only at the cost of declining quality, the extent of which would be unacceptable for many enterprises. Here, experts cite the field of education as an example: from a purely technical point of view, organizing remote education is not difficult, but experience shows that the lack of "live" interaction with the teacher greatly reduces the quality of learning by students. Nevertheless, the share of remote jobs that can potentially be occupied by foreign specialists is very significant, Coface notes.
It might be assumed that one of the factors limiting the competitiveness of Third World countries in the global remote labour market might be too few skilled personnel to meet Western needs. This, however, is not so, Coface experts say. According to estimates by the International Labor Organization, in developed countries as of July 2021 there are about 160 million jobs that can be transferred to remote locations. Even if we take into account all the weaknesses in the labour markets of the third world countries, the total number of workers living in them who could claim remote jobs in Western companies is approximately 330 million.
Although the percentage of skilled personnel in developing countries is much lower than in developed countries, this apparent deficit is overcompensated by the fact that many more people live in them than in the West. In India, for example, the share of potential remote staff is only 12 per cent of the country's total workforce, but in quantitative terms it is higher than in all Western European countries combined. For workers in developing countries, the prospect of working in wealthy Western companies is very attractive from a financial point of view, so you can expect that the pool of potential "remote workers" will only expand in them over time.
To understand how significant the economic effect of personnel offshoring can be, Coface experts suggest looking at the UK, Germany and France for example. In these countries, analysts estimate that as of July 2021, there are a total of approximately 30 million jobs that do not require an employee to be present in the office. In the developing countries neighbouring Europe - Russia, Poland, Romania, Ukraine, Turkey, Morocco, Algeria and Tunisia - there are enough qualified personnel who could occupy all these places.
Taking into account average wages, the cost of vocational training and advanced training, the amount of labor taxes, insurance premiums and other social contributions, in developed countries the average cost of potential remote workers is $37.4 per hour, while in developing countries specialists with similar skills already receive only $7.3 per hour. If enterprises in developed countries take at least one out of every four jobs that remote employees can occupy abroad, their staffing costs can be reduced by 6-9%.
Of course, the corporate sector cannot change the landscape of the labor market by clicking its fingers and quickly take all its jobs abroad. Labor legislation does not allow employers in developed countries to dismiss already hired employees simply because someone can do their work cheaper. Most likely, according to Coface economists, the expansion of the practice of personnel offshoring will occur slowly and smoothly. The corporate sector is unlikely to specifically try to replace already hired employees with foreign remote specialists as soon as possible. Far more realistic experts do not seem to be such a radical scenario, suggesting that over time, some of the jobs that will be vacated, employers will gradually transfer abroad.
In addition, if the practice of personnel offshoring becomes widespread, then the cost of labor of remote specialists in third world countries will gradually reduce the lag behind the salaries of their colleagues in developed countries, which will reduce their comparative competitiveness in the eyes of employers, Coface says.
Experts also emphasize that the spread of personnel offshoring can exacerbate socio-political tensions in developed countries. It has been proved that there is a direct connection between globalization and the growth of opposition sentiment, analysts say, citing a publication by the US National Bureau of Economic Research, published in 2020, devoted to analyzing the connection between globalization, populism and the radicalization of political views. For example, industrial offshoring, that is, the transfer of production capacities abroad, has stagnated the incomes of low-skilled workers, which has made many of them ardent opponents of globalization. Personnel offshoring can also lead to an increase in the popularity of anti-globalism, but already in another social group - a group of highly qualified specialists.
Despite the fact that some segments of the labor market still have a shortage of qualified personnel, in general, the profitability of higher education in Western countries has been declining in recent years, as the number of university graduates is growing faster than the demand for qualified specialists from employers. Experts believe that personnel offshoring will lead to a decrease in the income of qualified specialists, especially those who are only at the beginning of the career path.
Historically, young educated professionals have only benefited from globalization, but if their career opportunities are limited due to personnel offshoring, their views on globalization can change greatly over time, Coface economists say. And this, in turn, could threaten to radicalize their political views and exacerbate socio-political tensions in countries from which jobs will "flow" abroad most actively.
All forms of offshoring, physical or intangible, ultimately change the balance of supply and demand, Coface experts comment. So, industrial offshoring has made China a key link in a large number of global production chains, which over time has led to higher Chinese consumer incomes and increased consumer demand.
While historically, the West has traditionally accounted for the largest share of global personal consumption, consumption is now increasingly "flowing" to the South and East. For example, back in 1995, emerging markets accounted for only 19% of total consumer demand, and by 2017 this figure doubled to 38%. For employers from Europe or the United States, the cost of paying remote workers from third world countries will be relatively small, but by the standards of the workers themselves and by the standards of their own countries, this payment will be very, very generous, analysts say. If the incomes of workers from developing countries increase, their consumption will also increase, which will only accelerate the shift in the balance of world consumption towards third world countries.
It is worth remembering, however, that the term "developing countries" brings together a large number of very different countries, and the competition for remote jobs that can unfold between them promises to be tough. At the same time, some states are obviously in a better position than their competitors. For example, India as of July 2021 is the largest global hub of personnel offshoring. Google recently announced that it plans to invest $10 billion in India's digital development program, so the country may soon be waiting for a technological breakthrough.
Coface experts, however, draw attention to the fact that personnel and technological potential are not the only factors that affect the country's competitiveness in the context of personnel offshoring. At least as important will be the existence or absence of political differences with the West.
China, for example, looks like a suitable candidate for the role of a world center for personnel offshoring. A large number of qualified labor, relatively low salaries and an appropriate level of digitalization of the economy are all in the Middle Kingdom. Nevertheless, given the geopolitical, economic, and technological rivalries between the US and China, Western corporations can be expected to think twice before starting close cooperation with Chinese specialists and trusting them with sensitive business data. No one knows how this can turn out in the long run, and Western companies would not want to be in a situation where they would have to choose a side in conflicts between states, Coface analysts comment. The same is true for Russia and, to a lesser extent, for Turkey and Ukraine, experts say.
In addition, activities in the field of professional services require close cooperation and constant coordination of work processes from the labor team, which is easier if employees are united by a common cultural background. It is known that on average, the volume of exchange of services is more between those countries that unite the community of religion, language and colonial past, researchers share.
According to an estimate calculated using the special economic model Coface, the greatest prospects for becoming centers of attraction of remote jobs for July 2021 are noted among the countries of Southeast Asia, especially in India. In Poland, labor costs are significantly higher than in other developing countries, but still as much as three times lower than in France. At the same time, the percentage of citizens entering universities is approximately the same as in France (68%), and the number of secure servers per capita is higher than, for example, in Spain.
Personnel offshoring can not only optimize the productivity of the global professional services sector, but also become one of the main phenomena that will determine the vector of its development in the long term, Coface analysts conclude.
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