Abstract
The emergence, from the 1960s on, of a new spatial division of labor – with the old task-based division of labor within a firm taking on a spatial dimension, and comparative advantage increasingly shaping patterns of specialization by function/process as well as by sector/product – reflected both new possibilities opened up by developments in management, control and communications technologies and intensified competitive pressures within (generally) mature industrial sectors. On an international scale this primarily affected manufacturing activities, and was driven essentially by labor cost factors. Within developed economies, however, it also affected a number of (mostly) office-based service activities, where the crucial cost factor more typically involved premises rather than labor, since these tended to occupy expensive space in central locations offering the face-to-face communication potential required for some at least of their functions. In these cases the new spatial divisions occurred within much more restricted territories, both because there were tighter constraints (on the kinds of labor deemed suitable and on the dispensability of face-to-face contact) and because there was much more local variation in the relevant cost factor. Even so, there were US examples from the 1980s of telecommunications links being used to effect substantial savings in typing/data entry costs by exploiting cheaper pools of English-speaking labor in offshore locations such as Ireland or the West Indies (Warf 1989). Since the end of the 1990s, however, service activities in advanced economies have taken initiatives to shift a much wider range of information-related functions to offshore locations in pursuit of labor cost savings, as they in their turn come to face more intense price competition. In this context, more of the jobs involve high levels of human capital – for which the core economies had been presumed to possess a comparative advantage – raising questions about how far the process could be extended, and whether a number of their advanced service activities, notably “wholesale” financial services, have also become vulnerable to “hollowing out”.
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Notes
- 1.
Off-shoring is defined here to cover all transfers of work abroad by companies which remain domestically-based, whether to “captive” establishments of their own/affiliates or through out-sourcing to independent companies (cf. Norwood et al. 2006). As of 2001, two thirds of service sector off-shoring is estimated to involve captive suppliers, while just 5% of its out-sourcing was off-shore (Farrell et al. 2005).
- 2.
This “year 2000” problem, engendering an estimated 300 billion dollars of remedial work, stemmed from fears of the inability of older computer systems incorporating two digit versions of the year-date to handle transition to a new century/millennium.
- 3.
Within the investment banking sector in the City of London / Canary Wharf, interviews were focused on the larger firms, both because of their substantive importance and since (understandably) they have been leading the way in off-shoring. In total the firms which we covered were estimated to employ some 63,000 staff, representing about half of the sector’s employment in this area.
- 4.
From extensive interviews with HR managers, Farrell et al. (2005) conclude that only 13% of university graduates in low-wage countries are suitable for such work, with notably lower proportions among finance/accounting graduates or (especially) generalists than for engineers.
- 5.
Y/Zen Ltd (2005) similarly conclude from interviews with London, New York, Frankfurt and Paris-based firms that “financial centers may lose certain types of commoditized activities to low cost cities but the important parts of the industry”.
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Gordon, I., Haslam, C., McCann, P., Scott-Quinn, B. (2009). Off-shoring of Work and London’s Sustainability as an International Financial Centre. In: Karlsson, C., Andersson, A., Cheshire, P., Stough, R. (eds) New Directions in Regional Economic Development. Advances in Spatial Science. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-01017-0_20
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