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U.S. Companies Turn to U.K. for Cost-Efficient Talent Acquisition

U.S. firms outsource high-skilled jobs to U.K. due to cost advantages, impacting both nations' economies and labor markets.

By Athena Xu

4/3, 23:24 EDT

Key Takeaway

  • U.S. companies are outsourcing high-skilled jobs to the U.K. due to wage disparities, staff shortages, and cost advantages, impacting sectors like software development and consulting.
  • The U.K.'s economy benefits from this trend with a surge in service exports to the U.S., especially in management consulting and financial services, amidst post-Brexit challenges.
  • Intense competition for AI talent in the U.S. is driving up salaries, reflecting broader labor market issues including worker shortages and the need for increased productivity or outsourcing solutions.

U.S. Companies Look to U.K. for Talent

American businesses are increasingly outsourcing high-skilled jobs to the United Kingdom, driven by a combination of surging wages, staff shortages in the U.S., and the U.K.'s cost advantages. This trend, which includes roles in software development, consulting, and film production, is facilitated by remote work capabilities and is not limited to traditional outsourcing sectors. The U.K. offers a compelling proposition with depressed salaries, tax incentives, and a favorable exchange rate, making it an attractive destination for U.S. companies seeking cost efficiencies.

The average salary for a back-end software developer in the U.S. is significantly higher than in the U.K., with a notable gap even when comparing cities with a lower cost of living like Cleveland to London. This wage disparity extends across various sectors, including finance, accounting, and marketing. Danny Lopez, CEO of cybersecurity firm Glasswall, highlights the financial impracticality of relocating U.K.-based engineers to the U.S., emphasizing the competitive advantage of maintaining a cheaper U.K. cost base.

U.K. Economy Benefits from U.S. Demand

The post-Brexit U.K. economy, facing challenges such as job growth stagnation and persistent inflation, finds a silver lining in the increased demand for its services from the U.S. market. Exports of services to the U.S. have surged, contributing significantly to the U.K.'s economy and helping to mitigate the effects of a large trade deficit in goods. U.K.-based firms in management consulting, financial services, and insurance have seen substantial growth in exports, bolstered by the pound's depreciation since the Brexit referendum.

Baringa, a U.K.-based consulting firm, exemplifies British businesses capitalizing on the U.S. market's potential, leveraging expertise developed in the U.K. to serve the significantly larger U.S. consulting market. The firm's focus on areas like payments, climate change, and risk modeling demonstrates the strategic alignment with U.S. demand.

AI Talent War and Labor Market Dynamics

The competition for artificial intelligence (AI) talent is intensifying in the U.S., with companies across various industries offering substantial salaries to attract skilled professionals. This AI recruiting frenzy is a response to the technology's potential to revolutionize sectors from entertainment to manufacturing. Companies are exploring multiple strategies to build AI expertise, including individual hires, internal training programs, and acquisitions of AI startups. The high demand for AI talent is reflected in the salaries offered for positions requiring expertise in data science, machine learning, and related fields.

The broader U.S. labor market is experiencing a long-term crisis, with factors such as baby boomer retirements, low birthrates, and shifting immigration policies contributing to worker shortages. This situation is expected to persist, potentially leading to higher wages and turnover. Solutions to address labor shortages include increasing workforce productivity, outsourcing, and tapping into underutilized labor pools.

Street Views

  • Nick Bloom, Stanford University (Neutral on U.S. economy and outsourcing trends):

    "The strength of the [U.S. economy] over the last 15 years has pushed wages up and made it more attractive to offshore... If you’re based in New York or San Francisco it’s now going to be cheaper to offshore to northern England than to Mississippi or Alabama."

Management Quotes

  • Danny Lopez, CEO of Glasswall:

    "It is exponentially more expensive to hire in the U.S.... It really wouldn’t be realistic to move 50 engineers to the U.S. For a company of our size, it would have a huge financial impact."

  • Adrian Bettridge, Managing Partner at Baringa:

    "This U.S. is such an exciting economy for us because it’s the largest consulting market in the world... We can develop so much expertise in the U.K. on things like payments, climate change, risk modeling and go and share it with a market that’s 20 to 30 times bigger than ours."

  • Edward East, runs Billion Dollar Boy:

    "It definitely helps us offer a more cost-effective solution to clients than our U.S. peers."

  • Jay Rosenwink, Executive at Warner Bros. in the U.K.:

    "The country’s appeal also includes a tax credit, which allows film productions to claw back around 25% of their budget... The U.K.’s competitive edge is that it is fundamentally cheaper than the U.S. That’s a fact."