The British are coming for your white-collar job

The British Are Coming for Your White-Collar Job
The British Are Coming for Your White-Collar Job

Summary

American businesses are sending all types of work across the Atlantic, drawn by depressed U.K. salaries, tax incentives and a weak currency.

LONDON—When Margot Robbie hosted a pool party at the Barbie Dreamhouse in last year’s hit film, she was thousands of miles away from sunny Malibu, on a soundstage in a commuter town about an hour outside of London.

“Barbie" was mostly filmed at Warner Bros.’ U.K. studios, the flashiest example yet of Britain’s rising role in global film production. “I want Hertfordshire to be the next Hollywood," U.K. Treasury chief Jeremy Hunt told a newspaper here last year.

It’s not just films. American businesses are sending all types of work across the Atlantic, drawn by depressed U.K. salaries, tax incentives and a weak currency. This isn’t the traditional outsourcing model of the 2000s, which saw the mass relocation of American manufacturing jobs to China, or call centers to India and other parts of the developing world.

Instead, the U.K.’s cost advantage has collided with the rise in remote work to allow high-skilled jobs—software developers, consultants, lawyers, film producers—to be done by people in Britain.

“In the old models of outsourcing you’d give the outsourcing company the boring work. But there’s the new breed of outsourcing that is cheaper but also often creative," said Matt Buckland, who spent two decades as a tech recruiter in the U.K. for companies including Facebook. “You might still give your team in Hyderabad basic Python code. In the U.K. you might give them AI."

Surging wages and staff shortages in the U.S. are further incentives to look across the pond.

The average salary for a backend software developer in the U.S. is near $130,000, though closer to $175,000 in cities such as San Francisco and New York, according to data from global recruitment agency Robert Half. In the U.K., a developer’s average salary is about $66,000.

The cost of living explains only part of the gap. Software developers in Cleveland—one of the poorest major U.S. cities—can outearn peers in London by about $40,000, according to Robert Half’s data. Roles in finance, accounting and marketing have similar trans-Atlantic pay gulfs.

“The strength of the [U.S. economy] over the last 15 years has pushed wages up and made it more attractive to offshore," said Nick Bloom, a Stanford University economics professor who studies outsourcing. “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."

JPMorgan Chase says it is the largest tech employer in Scotland and recently built a new hub in Glasgow to house thousands of employees working on technologies including machine learning. Asset-management giant BlackRock is in the process of expanding its office space in the Scottish capital of Edinburgh, which houses tech-support teams and an artificial-intelligence lab.

Danny Lopez, chief executive of cybersecurity software firm Glasswall, said nearly all of his software engineers are based in the U.K. even though 90% of the company’s revenue comes from the U.S. Having a cheaper U.K. cost base makes his business more competitive in the U.S. market, he said.

“It is exponentially more expensive to hire in the U.S.," said Lopez. “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."

For the stagnating post-Brexit U.K. economy, rising demand for services is a rare bright spot. The 2016 decision to leave the European Union hit job growth, productivity and trade, and helped engender the most stubborn inflation problem in the developed world.

The U.S. economy, meanwhile, has boomed since the pandemic. As trade with the EU falters, British businesses see the U.S. as a chance to sell their services to a market several times larger than their own, often at higher fees.

Exports of services to the U.S. have brought in close to $90 billion for the U.K. in the year through last September, according to Deutsche Bank, helping to counterbalance money flowing out of the economy from running a large trade deficit in goods. U.K. management consultants, financial-services firms and insurers have boosted exports by billions of pounds compared with before the pandemic.

Baringa, a U.K.-based consulting firm, set up a division in 2016 to support British clients that have large U.S. businesses.

“This U.S. is such an exciting economy for us because it’s the largest consulting market in the world," said Adrian Bettridge, a managing partner at Baringa. “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."

The pound’s sharp drop in value has played a crucial role by making it cheaper to hire U.K. companies, according to Deutsche Bank strategist Shreyas Gopal. Sterling has lost 15% of its value against the dollar since the 2016 Brexit referendum.

To be sure, U.K. wages have also climbed amid the inflation surge and chronic labor shortages, but off of a lower base.

Edward East runs an influencer marketing firm, Billion Dollar Boy, with 150-plus staff between offices in London, New York and New Orleans, and a client list that includes Amazon.com, Meta Platforms and L’Oreal. The company’s U.S. billings surged 88% in its last financial year and now make up nearly half of its global revenue. Its U.S. contracts are on average six times larger than those in the U.K., he said.

Despite the booming American business, he continues to focus on hiring in the U.K., where labor costs are cheaper by about half compared with New York.

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

Cost is just one of many factors that makes the U.K. attractive as an offshoring hub. The time zone, common language and similar education system are bonuses, business owners say.

Structural trends also play a role: The insurance industry, for example, has been boosted by the restructuring of global supply chains and demand for specialty policies covering natural disasters or pandemics, areas in which the London insurance market has expertise.

The U.K. studio where “Barbie" was filmed, originally an aircraft-production site during World War II, stayed busy last year with shooting for a “Beetlejuice" sequel, set to be released this year. Amazon and Netflix are also expanding studio space in the U.K.

Jay Rosenwink, an executive at Warner Bros. in the U.K., said salaries in the country are lower and labor contracts aren’t as strict as in the U.S., where many film-industry workers are part of powerful unions.

The country’s appeal also includes a tax credit, which allows film productions to claw back around 25% of their budget.

Warner Bros. plans to add 400,000 square feet and 10 new sound stages to its studio outside of London by 2027.

“The U.K.’s competitive edge is that it is fundamentally cheaper than the U.S. That’s a fact," Rosenwink said.

—Josh Mitchell and Jean Eaglesham contributed to this article.

Write to Chelsey Dulaney at chelsey.dulaney@wsj.com

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