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Outsource magazine: thought-leadership and outsourcing strategy | October 26, 2014

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Nothing north of Watford

Nothing north of Watford
Deborah Kops
  • On September 21, 2010
  • http://www.sourcingchange.com

“Make it In America” is Obama’s newest jobs battle cry. Not to be undone, David Cameron went to Bangalore to push for jobs creation in Britain. With unemployment in the US alone at over 1.4 million people who have been jobless for over 99 weeks, bleak prospects for GDP growth, an employed population that can no longer afford to retire at 65, and no new jobs creation north of Watford or in Cleveland,  should we as an industry be concerned about the morality of outsourcing jobs offshore? What can we do about it?

Truth be told, every time I’ve entered the US from India, and am asked what my business is, I substitute IT, consultancy or marketing for outsourcing. Now I may be overly paranoid because US Customs seems distinctly interested in the fact that I am not married to an American. However, fear aside, it’s hard to pronounce the O word when many in my community are out of work because of “economic dislocation.”

Admittedly, there is no stopping the globalisation of productivity. Look around any room in your house and you’ll see cookware from France, towels from Sri Lanka, and computers from China. Manufacturing jobs have been moving offshore en masse since our toys were marked “made in Japan.”  We’ve learned to accept that.

Globalisation is great when it reduces the costs of goods and services we consume, but when it affects our neighbors’ livelihoods, our kids’ job prospects, and drives up our taxes, it’s a different story. What is hitting us squarely between the eyes is that fact that our indigenous job markets have indelibly changed. The folks who now book your flights are sitting in the Philippines, and the guy who is papering your stock trades is working out of India. Today, any job that is technology-enabled can be a candidate to be moved offshore in order to take advantage of economies of expertise, which is contributing to the creation of a jobless class in the West…which has the potential to stay that way.

As a result, our mid-level work forces are in effect being hollowed out by globalisation, with the bulwarks now down for the retention of almost any kind of work with the exception of those jobs that just cannot move offshore facilitated by technology, and executive jobs. This is borne out by recent experience.

According to a recent Wall Street Journal article, US firms are struggling to fill highly skilled jobs despite some 15 million Americans out of work. The work that has gone offshore, much of it outsourced, is middle-skill and middle-wage.
Is the movement of jobs to India, the Philippines, China or Malaysia “immoral” when, if current policies persist, some of our countrymen will never hold jobs again? One way or another, the implications affect us, but we’ll have to take as a given that there is no step back from globalisation, and that, as Tom Friedman declared, “the world is flat.”

What’s the answer? Certainly not David Cameron’s recent plea in Bangalore for a common strategy for economic growth (read: India, stop exporting jobs and create them in Britain), or implementing US Senator Chuck Schumer’s tell-it-all tax on call centres.  Perhaps it’s time to develop a real strategy supported by a plan linking policies and programs, rather than merely using the issue as a lever for political gain in the face of economic pain. Taxes and entreaties and pronouncements only go so far. And if our governments need an avatar to convince them of the power of linking programs together in a plan, they ought to tear a page out of India’s playbook.

Here’s a growth story to conjure with: in 1998, the Indian outsourcing (IT and business process outsourcing) sector was a $4-billion industry; by 2008 it was over $52 billion partially as a result of the offshoring trend, and expected to be as much as $175 billion in export value by the year 2020, according to NASSCOM, the Indian association which serves as a chamber of commerce for the IT and BPO industries. But this impressive story resulted from a calculated bet to attract foreign direct investment and put millions of young, inexperienced kids fresh out of school to work in jobs that formerly were performed in more developed countries.  As part of a plan, industry and government worked together to:

  • Reform policies and provided incentives to support investment
  • Boost infrastructure development
  • Support global outreach efforts by aggressively marketing India as an offshore location
  • Liberalise government policy to promote the investment of high-end telecom and infrastructure which is at par with global standards
  • Impose a business- friendly tax structure
  • Provide assistance to recruit, train and retain staff

Key to India’s success was a vision that served as a framework. Initiatives were not ad hoc fixes but were orchestrated. To compare, in the West we seem to attack the jobs issues by making pronouncements, not all of which will address the problem at hand. For example, Obama’s recent request to Americans to produce more scientists and engineers, lest nations such as China and India outcompete for the jobs of the future, is the right sentiment. But the soundbite was not backed with a plan, and to be frank, having more scientists and engineers in the US will certainly support innovation, but once the innovation creates jobs, there is no guarantee that the jobs will remain onshore if the economics of production aren’t right.

Without the right policies and investment to back it visions, sort of a directed Marshall Plan, we’ll have the same hollowed-out middle. And sorry, Mr Schumer, but it is hard to understand how does 25 cent surtax on calls routed overseas actually prevents jobs from moving offshore? Or similarly eliminating tax credits for corporations doing business overseas?  The economic interests of private industry and government are I’d posit that when the entire value proposition relative to doing business onshore as compared to offshore is roughly equivalent, business will make the decision to hire onshore. It’s that simple. Right now, according to A.T. Kearney’s 2009 report, “The Shifting Geography of Offshoring,” the US’s Tier 2 cities in aggregate are ranked 14th out of 50 on a global scale, with people skills at the top of the heap, business environment within the top ten, and financial considerations driven primarily by compensation in the bottom six. While people skills are gaining more import, business decisions are primarily governed by the bottom line.

So cost is the crux of the challenge to retain and create jobs onshore.  If the right government policies and investments are put into place, onshore locations are in a position to effectively compete with and complement those offshore. Despite the vagaries of our political parties, we retain supportive environments with trust, transparency and sustainability in business practices. Our political systems are stable. The risks of doing business are crystal clear. We understand the importance of customer experience, and we still have a culture of innovation and entrepreneurship.  On the basis of the conductivity of the business environment, it’s hard for offshore locations to compete.

Let’s list other positives. What do onshore locations have going for them as compared to offshore locations? Certainly one advantage is the state and cost of infrastructure.  There is no need for additional investment in local plant such as back-up generators because of the standards to which power and water sources are built. And the recession has driven down the cost of rent, the most significant cost of occupancy.  In contrast, demand is driving up the cost of facilities in fast growing economies.

Second, there is a requirement to fund private transportation in many offshore locations in order to get people to work. This cost is alleviated onshore.
Third, with stagnant unemployment rates, and no sign of rapid recovery, the rate of attrition should be less. Fast-growing economies offshore have the problem in reverse. With fewer options and the necessity to stay in the workforce longer because of the economy, Western workers may be highly employable when compared to the younger, more inexperienced work forces offshore.

Fourth, few organisations factor in the full cost of manage work offshore, whether outsourcing or delivering through a captive. For example, the cost of temporarily locating teams offshore during transition, transporting ten or more staff to quarterly business reviews, and spot trips, adds up – not to mention the impact of lost productivity. Calculate the total cost of ownership and the numbers may become compelling.

So what is stopping us from taking a programmatic approach, orchestrating the number of tools which are already on the table, and piling on more to close the gap?

In exporting countries such as the US and the UK, we already have the many of the tactics, if not the policy framework to compete. Jobs training programs have been on the books for years. Local economic development agencies have developed financing tools and other incentives such as tax abatement and increment financing districts. Not-for-profits or NGOs know how to tap into grants to train or create jobs. Tax credit programs abound at the local and federal levels. Corporate foundations are always out in the market seeking pro bono opportunities.  And, in some locales, government-owned facilities, such as redundant military bases, are empty and waiting. Why not put these tools and techniques together into a framework that levels the playing field with offshore locations?

And then there’s always the opportunity to think out of the box, advancing currently accepted business models and structures. With technology, why not aggressively expand the concept of home-based agents to the delivery of other business processes? Or consider what might be termed “affinity group” outsourcing — employing like groups of people — such as military wives, students or healthy seniors — who do not require a comprehensive set of benefits, even co-locating the workplace where they live or congregate.  Perhaps a franchising strategy will work — developing “back office operations in a box” with skilled offshore outsourcing companies providing the sales engine, training processes and infrastructure specs to local governments who have skin in the game and can most effectively harness local initiatives, assets and education. Or create town and gown partnerships to develop innovation incubators that truly advance the future of work. Or look to industry associations, possibly in partnership with outsourcers, to create and operate centres of excellence to perform specialised work onshore.

However, none of these strategies will work without a fundamental resetting of expectations to cope with the so-called ‘new normal.’ The optimism that has been at the root of the confidence in our ability to enjoy steadily upward prosperity no longer can be supported in today’s economy. Lifestyles will have to adjust to a lower standard of living resulting from global competition and resulting wage deflation. The question is: will our mid-level cohort accept lower wages to obtain employment in light of historical expectations?

Even if economic conditions gradually improve, the time to develop – and implement – a vision for economic competitiveness is now. The longer mid-level unemployment persists, the more skills erode in a marketplace where the need for capability becomes greater in each passing year. This results in narrowed options which will fuel a pervasive sense of hopeless… and so it goes.

Now next time I come back home from India, what I’d really like to say to that unsmiling US immigration officer is “I’m an outsourcing specialist. And I’m here to create jobs.”



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