IT outsourcing goes global

Many information technology jobs have been shifted to lower-cost countries, and may soon migrate onwards to regions offering even cheaper labour. Journalist Andrew Bibby examines how, for the first time, white-collar staff are among those affected by job exports

REDMOND, Washington - Twenty-four floors above the streets of this suburb of the US city of Seattle, members of the city’s Trade Development Alliance were listening to a recent breakfast presentation on the Indian software industry. Down on the street, meanwhile, labour activists were distributing leaflets complaining that local employment was at risk, due to the export of jobs in information technology (IT). Belau:"According to our latest analysis, new concerns over the disease SARS, combined with the ongoing economic downturn, may cut another 5 million jobs in the battered world tourism sector this year. This is in addition to the 6.5 million jobs lost during the crisis in the travel and tourism in 2001-2002".

“Our local economy is in crisis, and that crisis is partly caused by corporations sending good living wage jobs to other parts of the world,” said Jake Carton, one of those protesting.
This small-scale action, which took place on March 26 this year, may not have made the headlines. But it did demonstrate the growing concern among IT professionals in the United States over the perceived exodus of jobs to lower-cost destinations, particularly India.

WashTech, the Seattle-based IT professionals’ association affiliated to the Communications Workers of America, has been leading the campaign, and is now calling on the US Congress to launch an immediate study of the effects of the trend. According to WashTech, the consequences for US technology workers will be increased job insecurity, lower wages, and fewer benefits.

A recent study from the US analysts, Forrester Research, gives some credence to these concerns. The study suggests that as many as 3.3 million white-collar jobs, representing US$136 billion in wages, could shift from the US to lower-cost countries by 2015.
Study author John McCarthy points out that some companies embracing so-called offshore outsourcing believe they can get better-quality work at half the cost. It is a similar story in the United Kingdom, where the telecoms union, CWU, has strongly criticized British Telecom (BT) for plans, announced in March, to transfer 2,700 UK jobs to India this year.
The jobs identified include directory enquiries, billing, videoconferencing, and some telemarketing. CWU claims all BT divisions are exploring the possibility of transferring work to India, and that thousands more jobs could be involved.

In its attack on BT, the CWU made it clear that it has no issue with India or with Indian workers. Its main argument is that, as a company which derives the bulk of its profits from UK customers, BT should have an obligation to support the British economy by employing local workers.
The union also warns that, by moving jobs to India, BT would be setting a very dangerous trend, which could see hundreds of thousands of British jobs potentially at risk.

How new a trend?

The transfer of data processing and data inputting from developed to developing countries dates back to the 1970s. Then, Caribbean islands such as Jamaica and Barbados led the development of “offshore” working.
Initially, work typically consisted of routine administrative work, such as processing airline ticket stubs and credit card applications. Since then, however, much has changed; a sign perhaps of the apparent rise of the knowledge economy even in less developed countries.

India, in particular, has developed rapidly in recent years as a destination for software programming and IT-related work. Compound annual growth of more than 50 per cent had pushed the industry from a value of about US $175 million in 1989-90 to some US $5.7 billion ten years later.
The Indian trade association, NASSCOM (National Association of Software and Service Companies), predicts the sector’s turnover could reach US $85 billion by 2008.

NASSCOM has identified “IT-enabled” services as the focus for major expansion in the coming years. Such services include IT management (for example, network management and maintenance), payroll processing, financial services and client management, including order processing and call centre operations.
In practice, the last of these - call centre operations - has so far been the most important part of India’s rapidly growing IT service market

Call centres employ some 100,000 mostly young people in India. They are highly educated, usually holding degrees in engineering or computer science, and their working conditions are good - typically purpose-built blocks in IT parks outside cities such as Bangalore and Mumbai (Bombay).
Call centre workers are trained to be effective when talking to customers abroad, so that staff dealing with the United States will be tutored to speak with a US accent and to understand US culture.
Those handling calls from Britain are similarly trained on aspects of British culture, including the British weather. In some instances, staff are encouraged to take on US or British names when talking to clients abroad, rather than using their own.

The main attraction of offshore outsourcing is the lower costs. Even though relatively well-paid by Indian standards, personnel costs are a fraction of Western wages. One British press report in 2001 suggested that Indian call centre workers earned the equivalent of $3,800 compared with UK workers’ starting salaries of $19,000.
More recently, the CEO of an Indian call centre company estimated that, in total, costs could be reduced by 40 to 60 per cent by moving to India.

Such developments are not limited to the English-speaking world. French companies are looking to African francophone countries, such as Mauritius and Morocco, as suitable destinations for call centres.
Latin America provides an obvious location for Spanish companies looking to move offshore, while even German-language call centres have been established in lower-cost locations in developing countries.

This trend resembles the global relocation of work which took place a generation ago in the manufacturing sector.
What is new is not simply that this trend is now being extended into the service sector, but also that middle-class and professional workers in developed countries are for the first time becoming directly affected.
White-collar as well as blue-collar jobs are potentially migrating.

Trade unions in developed countries understandably cite the dangers of “social dumping” and a “race to the bottom”. On the other hand, the development of indigenous software sectors in countries such as India does offer work opportunities for well-educated people to find work at home, as an alternative to seeking out work in North America or Europe - a practice sometimes derogatorily known as “body shopping”.

North to south, or south to north?

But the migration of jobs from north to south is only half of the picture. The other is south to north migration of workers (a familiar feature in the IT sector, at least up until the bursting of the bubble).
Naturally enough, developing countries which have invested in educating young people are becoming increasingly concerned that such education is being used to seek work abroad.

Still, there is real concern among the unions that established levels of social protection and labour standards could be lost when jobs migrate to lower-cost regions of the world. Perhaps paradoxically, the Indian IT sector itself may have grounds to fear the same thing.
The issue is that other countries are prepared to compete to provide ever-cheaper locations for work. A recent report on global outsourcing by CIO Magazine explored the potential of destinations such as Malaysia, Thailand, Vietnam, Mexico and Brazil, as well as Eastern European countries with established high-technology sectors, such as the Russian Federation, Ukraine and Bulgaria.
It is, however, China which is seen as the most likely next big player. “Think India ten years ago - low-cost workers and lots of them,” said CIO Magazine.

One trade union response to the fear of social dumping is to reassert their demand for the inclusion of core labour standards in future trade agreements negotiated through the World Trade Organization.
But there is another response happening at both ends of the outsourcing chain. This is the development of moves by unions to organize previously unorganized workers.

In the United States, WashTech’s president, Marcus Courtney, is trying to persuade professionals in what has traditionally been a highly individualistic work culture to consider bargaining collectively with employers.
“For many contractors and permatemps [agency workers with long-term employment with a single company], the prospect of obtaining that elusive permanent job, combined with fear of that never happening if they rock the boat in any way, often outweighs any motivation to mobilize around key workplace issues.
Yet, for many, that permanent job never appears,” he says. “Only through organizing will we gain the strength to stand up and bargain over what offshoring means in this industry.”

Meanwhile in India, fledgling IT Professionals’ Forums are developing in the states of Karnataka (focused on the cities of Bangalore and Mysore) and Andhra Pradesh (focused on the state capital of Hyderabad). First established in 2000, the Forums have chosen not to use the term “trade union”, which they claim has negative connotations among their target membership.
However, the organizations have affiliated to the global union federation, Union Network International (UNI).
Forum members say that, by working together collectively, they can better guard against professional risks and advance their careers.

The Forums’ mission statement is to become “the voice of IT professionals, to enrich and empower their knowledge, to promote their interests, and to contribute to the overall growth of the ICT sector.”

Enriching individuals’ knowledge may ultimately be one of the best protection measures against the risks of job migration, whether the flow is from the West towards India or from India towards other countries such as China. As with manufacturing a generation ago, the low-skilled, low value-added jobs will tend to be most mobile in a globalized world economy.