Outsourcing: Nothing to celebrate any more (2 June 2003)
For over four years, we celebrated the global recognition of India’s Information Technology (IT) prowess and the boom in our IT-based industries. We basked in the success of our IIT exports, who had gone on to become American citizens and Silicon Valley billionaires. But, that very high profile has turned us into the target of labour unions of US and European countries, who were worried that their jobs are being outsourced to countries like India. Suddenly, we are seen as job-grabbing suppliers of cheap IT labour.
Look at how swiftly the pressure has mounted:
On May 24, Neil Behrmann of The Business Times, Singapore, wrote that the Communication Workers’ Union and other British labour organisations are upset about the loss of jobs outsourced to cheaper locations like India. He said they were worried that the British technology industry would go the way of shipbuilding, coal mining and textiles.
In America, four States—New Jersey, Maryland, Connecticut and Washington— are planning to ban outsourcing of government contracts, and others are being pressured to impose limits on outsourcing.
The US has also responded to mounting protests against outsourcing of IT jobs by cutting down on the issue of H-1B visas for overseas professionals. Then on May 19, John L. Mica introduced a bill in the US House of Representatives, that will prevent Indian software companies, who send employees on L1 visas to America, from working at the offices of their customers. However, such curbs will not affect US companies with subsidiaries in India.
A flash point in crystallising opinion against outsourcing, (which often translates into anti-India sentiments), was the suicide of Kevin Flanagan, a Bank of America computer programmer who shot himself dead in the office parking lot after being laid off from his job as computer programmer. What is worse, Flanagan was reportedly asked to train his ‘cheap wage’ replacement from India before he was sacked.
All this is explosive emotive stuff that is fast blowing out of proportion. For instance, Neil Behrmann’s article, that was referred to earlier, quotes a letter published in The Times, London, by Bill Tomlinson, an information technology contractor saying, ‘‘The influx of workers on work permits issued by the government is the tip of the iceberg. It is now possible to work on any computer from any other computer anywhere in the world, and most of the Indians who have taken our jobs do not need work permits: they are beavering away at terminals in India.’’ Sentiments like this not only affect business, but it translates to the sort of harassment and arrest faced by Indian software professionals at Malaysia and the Netherlands. To politicians in those countries, this is exactly the kind of issue that has our netas and MPs disrupting Parliament to fight against the removal of farm subsidies. How genuine are these fears? And are there any statistics to back them? Actually yes, the fears are based on real numbers.
According to Deloitte Consulting, two million jobs will move from the US and Europe to cheaper locations in the financial services business alone. The exodus of services jobs across all industries could be as high as 4 million. It forecasts that three-quarters of leading financial institutions and investment banks will allocate tasks to Third World countries in the next five years and that India will be top of the list. Global financial institutions, it says, will invest US$350 billion in India for outsourcing projects. Chris Gentle of Deloitte Consulting has been quoted by the media as saying, ‘‘If China is becoming the workshop of the world, India is the world’s back office’’.
According to a Forrester Research report, ‘‘Over the next 15 years, 3.3 million US service industry jobs and $136 billion in wages will move to countries like India, Russia, China and the Philippines. The IT industry will lead the initial overseas exodus’’. National Association of Software and Services Companies (Nasscom), itself had expected India’s IT-enabled services (ITES) to grow by 65 per cent to Rs 11,700 crore in financial year 2003. This represents a significant impact on US and European jobs and a backlash is to be expected. It is also a highly sensitive issue and Indian companies have to tread carefully. On one hand, we have to be careful not to lose sight of the trauma of people who are bound to lose their jobs in the cost-cutting process. On the other hand, we have to battle to protect our industries and IT professionals from the impact. So far, Nasscom’s response has been extremely low key. It has hired a public relations firm (Hill & Knowlton) and seems to hope that large US companies that are bound to benefit from the cost savings will fight the battle. After all, they are names such as GE, Microsoft, Intel, Bank of America, HSBC, Citibank, JP Morgan, Dell and are good at influencing domestic policy in their home countries. At the political level, Commerce Minister Arun Jaitley has reacted sharply to the proposed ban on outsourcing by four US States by saying that the move was against the principle of market access, and that India planned to take it up a the WTO negotiations. He said, that while the buzzword in world trade today was ‘market access’, the US move is ‘market denial’ in an area where developing countries are competitive.
This is not enough. In an incisive article titled Who moved my job?, Madison-based Ravi Shah, principal consultant of New Horizons Consulting on BPO practices says, ‘‘Of the 700 service job categories in the US, 550 will be affected by offshoring in the near future. An analysis by McKinsey & Company shows that the ITES market is likely to touch $142 billion in 2008. This is against the current cost of $532 billion for these services. The difference of $390 billion is the net saving the US economy can expect from offshoring. This will have a huge economic impact: tangible dollar savings leading to value creation for shareholders and, ultimately, affecting the common man’’. This needs to be highlighted. Shah also points out that while offshore contracting has economic benefits, there are immediate social costs that could lead to the American backlash. This, says Shah, could manifest itself as a ‘multi-headed monster, with politicians, trade unions and individual champions of protectionism all part of it’. The extent of backlash would depend on the state of the US economy over the next two-five years. But it is clear that lying low will not make the problem go away. The Indian government has to get more active on behalf of the IT industry, and come with a calibrated political response that avoids aggressive posturing and is sensitive to the human issue, while focussing on economic benefits to the US and European companies. We also need to build support among other nations providing IT enabled services so that India is not isolated and targeted as a cheap labour destination.
-- Sucheta Dalal