By Steve Boyle, 2 September 2008 10:00
COMMENT
US presidential candidate Barack Obama has vowed to discourage outsourcing, while John McCain supports the status quo. Who is more realistic? Steve Boyle offers his view.
For more than 35 years, the banking industry has used outsourcing to reduce its costs and improve customer service. Initially starting with IT processes, business process outsourcing (BPO) soon proved successful and has accounted for the majority of large-scale bank outsourcing in the past 10 years.
BPO requires outsourcing an entire business function, not just certain aspects. Good BPO candidates are key back-office processes such as items processing, call centres and even entire HR departments, such as the Bank of America's deal with Exult to run its human resources department.
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Locations such as China, Hungary, India, Israel, Russia and Singapore have all been targeted for outsourcing, with foreign employees helping to make many US corporations billions of dollars per year.
And it is a huge business. By 2015, Forrester Research estimates that as many as 3.3 million US jobs and $136bn in wages could be moved to such countries as China, India and Russia.
None of this has gone unnoticed by the two US presidential candidates - Barack Obama and John McCain. That is a lot of jobs and, of course, a lot of potential voters.
Obama has been clear about his take on the issue, highlighting the damage done to US workers by outsourcing. His solution? Protectionist tax policies and the renegotiation of trade agreements.
He recently told an audience in Unity, New Hampshire: "We can keep giving tax breaks to companies that ship jobs overseas, or we can give tax benefits to companies that invest right here in New Hampshire."
That is some tough talking. It seems to be based on the idea the US is losing jobs because it is faced with lower wages overseas, often supported by attractive tax incentives aimed at the large corporations responsible for those huge outsourcing projects.
But is this really the case?
Not according to John McCain. He is far from dogmatic about free trade and outsourcing, acknowledging that globalisation has changed the world forever and made it a more competitive place. His solution is to make US workers more competitive through education and fostering innovation. He suggests outsourcing and globalisation are good for the US economy because they force it to be more competitive.
Experience in the banking sector favours the McCain analysis.
The banks are not outsourcing purely to take advantage of lower wages and to enable them to collect attractive tax incentives. It is more complex than that. A recent survey of banks with outsourced data centres confirmed what many have known for some time - that improvements in performance and a higher quality of service from outsourced centres are more important than cost savings.
And these improvements in operational performance do not happen accidentally. Outsourcing locations such as China, India and Russia have something the US and other western economies have begun to lose - a motivated workforce. Employees often have a college education and are motivated through progressive career path opportunities and highly charged performance-related pay.
Contrast this with prospective employees in the US. They want glamour - and data centres are just not glamorous. The results are poor motivation, a poor quality work force and high staff turnover. All of which translates into poor performance and higher costs for the bank.
Politics and business do not always mix. What plays well to the electorate may be at odds with economic reality. No matter how much Obama would like it to be otherwise, globalisation is a power greater even than the President of the United States. Restructuring tax incentives and trade pressure is not going to halt the process of outsourcing.
Obama could not turn the US into a new India, even if he wanted to. McCain seems to appreciate this.
It is unlikely outsourcing is going to decide the US election one way or the other. And just as well. Even the next US President - whether it's Obama or McCain - cannot hope to become a totally immovable object. And outsourcing is most definitely an irresistible force.
Steve Boyle is chief executive of Sutherland Consulting
Comments
There are 6 comments. Join the discussion
1. anonymous
Working at Starbucks, McDonalds or Target in the USA may not be 'glamourous', but you get excellent customer service there at all times.
I see no reason that call centre's will not be the same. It is cultural - In the UK you are lucky not to get run over outside of Tesco's by the lazy/ingnorant/could not careless, in USA cars actually stop to let you/kids/trolley past first.
Easy way to stop off-shoring is to pass data protection legislation preventing sending it past your national borders - problem solved. You could almost get away with it under a data and personal security mandate in light of recent company and government howlers.
It's not like much of this now off-shored work never used to happen here in the recent past !!
UK Customer Service is attrocious compared to the USA, now an ingrained cultural thing, so may not be possible in the UK. Unless......
In UK there is a huge volume of educated and literate unemployed older workers with manners, patience and half a brain who could become the Grey Army of |Customer Service, if only short sighted employers could see past their balance sheet, and probably more importantly their renumeration package.
2. anonymous
As with many articles on the subject, there seems to be a confusion of outsourcing (getting another company to run some of the processes that you don't want to worry about) and offshoring (shipping those jobs to another country).
Oursourcing, when done propery, may well be motivated by improved quality, better access to skills etc, but offshoring is frequently little more than a race to the bottom on cost.
If anyone really believes that the motivation for offshoring is anything other than cost, just wait to see how quickly India stops being the prime location for Western jobs when costs rise to approach Western levels - the action will then move to places like the Phillipines, and any other country that can provide bodies at a cheap enough rate.
3. Howerd
What rubbish!
Anyone who lives in this century knows that the service provided by the outsourced companies in sub sub sub par.
It is terrible compared to call centres in the British Isles.
I recently switched my ISP to a company which operates a call centre in the British Isles, 24/7, 365 days a year on free lines.
They answer after a single ring, speak perfect and understandable English and know what they are talking about.
4. Nicomo
Lots of people make promises, the people that never keep these promises on the whole are people running for office.
Bearing that in mind - America's economy is recovering, to reverse or to discourage outsourcing would not be beneficial at this point in time.
I like Obama on the whole and I hope he wins it - but please don't be barmy and believe everything that comes out of "people running for office'
5. anonymous
"Contrast this with prospective employees in the US. They want glamour - and data centres are just not glamorous. The results are poor motivation, a poor quality work force and high staff turnover. All of which translates into poor performance and higher costs for the bank."
I disagree. No. I protest.
There are so many people working in McDonalds, Taco Bell, Star Bucks, Walmart and so on. Those are not glamorous jobs. To make things even worse, there people who work 2-3 jobs a day. Ask these people how glamorous their lives are. Americans are just as hardworking as anybody else.
Also, outsourcing is hurting the economies of the nations comanies outsource from. Instead of studying to become lawyers, doctors, businessmen or scientists people are forced to work in companies that outsource because the money is quicker.
The companies that outsource have become so aggressive in these countries that they are also distorting the educational standards of these nations. Instead of focusing on science, mathematics, cultural studies.... these schools focus on English and other possible skills needed by the outsourcing companies.
In an outsourcing company, everybody is the same. A person with an MBA is no different from a highschool dropout. It is anti-intellectual.
McCain wants the US to be more competitive? I don't buy it. What a joke! I think he wants other nations to be specialized outsourcing hubs so that they won't be competitive anymore.
6. anonymous
Whatever be the case... outsourcing should stop...in a gradual manner.... When business go out of US....US Citizens, Green card/Permanent residents & others loose their precious jobs. Whats the point in outsourcing.....few people or countries making good money & the cost of US Citizens & Permanent Residents. I do oppose it.