Outsourcing jobs

Dude, Where's My Job?

Hi International Magazine

News- economics and investments

While the American economy shows signs of improving, jobs in the manufacturing and some service sectors are being exported to other nations. For developing countries, exported jobs are a boon - but what does outsourcing mean for Americans, and the rest of the world?
By Nick Kolakowski
Ted Seeber saw it coming. The 33-year-old computer programmer knew that his Oregon software company was looking at outside vendors to take over some of its work, but when the ax finally fell and he lost his job, the timing couldn't have been worse. "It was kind of a surprise, because I had been out a week before burying my mother-in-law," he says.
That was in October 2001; he would remain unemployed for another 26 months. "It was a bad two years in there," he says.
Now he works on a contract basis, programming for the Oregon Department of Transportation. But the sting of losing his job is still there, just under the surface: "I felt thrown away." Like something out of an evil fairy tale, his job flew away across the ocean, to a country he doesn't know.
Seeber is just one high-tech worker who's been a victim of outsourcing, in which jobs like computer programming are transferred overseas to countries such as India and China. And it's another sign that the new globalization - in which a company's headquarters can be in Nebraska, its call center in Pakistan, and its factory in China - has arrived with a resounding boom. Now, thanks to fading regulations and satellite and fiber-optic networks, even customer service calls can be done cheaply from the other side of the world.
Which is precisely where the jobs have gone: to places like Bangalore, a bustling metropolis in India, where a woman talks on the phone to a man in New York about his software problem. Here in a call center of 24/7 Customer, a four-year-old Indian company that already employs over 3,500 people, dozens of young Indians process claims and take customer service calls. And they're glad to have the work.
"We pay 50 percent higher salaries than what they would get if they were working for a traditional old-economy company," Shimonti Sikdar, a spokesman for 24/7 Customer, says of these workers. "Since they have more disposable income than ever before, they are able to enhance their lifestyles."
Though high by Indian standards, these salaries are still a fraction of what an American would be getting for a comparable job. That's the human conflict of outsourcing. On one side of the equation, you have American workers who are suddenly out of what were once regarded as 'safe' jobs because their company wanted to cut costs. On the other side, you have young workers overseas doing high-tech jobs for more money than they could otherwise have ever dreamed of getting, even with a college degree.
Outsourcing has led to a lot of soul-searching on the part of many Americans. On one hand, it's good for companies, giving them higher profit margins and increased efficiency. But is the United States, so long dominant in the field of computer science and programming, finally losing its edge because of it? Is this the beginning of a downward spiral, one that will end with rampant unemployment throughout the country?
Politicians, economists, and ordinary Americans have all spent sleepless nights over those issues. And their opinions range widely. Some think outsourcing is a good thing, ultimately creating a demand for American goods and services.
Others think that outsourcing is more of a Trojan horse, saving companies a lot of money in the short term, at the cost of catastrophic job losses for Americans in the future.
The Players
In the world of offshore outsourcing, one country in particular dominates. "India has a solid lead, about 70 percent of the worldwide offshore market," says Marc Hebert, executive vice president of offshore outsourcer Sierra Atlantic and former CIO of Oracle. "Companies that are forward-thinking like General Electric do 90 percent of their offshore business with India."
Herbert explains that the phenomenon didn't happen overnight. "There's a long history that led to this explosion of activity. In this case, India has an amazing educational system, they graduate twice as many scientists as the U.S.," he says. "A large percentage of people who graduated over the last 10 to 20 years, that really generated the whole software business." It also helps, of course, that English is one of India's primary languages, a leftover of British colonial rule.
India dominates now, but countries in the Middle East and Asia have the potential to claim a large piece of the outsourcing pie. Already, company back offices, technology centers and customer call centers have sprung up in the Philippines, China, Bangladesh, and several other countries.
One of those evolving countries is the United Arab Emirates, which has had a tradition of importing workers for many of its businesses. These days, the country may be in a position to bring work to its workers, through outsourcing.

"The United Arab Emirates in particular is emerging as the Hong Kong of the Middle East," says Stephen Roulac, a business strategist and location assessment expert. "There's the commitment to first-world infrastructure, and the development of resorts and entertainment. It offers easier entry, and you can live a quasi-western lifestyle if one wishes."
Countries like Egypt are also in a position to seize their own share of outsourcing.
"Egyptians, I wouldn't be surprised, [are] potentially in the top ten countries to outsource a lot of back office operations," says Amar Vakil, founder of the Foreign Investment Promotion Council and a U.N. expert on outsourcing. "Dubai, Mauritius and Turkey also have the right ingredients in terms of people, business and financial resources needed to emerge as leaders in the region. Nigeria has potential. It all depends on the strategic initiatives developed and deployed by their respective governments."
Vakil, who is based in Chicago, recently attended a high-level session at the United Nations that focused on helping least-developed countries emerge. Vakil's belief is that corporations can improve economies throughout the developing world by setting up outsourcing facilities in those areas. The management-consulting firm he's a principal of, Lintas, assists U.S. companies in setting up such facilities throughout Asia.
One thing is clear: outsourcing is here to stay. "The United States will not take these jobs back. We are at the beginning of a big cycle of job movement offshore, especially in IT," says Marc Hebert. "I think that's just a long-term global trend."
And while India may end up being just another competitor in that global trend, right now it's the world's No. 1 - and hungry for even more business. Meanwhile, outsourcing has changed that country from the ground up.
'Nameste' Means 'Hello' in India
When the famous American journalist Thomas Friedman recently visited India, he found himself in the midst of a revolution. An economic one, that is, symbolized by things like traffic signs sponsored by Texas Instruments and a Pizza Hut billboard claiming its pizzas have 'Gigabites of Taste!' "How did India, in 15 years," he wrote, "go from being a synonym for massive poverty to the brainy country that is going to take all our best jobs?"
Indeed, in places like Bangalore, the image of a poverty-stricken, overcrowded India seems to have given way to something resembling America's Silicon Valley. India's high-technology sector is currently growing at 30 percent a year. Nasscom, the association of Indian software companies, claims that the amount of work outsourced to India has gone up 50 percent in the last year alone.
This technology boom hasn't just helped Indian programmers. At call centers across India, rooms of workers handle 'inbound' calls - questions from Americans wrestling with a company's software or airline passengers trying to trace lost luggage. Other workers deal with 'outbound' calls - selling credit cards and various services. They read from pre-prepared scripts, fiber-optic cables and satellites letting the calls cascade out.

"From an Indian perspective, their natural resource is their human capital," says Bill Vance, who was responsible for determining Indian call center locations for SITEL, a global call center company headquartered in Nebraska. "They do have people who are well-educated. You can get a college-educated employee for less than you would pay a high-school-educated employee in the U.S."
Still, a job in a global call center requires some unconventional forms of education. "With Indians, you have to train them in American culture and American slangs," Vance says. "You have someone talking to someone from Georgia, you have to understand the dialects."
This leads to slightly surreal scenes in the classrooms run by call centers, with, according to Friedman, dozens of young Indians repeating English tongue-twisters like:
"A bottle of bottled water held 30 little turtles. It didn't matter that each turtle had to rattle a metal ladle in order to get a little bit of noodles, a total turtle delicacy. The problem was that there were many turtle battles for less than oodles of noodles."
The workers struggle to soften "t" sounds and to roll that "r." Some companies will even convince a new worker to change their name, Vance says, to one more pronounceable by Americans.
And many are more than happy to do it. 24/7 Customer, for example, plans to grow to 7,000 employees by the end of fiscal year 2004-2005, after having grown 300 percent in the past year. "Before this industry came up with jobs, youngsters used to aspire for jobs in the traditional old-economy companies," says Sikdar. "Alternatively they would take up part-time jobs, enter the family business." All for much less money than they earn working in programming or in the call centers.
This global company has the potential to create a huge international middle class. Given that, it's no surprise that countries are scrambling to emulate the outsourcing model. Yet how safe is this headlong rush, for both the United States and other countries?
Every Action Has a Reaction
Many American companies have reacted to outsourcing like anyone discovering something that saves them time and money, wondering happily why they hadn't thought of it before. ZoeMed, a physician-managed network of online medical centers, began outsourcing its content editing and data-entry to India six months ago. "There's a lower cost," says John Murray, their vice president of business development. "And if you need knowledge of the English language, India is the place to go."
Indian workers could also produce at a much higher rate than the American students that ZoeMed had previously employed. "Basically, it was the attitude of the students: the work wasn't really challenging enough for a college grad, so we tried to work with college students, high school seniors," Murray says. "They didn't want to put the effort into it and produce at a rate that we needed."
Outsourcers aren't just aggressive about their tasks at hand. Many representatives for American companies recount how assertive their overseas counterparts are about taking over more advanced services like Web hosting. Murray says that when he was in India, conversations with companies focused not only on the projects at hand, but also on offering long-term services, things that ZoeMed might only need five years from now.
It's reached the point where even small firms like Philadelphia's Mindbridge, which handles intranet software, feel they have two options: outsource or be overwhelmed. "We've been affected by outsourcing. Our competitors have been outsourcing; we've had to make changes based on what they've done," says Scott Testa, Mindbridge's vice president of marketing. "We've looked into outsourcing to lower our own costs." The company has outsourced some of its work to India, and is looking to do more.
Such competition can also lead companies into a 'death spiral,' a process in which the urge to outsource and cut costs becomes so extreme that it ends up being potentially disastrous. "Companies need to understand and work on becoming more competitive," says SITEL adviser Vance. "By chasing costs lower and lower, it might be a nice short-term solution, but you're going to run out of English-speaking countries to support."

Outsourcing may also sometimes be the wrong tool for the job. It works well if what you're outsourcing is something scripted or rote. That means things like customer service calls, some kinds of software programming and medical transcription work. Having tasks not clearly as defined can lead to problems.
Belle Kulick is vice president of operations for Everdream, an American corporation whose software allows users to manage their desktop environment. In 2003 the company outsourced its customer service to Costa Rica, but brought it back to U.S. shores just a year later.
"Our type of help desk service, we give a lot of autonomy; they're not just scripted. We take any issue, we explore issues beyond what the customer told us," she says. "We found it is not an easy activity to outsource because it is not scripted precisely. You have to listen and understand what the customer is telling you in context."

How many American jobs have actually been lost to overseas outsourcing? Whatever the number, those jobs aren't likely coming back. A Maytag plant in Galesburg, Illinois, was shut down and its production moved to Mexico, where workers earn more than $12 less per hour than their American counterparts. For many companies, moving jobs back to the United States would make as much sense as bringing back the 19th century steam engine just to hire people to shovel coal.
Despite the American controversy over outsourcing, despite the debates and people threatening lawsuits to prevent jobs from leaving, a report from the Bureau of Labor Statistics shows that the loss of jobs overseas is relatively small. Less than 2 percent of mass layoffs in the first quarter of 2004 were due to overseas outsourcing. More Americans were laid off because their jobs moved to a different location within the United States.
Furthermore, the Bureau of Labor Statistics predicts that the American economy will add over 21 million jobs by 2012, dwarfing the approximately three million jobs that independent analyst firms predict will be lost to overseas outsourcing during the same period. Even if there's nothing to fear from outsourcing but fear itself - an empty hysteria akin to that which greeted Japanese economic dominance in the late 1980s - there's still another aspect that needs to be considered: security.

A lot of medical transcription work is outsourced, as are businesses involving credit card numbers. That provides a tempting target for hackers and identity thieves. "You have all these client records located outside of the U.S., in a country without stringency," says Vance. "It's tough for a U.S. company to go over to India and pursue someone who stole credit card numbers."
That's not to say that India is a high-tech version of the Wild West: there's strong rule of law, and, according to Marc Hebert of Sierra Atlantic, not the same tradition of piracy as in some other countries. Some companies avoid security concerns by simply denying their outsourcers access to sensitive information.
Bruce Fenton is president of Atlantic Financial, an investment firm with corporate and individual clients. "Our client data is handled by our clearing firm, owned by Fidelity," he says. "We don't even put the Indian outsourcers in any position; the most confidential thing is some advance news on a product."
Another big way to ensure security is to look for a professional firm. When searching for an outsourcer, Fenton made "absolutely positively" sure to ask for references and a portfolio. "That's what's easy about computer programming, you can ask them for ten Web sites that they've done," he says. "You can tell the difference between an amateur site and a professional site."
There's also the legal aspect. "Looking at strictly legal issues, property-right protections, the laws are not quite as developed," says Jim Stone, chair of the Employment Law Group at the law firm of McDonald Hopkins in Cleveland. "Most American companies know that, but they underestimate the difficulties involved."
Companies tend to underestimate costs, Stone says, not only with regard to employment and other areas, but also in terms of ensuring intellectual property protection. An outsourcing outfit has the potential to cost twice as much because of these issues, something companies must consider, unless they want to wait for regulations to tighten with time.
What Goes Around
On Slashdot.org, a news Web site for technophiles and Web geeks, a pseudonymous programmer recently posted the unique way to make money from outsourcing. "About a year ago I hired a developer in India to do my job. I pay him $12,000 to do the job I get paid $67,000 for," they wrote. "He's happy for the work. I'm happy that I only have to work 90 minutes a day, talking code."
The programmer is so happy with his own take on outsourcing, he writes, that he's considering taking a second job to double his income. And while this story is likely apocryphal, it shows that the potential is there, albeit in more conventional ways, for outsourcing to ultimately benefit Americans.

Vakil, of the Foreign Investment Promotion Council, believes in 'insourcing,' or the theory that outsourcing ultimately creates new opportunities and jobs for Americans. "What outsourcing enables [is,] if you reduce your costs, you have money to apply towards research and development," he says. "Then you hire a different kind of workforce, or reclaim the same workforce."
In Vakil's example, there's a small pharmaceutical company in Chicago, with a workforce of 25 programmers working back-office functions like accounting, maintenance and support. If those jobs are outsourced to another country, the extra revenue from it could be used to retrain those programmers to work in clinical trials." Training," Vakil says. "It's not rocket science. And it means the company could launch new products onto the market."

As a drive through Bangalore or any other major city shows, there's a demand for all sorts of western products - and with outsourcing, people and companies in developing nations will have the income to buy them.
The increased demand is already apparent. An employee at a customer call center in Bangalore may take your call on a phone made by Lucent, type your order on a computer made by Dell, and on their lunch break have a Coke and a Marlboro. Total exports to India by U.S. companies have grown over 60 percent between 1990 and 2002.
A recent study by the McKinsey Global Institute reveals that for every $100 of activities moved offshore, at least $146 of value was created. Suppliers in developing countries capture about $33 of that, with the U.S. gaining $113. That's money flowing into the American economy.
Whether high-tech outsourcing is good or bad, it's an inevitable transition, in the same way that textiles and some manufacturing ended up going overseas. Those jobs have given young workers across Asia and in other countries a kind of lifestyle that they could have only dreamed of before.
That may be of little consolation to the high-tech workers in America who suddenly find themselves unemployed. Their hope is that their education and experience will allow them to survive whatever brave new world is around the corner. Because maybe all this is not an end but a beginning - a better one for everyone around the world.