Vol. 49, No. 4
Keep up to date with the latest developments in the offshoring debate. Check back throughout the month of April, as this blog will be updated to reflect the latest developments. It will also be maintained periodically throughout 2004. (Note: This blog is presented in descending chronological order; that is, the most recent articles are on top.)
At tomorrow's IBM shareholders meeting in Rhode Island (4/27), several groups will protest Big Blue's offshoring practices. "There are two issues that we're going to focus on at the rally. Number one is the offshoring of jobs," Linda Guyer of Alliance@IBM, organized by the Communications Workers of America, tells Reuters. IBM announced earlier this year that it's moving 3,000 jobs from the United States to countries with lower wages.
Prominent U.S. companies are still sending jobs overseas -- but they're keeping their lips sealed while doing so. That's what a Reuters article contends. "The public discussions are significantly lessened, but that doesn't mean that the activity is going away," said Peter Allen, president of outsourcing consultant TPI, told Reuters. "The fear of political backlash -- and media exposure -- also is driving more clients to ask service providers not to disclose offshoring deals to the media," the article concludes.
Despite fears that call-center jobs are ripe for offshoring, in the United Kingdom, job growth in that sector is expected to continue -- albeit significantly slower than in less-developed countries. "The number of UK call centres will grow by a compound annual growth rate of just 2.7 per cent over the next four years, peaking in 2007 with 499,000 staff," reports the Silicon.com web site. By comparison, the number of call-center jobs in Poland will double by the end of 2007. That translates to just over 50,000 jobs.
A number of state and local initiatives call for local governments or companies doing business with them to stop outsourcing. eFunds, a contractor with the state of Utah, is bringing back to the state jobs that had been outsourced to India, reports the Economic Times. The estimate is moving the call center back to the United States will cost the Utah government more than $60,000 annually.
What's the opposite of "offshoring?" A Newsweek feature suggests that companies who have sent jobs overseas are having mixed results. "As U.S. companies move from exporting call centers to outsourcing more complex work like software development, they're finding overseas workers are often ill-equipped to deliver consistent, quality work," the magazine reports. "The bad experiences are creating a boomerang effect—the return of jobs to the United States -- which some have dubbed 'onshoring.'"
The biotech industry used to rail against allowing competition from developing nations like China and Indiana. "Fast forward to 2004," says an article in the San Francisco Chronicle, "and some Bay Area companies think the very threat they were guarding against -- countries like China and India that have emerging biotech clusters -- might now be one of the keys to their survival." While moving these jobs overseas may create headaches in one area of HR, it may help alleviate them in another: One of the effects of these moves may mean lower prescription drug costs.
Is offshoring one of the best things that's ever happened to Scottish banks? That's what Lloyds TSB executive Susan Rice tells the U.K.'s Sunday Herald, as that financial institution sends it call center operations off to India. Rice's remarks are serving as a rallying cry for the LTU, the union representing bank employees.
Are workers whose jobs have been sent overseas eligible for protection? "A group of South Portland [Maine] technology workers who say they lost their jobs to workers in India have applied for federal trade-protection benefits," reports MaineToday.com. The workers are asking for relief under the federal Trade Adjustment Assistance, which was created in the 1960s to provide aid to manufacturing workers who lose their jobs because of import competition or a shifts to overseas production.
More pointers, this time from the Australian version of ComputerWorld, on "how to prevent offshoring from taking your job." The advice is aimed at technologist, but the pointers apply to anyone engaged in business processes. They include learning to communicate effectively; developing your management abilities; and conside consulting as a career.
Want proof business process outsourcing is becoming an ingrained part of how companies do business? There are now panels on how to successfully offshore at conferences. Speaking at a recent meeting of the Massachusetts Software Council, Upromise's Dave Andre outlined tips he learned when his company began to ship out business functions: Understand your international vendor's real business model; communicate early and often with stateside staff; and anticipate training and other overhead costs to be higher than expected, and first-year savings to be lower. More from Computerworld.
Democratic presidential candidate John Kerry has gone on the record saying companies that offshore jobs are "Benedict Arnolds." That statement is costing him some monetary support, reports the New York Times. Marc Andreessen, who ran, among other things, Netscape, says he won't financially support Kerry "if they're going to run on an anti-business message." The article notes that not all Silicon Valley execs are enamored of offshoring: "All Kerry is saying is: 'Let's stop wasting taxpayer money to give incentives to take jobs overseas,'" says InfoSeek founder Steve Kirsch.
One unintended consequence of offshoring: reduced income tax revenue. The AP reports that economists and politicians alike are beginning to worry could make worse budget crises in states around the country. "If 3.3 million white-collar jobs and $136 billion in wages move overseas by 2015 as Forrester Research predicts, that means federal, state and local tax receipts could decline as much as $34 billion," the article notes.
When jobs are sent overseas, who trains the new workers? Often, it's the soon-to-be-ex-workers based in the United States. USA Today reports:
Here's what typically happens: U.S. workers getting pink slips are told they can get another paycheck or beefed-up severance if they're willing to teach workers from India, China and other countries how to do their jobs. The foreign workers typically arrive for a few weeks or months of training. When they leave, they take U.S. jobs with them. The U.S. employees who trained them are then laid off. Employers say they need workers to train replacements to ensure a seamless transition, but the practice is coming under fire.
Is offshoring a U.S. "problem" (or "innovation," depending on your perspective)? Hardly. In Europe, offshoring is also emerging as a political issue. The UK leads the way, accounting for 35 percent of all offshoring or nearshoring (using workers outside of England, but located in nearby European nations, rather than in Asia or North America) expenditures on the continent this year. And, experts expect this trend to continue as the European Union adds new members this year, including the Czech Republic, Slovakia, Poland and Hungary -- already popular offshore destinations. Just this week, German telecom giant Siemens has confirmed it may be shipping more than 10,000 out of Germany to low-cost facilities in Eastern Europe and Asia. The SHRM Global Forum takes a look at offshoring in Europe.
In a political year, offshoring represents an HR-related issue that is front-and-center in the national debate. President Bush commented on the issue in a speech in Wisconsin March 31, noting "a lot of talk about jobs going overseas." The president said "the best way to deal with that in my judgment is to make sure America remains the best place in the world to do business so that our job base will expand." Such a laissez-faire approach isn't sitting well with Democrats and even members of Bush's own party. "Republicans have to have a better response because the Democrats are going to hit this until the horse drops," Sen. Lindsey O. Graham (R-S.C.) tells the Washington Post. "So far, we've had an academic response to an emotional issue, and that never serves you in politics." Republicans are expected to push initiatives calling for, among other things, corporate tax cuts, regulatory relief and lawsuit curbs to encourage domestic job growth. Democratic presidential candidate John Kerry has already called for tax incentives to hire U.S. workers and discentives for farming out jobs overseas.
Because the decision to offshore is often seen as a financial one, HR may not always be involved in the decision-making process of whether to offshore. In an article in the latest Workplace Trends (the full issue looks at offshoring), SHRM's Workplace Trends Program writes that "Once the decision to offshore has been made, HR is responsible not only for managing the people management practices across all operations but for also managing the impact the decision to offshore has on the remaining U.S. employees." HR also must manage "the continuing cultural and personnel challenges as they arise." However, it's the former issue that presents the biggest challenge. "If employees feel in danger of being laid off as jobs are moved overseas, commitment and engagement are likely to be damaged."
Where do companies go when they want to offshore? According to AT Kearney's "Offshore Location Attractiveness Index," India and China are the leaders, with Singapore, New Zealand and Ireland gaining speed. "India has extended a significant lead through its continuing cost advantages and its increasing market maturity," said AT Kearney's Stefan Spohr tells the India News.
A new study by the Information Technology Association of America says that, in 2003, the practice of "global sourcing" created 90,000 more jobs in the U.S. than were sent out. The study (a summary of which is available here in PDF format) says that, without the savings being created by offhsoring, the IT industry would end up creating 25,000 fewer U.S. jobs in the next five years. Another report from the American Electronics Association similarly contends that offshoring provides more benefit than harm in its industry. However, a press release from the Institute of Electrical and Electronic Engineers aims to refute such claims, pointing out that since offshoring of high-tech positions has gained a foothold in the industry, the unemployment rate for U.S. computer scientists and systems analysts reached an all-time high (5.2 percent in 2003, according to the IEEE).
Economists contend offshoring is nothing new and that the reason the practice off sending jobs overseas is garnering attention now is that a new class of jobs is involved. The Wall Street Journal (via the Indianapolis Star) takes a look at some of the professions ripe for offshoring. These include medical transcription, accounting, technical writing, architects and insurance claims processors. "You've got to look in the rear-view mirror when there's someone else coming on the job scene who can do what you can do for less," advises John McCarthy, a Forrester Research Inc. vice president.
Add medical transcription work to the myriad of functions being exported to overseas worker. However, a report in the San Francisco Chronicle notes that one key risk in offshoring this work is that patient privacy could be compromised. "American companies ship personal information outside the country and tell customers to check their privacy at the shore," Rep. Edward Markey, D-Mass., tells the paper. But, Tomi Ryba, chief operating officer of University of California San Francisco Medical Center (which has experienced at least one breach of privacy with overseas transcriptionists), tells the paper such risks occurs any time hospital outsource medical transcription, even to U.S.-based work centers. "We'll have to live with this risk on a daily basis," she says. (The Chronicle also has a diary of offshoring-related articles on its web site.)
U.S. tax returns are being prepared overseas. The Miami Herald reports that accounting firms are among the many U.S. companies sending work overseas to save on labor costs. IRS commissioner Mark Everson tells the paper that such practices are perfectly legal and that "there is no requirement that it be disclosed to taxpayers."
Offshoring means better wages -- for Indian workers. High-tech industry web site CNet News.com reports pay rates for workers in India are on the rise. "Information technology workers in India reported double-digit salary growth in 2003, according to recent research, while pay for similar work within U.S. borders has been relatively stagnant if not declining," CNet says.