Outsourcing Impact on business, economy & jobs of both Wealthy and poor Nations
Author: Lakshman Balasubramanyam
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It gives me great pleasure to be in front of you today and to share my knowledge on one of the most talked about issues of a modern business necessity. OUTSOURCING. When I met with a few Lords the other evening and when he asked me if I would be interested in addressing this subject, I jumped at the chance. Over the last few days while I have been preparing for the same, the elections were in full swing and the subject on everyone’s top of the mind was the sensitive issue of Outsourcing. Quotas and restrictions on the entry of immigrant workers. Impact of businesses moving jobs abroad or businesses themselves moving abroad. I have taken the bull by the horn to discuss the subject of the impact of Outsourcing on Business jobs and economies today to bring the same into perspective. The truth about the speed, scale and unstoppable momentum of business process outsourcing. What will be the net impact on the UK and European economies? How should company executives and union leaders respond to emerging markets? Can or should the process be reversed? Advantages and disadvantages of outsourcing? Outsourcing is very controversial and affects every part of business from manufacturing through to design, software development, financial control, logistics management, customer support and sales. Outsourcing has been praised as cost-effective, efficient, productive and strategic - but also condemned as evil, money-grabbing, destructive, ruthless, exploiting the poor.. Outsourcing can generate weeks of hostile media coverage, widespread protests and industrial action. The issue is so sensitive that decisions are usually taken behind closed doors at the most senior levels in the organization, and only announced after much careful research into how the proposals are likely to be received. If handled badly, business process outsourcing can damage corporate image, weaken a brand, unsettle customers, and result in lower quality of products and services. But when handled well, the results can be good enough to save a failing corporation.
WE have to show why outsourcing is right If we want to save money fast and take everyone with us, we have to convince those involved that the world will be a better place as a result. Take the high moral ground. A good example of this has been tensions over relocating call-centres and software support from countries like the UK and the US to East Asia . More than 100,000 jobs are bring lost each year in Europe and as a result of outsourcing - but the facts are that many similar number of new jobs are being created at the same time. Union members have protested that jobs are being destroyed in an immoral way, not only because communities are hit back home, but also because they argue the new jobs created in other countries pay very little and exploit the poor. They have often driven vigorous campaigns at work and in the media, designed to block the process. This has happened because many of the corporations concerned have failed to tell a good news story in a convincing way, to explain why business process outsourcing will result in a better future in a broad sense - not just for shareholders. We as a collective body have failed to communicate the right message on Outsourcing. So what is the good news story? First you have to tell the bad news, and prepare the ground for how you are going to save the day. Corporations may differ, but when it comes to outsourcing to a developing country, the better world promise is nearly always identical. As a business, a corporate entity looks at Outsourcing decision making from the perspective as I list now.
BAD NEWS The business needs to take urgent action to reduce costs If the business is not run efficiently, everyone could lose their jobs People who have entrusted their life-savings to the business (mainly pensioners), will also lose their money Customers will feel exploited by the business’s high prices, and will go elsewhere GOOD NEWS Outsourcing can easily save costs, save the company, save most people's jobs, keep prices down and offer great service - by relocating some jobs to other, less expensive parts of the world Highly skilled people are available in some of the poorest nations Their daily costs of living are lower, and we can pay them less while still enabling them to enjoy a good standard of living. People in these countries really do need our support and investment Every job we create in these countries can create many others as new money flows into the national economy, and is spent on local goods and services By investing in these countries, we are also helping them develop into new markets for our own business, which is good for everyone We are also doing our part to help tackle the greatest moral challenge of our time, which is the growing gap between richest and poorest nations, helping build international peace, prosperity and security for a better future
And so the message continues: In summary, if we continue as we are, the result will be disaster for everyone - customers, workers and the community. If we outsource, the future will be better for all, apart from a few who we deeply regret will lose their jobs for the sake of those who remain. We are deeply indebted to them for the contribution they have made and are committed to their future. We will do all we can to help them find employment elsewhere. It matters how outsourcing is done It is harder to argue for outsourcing if the corporation is making record profits, is not facing significant competitor pressures, and is making people redundant against their will. On the other hand, few labor organizations consistently oppose outsourcing if the corporation is vulnerable, competitor pressures are severe, other companies have already led the way, and if existing workers are being offered voluntary redundancy on reasonably generous terms as well as retraining. And of course, people also want to see assurances that new workers in emerging countries will get an appropriate, fair wage and safe working conditions.
Facts about Outsourcing Some say that it is wrong to pay people in India and East Asia less than the same job would justify in somewhere like the UK. However we need to compare not just salaries, but what those salary levels will actually buy in different countries. An IT professional in Asia may be far better off in terms of lifestyle, even though paid only a third of the UK salary. It all depends on exchange rates. The pressures will continue to grow, not just for cost saving, but also for quality, service and speed.
* Asia produces more than 1,250,000 new IT graduates a year and produces more than a million engineering graduates a year, plus 16 million others with engineering diplomas. Asian countries are now leading the way in new areas of pharmaceuticals, biotech, electrical and mechanical engineering. * One in 5 UK workers at risk from outsourcing have difficulties reading and writing. The UK struggles to turn out just 8,000 IT graduates a year. * Most outsourcing is by large companies, yet small companies provide most jobs in America and Europe, and most of the economic growth. Big companies create headlines but the greatest impact is elsewhere and almost invisible. The UK has 3.3 million companies. If each one takes on just one more person on average, the result would be more than 3 million new jobs, and that is what has happened in the last few years, with unemployment at very low levels despite several million people added to the labor force. Yet 6,000 redundancies at a factory is mistakenly seen as a national crisis.
* Each outsourced job in Asia can generate work for more than 20 other people as the money flows around the national economy usually at a far faster rate than in countries like the UK * When a product is manufactured in China instead of the US or Europe, only a small part of the total retail price lands up in that country. Most is taken as before by the retailer, wholesaler, distribution system, research, design and development teams and company owners as profit. So the impact is less than you might expect.
* Research shows that some of the new economic activity generated in developing countries by oursourcing will generate new demand for goods and services in the country where the jobs have moved from.
* Outsourcing saves money for corporations which means lower costs for consumers, and higher dividends for pensioners who own 75% of European and UK wealth - that means more money to spend on other things such as local services (meals out, beauty treatments, gardening, decorating etc) and that produces new jobs. * Outsourcing has meant for example that you can buy a DVD player for less than 50 GBPs. It is one reason why retail costs of products has halved in many sectors over the last 20 years, allowing for inflation. * Future economic growth depends on new generations of creative, dynamic entrepreneurs, with good access to venture capital, who will drive national economies through transition.
Making a stronger case for high performance Too many business leaders talk about high performance as a general aim without making a powerful enough case for it. They assume that everyone will automatically sign up to deliver high performance because by definition it is a GOOD THING. But the reality is that for individual team members, demands for high(er) performance are often a BAD THING for team members who suffer longer hours, land up working even harder, chasing even more stressful targets. That's why we have to be convincing and passionate about the reasons why high performance is so important. In many industries the answer is obvious: safety. For example, air crews hardly need lecturing on the consequences of poor plane maintenance. But many other kinds of business struggle to make as convincing a case. "We want to reduce errors in the packages we send out because it is so annoying to be on the other end, and it takes us all ages to sort out." "When the software crashes, it's a complete waste of time and very frustrating." Sure, it matters, but not as much as a plane crashing, hardly a matter of life and death, but it must be a matter of life in some significant way if we are to engage passion. Failing that, all we are left with is a GOOD NEWS / BAD NEWS story like the outsourcing example where the only reason we can give to get people's attention on performance is that without it, the entire corporation is at risk. The fact is that OUTSOURCING enables this to happen. We are not able to do without it and the same time we are not able to live with the repercussions of the same. The best way forward is the for the Parliamentary Special committee to map out specific direction to organizations on guidelines about the communication procedures to the public and Unions on the same to enable uniformity and strong messaging that enable the process to benefit the corporate and the economy and Unions.
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About the Author
Lakshman Balasubramanyam, Nottingham, Nottinghamshire, UK
lakshman@ienergise.com
Learn more about Impact of Outsourcing on economy
Dr. L Balasubramanyam is a Senior Executive with Handa FC and iEnergise Limited. He has a doctorate in Dynamic Simulation Modelling for Staffing in IT projects. He is also a keen researcher in the Use of Fine chemicals and natural extracts for various industries and contributes article ...