Inside offshoring: Job losses and backlash

COMMENTARY--Two of the most contentious aspects of the offshore outsourcing debate are the argument about the loss of jobs from western economies such as the U.K. and United States and the quality of customer service from Indian call centers. As we see more and more headlines screaming about thousands of call center and software development positions being offshored to India, the backlash becomes more and more hysterical.

But it is a threat that many IT workers feel is real. For the first time a significant proportion of silicon.com readers said they felt their job was under threat from offshoring in our Skills Survey 2004. Other figures, at first glance, are equally alarming, with Gartner claiming millions of western IT jobs will move offshore by 2010. Another report by research firm Evaluserve says 250,000 U.K. jobs will be offshored in the same period.

In the short term there is undoubtedly an impact on some local communities if work is moved overseas but the debate is far more complex than simply accusing multinationals of selling U.K. workers down the river to save a quick buck by hiring cheaper staff in countries like India.

On a recent fact-finding trip to India to explore the offshore industry, silicon.com found that on the ground in India there is more concern with the U.S. backlash than the U.K., and the expectation is that once the U.S. presidential elections are over this November it will drop off the radar of politicians keen to score points with the electorate. The general consensus is that the U.K. government is supportive of the offshoring trend and that it is an irreversible market force.

We put the key points in the jobs and backlash debate to the main Indian IT companies and Indian IT trade body Nasscom while traveling around Bangalore, Hyderabad and New Delhi. To get the full picture we then put their views to finance union Unifi back here in the U.K. Here are their responses.

Are significant numbers of jobs being lost as a result of offshoring?

The argument from the anti-lobby here is that offshoring results in a direct displacement of the U.K. workforce and has a negative impact on the community and economy. Sudip Banerjee, president of enterprise solutions at Wipro, argued U.K. companies are struggling to fill these jobs anyway. "It is not as if people are queuing up to take these jobs. And they do it in a disinterested manner. They don’t see it as a career," he said.

It is a position backed by Sunil Mehta, VP at Nasscom. He said: "There is a growing recognition there is a demographic issue in Britain. By 2010 there will be a shortage of people within the working age group."

Dai Davies, communications director at Unifi, said that doesn't take into account the full picture and he said: "The total number of jobs remains fairly stagnant. If you start shifting them to Asia, that comes down."

Offshore backlash--tabloid hysteria or real threat?
Akshaya Bhargava, CEO of Infosys' BPO subsidiary Progeon, believes the U.K. backlash is confined to the pages of the Daily Mail. "Somebody in Amicus comes and makes a statement and then they show a photo of a train packed with people," he said. "The U.K. economy is doing so much better and house prices are doing great so there is a general feeling of well-being and I guess some people don’t like it but by and large the economy is fine."

Over at Wipro's BPO Spectramind, chairman and MD Raman Roy said the upcoming US elections have created a backlash climate in the short term but that there are advantages for India. "A lot of companies didn't even know India existed. There is a heightened awareness," he said.

But Unifi's Davies claims the backlash is very real and that companies considering offshoring need to take it seriously. "We're already seeing marketing angles coming from companies not offshoring, seeking to create a competitive edge. It is not a racist nationalist issue, it's a consumer choice issue," he said.

Yet the overwhelming consensus from India is that offshoring is an irreversible trend that no backlash can stop. Saurabh Srivastava, executive chairman of Xansa India, said: "The only way to stop it is to close the borders and that doesn't work--the best example there is India. Before that the economy never grew by more than two per cent. Now it is [growing at] 10 per cent."

Which brings us to the economic argument--India and other offshore countries obviously benefit, but what about western economies?

Nandan Nilekani, CEO, president and MD of Infosys, said it is part of globalization and that there are benefits for everyone. "It makes western companies more competitive and it helps countries like India become part of the global economy, which will help them from an ideology sense of improving the quality of life but also help in creating markets for western products," he said.

The development of western economies after manufacturing moved to cheaper overseas locations during the 1970s to service-based economies is often cited by the pro-offshoring lobby as an example of how things will pan out this time around. Unifi's Davies is not so sure.

"Manufacturing had a safety net in the service sector. We can't see that safety net here," he said. He added that the 'India Shining' economic miracle is also not all that it seems and that the BJP party paid the price for it in the recent elections. "One billion poor people in India are not getting the benefit of this influx of investment in India. It is also taking graduates out of social sciences such as medicine and engineering which they need for the future," he said.

But offshoring has the potential to give the U.K. a competitive edge over other European countries, according to Xansa's Srivastava. "The U.K. is ahead of Europe so the U.K. gains more and loses less. Because U.K. companies are beginning to understand how to create advantages in performance through outsourcing, they'll put pressure on competition in Europe who will not be able to compete. That in time will create more jobs," he said. Srivastava argued that non-English speaking European countries will not be able to leverage the cost advantages of offshoring to India.

Are questions about the quality of offshore service legitimate or just anecdotal?

Stories such as Dell's decision to redirect calls from its Indian facility to the US and Capital One's dropping of telemarketing services from Wipro Spectramind raise questions about the quality of offshore service. Other people have horror stories about dealing with agents in Indian call centers--though much of this is anecdotal and it ignores the quality of service experienced from call centers based here in the U.K.

Wipro's Banerjee said people are jumping on every little mistake or problem without putting it into the context of how much work is done from India. "It is just disproportionately high publicity for something which is a very normal occurrence in the industry," he said.

Sound independent metrics are hard to come by but Rajesh Magow, CFO at ebookers' Tecnovate BPO in New Delhi, said four of the company's top ten sales people are in India. "In our telesales for U.K. the conversion rate started at 9 per cent and has gone up to 29 per cent, which is compared to the U.K. call center at 21 to 25 per cent."

Progeon's Bhargava is more scathing of criticism of Indian IT and call centre workers' language capabilities and said people use it as a convenient excuse to criticize service. "I watch Welsh TV in London and I don’t know what the hell they are saying," he said.

How bad is the attrition among Indian call center and IT workers who typically are graduates doing repetitive monotonous work and long shifts?
Again this is an area where the Indian companies feel they have been unfairly portrayed--staff turnover figures of 100 per cent are often bandied around--and that the problems they experience are no different to those in the U.K. At ebookers BPO facility Magow said the annual attrition rate is just 10 to 15 per cent.

Xansa's Srivastava said that turnover is no more of an issue than in any other country for this type of work but the difference being the quality of workers in India. "The U.K. work is done by less qualified staff. Here, for a whole class of people it is aspirational. It is the best job they can get in terms of work environment," he said.

Progeon's Bhargava claims it is important to distinguish between attrition rates in call centers and in IT-based operations and that the only way to get a true picture is to compare those figures with the U.K. and United States. "There’s somebody I know who runs a very large call center operation in the U.K. heading 16 call centers. This lady tells me her attrition rates are somewhere in the region of 135 per cent," he said. "What you’ve got to remember is that call center jobs in the west are not the most attractive jobs you can find. They are staffed by temporary workers, by people in between jobs, by people on the edge of social security, barely finished high school and that’s the kind of profile you get."

Unifi's Davies agreed to some extent but claimed that simply using poor U.K. conditions as an excuse to cut costs and offshore the operation is wrong. "They are poorly managed, there is difficulty in recruiting, there is difficulty in the skill set and that's a management problem. You cannot simply export that," he said. Davies argued that companies should take advantage of technology to improve their U.K. operations rather than just use it to export business processes.

Articles and commentary on IT offshoring and BPO in India and elsewhere will be appearing on silicon.com over the coming weeks. You can find them all here.

biography
Andy McCue is a staff writer for silicon.com.