Saturday, February 07, 2004

Moving Jobs Offshore

I'm intrigued by all the negative press the outsourcing of jobs is getting. Almost every article talks about outsourcing and then adds "offshore" somewhere in the main text whilst talking about India. Most of the stories so far refer to call centres. First up, we've (and by "we", I don't mean anyone in particular - just businesses and governments generally) been outsourcing jobs for years. Whether to India or not is not the point. Any outsource deal is constructed so as to reduce costs over time (and often from the first day) for the company giving away its non-core functions. That means ways are found to do the same work for less money - and that usually means fewer people. So, as companies grow and focus on the key areas for their business, they give away more and more and add people where it matters to them. Second, we've also been moving jobs offshore for years. In previous companies where I've worked, the "offshore location of choice" was Dublin. The population was young and well-educated (usually 1-2 foreign languages per head), salaries were comparatively low and the Irish government were giving tax incentives to encourage development. From the mid-90s to perhaps now, dozens of companies moved operations there from all over Europe. After the first few moved, of course, salaries moved up and - more to the point - staff jumped from one company to another for a small pay rise. Those who gave the best training to their staff probably lost them fastest. After all, a £2,000 pay rise to someone earning £14,000 can be pretty life changing. What could have been interesting with India is that, because the population is so large, it will take longer to reach the point where people are moving jobs for small salary increases - but I see no chance of that because the best people will always be more employable than others and with so much business opportunity they will be in high demand from both existing and new players. Third, emerging market economies have been picking up jobs for years too. Education is strong, infrastructure is improving and capability is maturing. How many silicon chip factories do we have in the UK now? None? Intel may build Pentiums in Ireland - but the real powerhouses of chips are Taiwan, Korea and doubtless Malaysia, Indonesia and maybe even India sometime soon. Can you buy a British designed, British built TV today? Not that I'm aware. But unemployment is at its lowest for as long as I can remember. Banks have been moving jobs offshore to emerging markets for a long time, but I expect that most of us have probably only just noticed. My guess is that many corporate bank reconciliation is done in India now - why do it in Europe? It's only balancing accounts and looking for money - the right skills make the place irrelevant. Banks also moved technology development offshore - one that I worked at created their first Indian dev centre in 1991 or 1992 - and they have a Level 5 SEI grade (and have done since 1995 I think). Call centres is another part of this trend. Just another part. Not something radical and new that we should worry about. My guess is that the call centres that remain will take on more and more "premium" jobs - and some people will even be prepared to pay extra for that service. If your bank call centre keeps messing up and not fixing things, you'll move banks. If you think that a bank with a call centre in the UK will do better, you'll go there. It's supply and demand, word of mouth, magazine recommendations and whatnot. Equilibrium will be reached for a while, and then the next trend will emerge without most of us noticing it; gain scale; become a topic in the press and then the cycle repeats. The problem, if there is one, is that we all want more for less all the time. The managers are beholden to their customers who want more services for less money and beholden to their shareholders who want more profit on more revenues for less risk. The staff want more money for the same work and perhaps a bit more holiday and a better chance at promotion. Who'd be a manager in a big company right now? Managing a company or a government business is always about balancing costs and revenues alongside risk. If the risk is high that your customers will leave if you offshore work, you probably won't do it (but you might offshore roles that don't touch the customer); if you are struggling to maintain costs in the absence of revenue growth, you'll look hard at the maths of moving offshore; if you need capacity but can't find it in the UK (because the right skills are not there in the volume that you need, you'll look elsewhere). If in 1995 Dublin was offshore and in 2004 India is offshore, where next?

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