Outsourcing Outrage as Viewed from U.S., U.K. and India

Siliconeer, News Analysis, Siddharth Srivastava, Posted: Mar 26, 2004

Usually Britain and the United States are in sync on most major issues, including the invasion of Iraq (at the governmental level, at any rate). However, when it comes to outsourcing, the difference could not be starker between the transatlantic cousins. The United States and Britain find themselves at the two ends of the spectrum on the issue. While an anti-outsourcing movement rages across the U.S., in the UK, apart from the trade unions and people affected, everybody (politicians included) wants to join the party — cutting costs to almost a quarter.

Outsourcing is turning out to be a major issue in the build-up to the U.S. elections. U.S.-based top executives of Indian IT and BPO firms are boycotting the fund-raising dinner parties for John Kerry, who has been dubbed the “BPO party spoiler.” President George W. Bush had to turn defensive after a backlash over an aide’s contention that free flow of jobs, including the migration of services to India, benefited the U.S. economy in the long run. Although White House economic adviser Greg Mankiw was merely echoing what was stated in Bush’s economic report to Congress, Washington’s political class lashed out at him.

The case of the U.K. is different. It will be “wholly wrong” to adopt a protectionist attitude regarding outsourcing by British companies to India, a 10-member all women Labor MP delegation said after a visit to India. “The whole group felt that it will be wholly wrong to be protectionist on the issue of outsourcing which not only helps India but also the British companies,” Dari Taylor, leader of the delegation, said.

Similar sentiments were echoed by Stephen Timms, the U.K. minister for e-commerce, department of trade and industry, earlier in the month.

“We don’t want to interfere in the decision-making process of investing companies. We will leave it to the market forces to make decisions. I believe protection is not the way for progress,” he said.

The list of companies based in U.K, outsourcing to India have grown exponentially over the past couple of years. They include all the big names — Abbey, ABN AMRO, American Express, Aviva, Axa Insurance, Barclays, Citibank, Deutsche Network Services, Goldman Sachs, HSBC, Morgan Stanley, Prudential, Standard Chartered Bank, JP Morgan Chase, Capital One, Lloyds TSB, Accenture, AOL Online, British Airways, British Telecom (with plans to mover more than 7,000 jobs,) Dell, GE (over 11,000 employees), Ideal Shopping Channel, National Rail Enquiries (plans to move 600 call center jobs to India), Tesco, Vertex. Among the US biggies assigning work to Asia are Oracle, Hewlett-Packard and AIG Life Insurance.

The difference in approach in the U.K. and U.S. is due to economics scoring over politics or vice versa. While political compulsions score high in the U.S. in an election year, in the U.K. the movement of jobs is related to good business sense.

Indeed, as far as business is concerned there appears to be a near unanimity that outsourcing is good for individuals as well as economies. There will be the initial hardship of a job loss compensated by re-training and creation of other jobs. A Bloomberg report said that Atlanta-based Delta Air Lines created 1,000 call-center jobs last year in India. The Indian operations saved $25 million in 2003, enabling the No 3 US air carrier to add 1,200 positions for reservations and sales agents at home. But no Delta employee lost his or her job as a result of outsourcing.

General Electric has created 20,000 jobs in India since 1997. Peter Stack, a GE spokesman, said: “When we sell effectively to international markets, it grows our business, and that benefits our workers here (USA).”

Economists including Stephen S. Roach of Morgan Stanley have all come out in support of outsourcing, saying it will benefit the U.S. on a long-term basis. US Federal Reserve chairman Alan Greenspan has strongly defended free trade in goods and services. McKinsey has estimated that every dollar of U.S. labor cost assigned overseas will generate $1.12 to $1.14 in additional value for the American economy by making goods and services cheaper and companies more competitive.

Hewlett-Packard chief executive Carly Fiorina has urged tax reductions and better schools to improve the competitiveness of U.S. industry.

Business groups in the U.S. are protesting growing attempts to curb outsourcing. “We want to grow the worldwide economy and create jobs. Isolating ourselves is not the way to do it,” director of communications from Business Roundtable Tita Freeman has said.

The Business Roundtable is an association of CEOs of the biggest firms in the U.S. and it recently urged the Bush administration not to be swayed by the public furor over the loss of American jobs overseas and not to espouse policies that would prevent American firms from getting jobs done cost-effectively, including outsourcing and subcontracting to countries like India, China or Russia.

Opponents of moving work offshore, such as Paul Craig Roberts, former assistant secretary of the Treasury during the Reagan administration, say that times have changed and that today’s migration of service-industry positions isn’t likely to provide the benefits that some economists say it will.

“It is not your father’s traditional foreign trade,” Roberts said in an essay published by NewsMax.com. “Goods are not being traded. Offshore production is not a case of the U.S. making good X and trading it to China for good Y. It is a case of the U.S. ceasing to make good X in the U.S. and making it in China instead.”

Here in India, the reactions have been of unqualified umbrage.

“The laws are a surprise,” Commerce and Industry Minister Arun Jaitley said, recalling his meeting with US trade representative Robert Zoellick in June last year in which Zoellick had termed as “bad policy” attempts then being made some state legislatures to ban outsourcing of government contracts to countries such as India.

Zoellick who was in New Delhi recently met Jaitley to discuss a range of trade-related issues. Speaking to reporters after the meeting Jaitley said that any further progress in the WTO linked to opening up of Indian agriculture will be pegged to the U.S. approach to outsourcing. “It is strange that on the one hand, people are talking about opening of markets, and on the other hand, banning business process outsourcing. Our agriculture is fragile as it is not subsidized, like in the U.S.,” Jaitley said.

Echoing similar sentiments, information technology minister Arun Shourie has said that this was not the way Washington could advance in the backdrop of multilateral trade negotiations. “I feel this would worsen prospects of multilateral negotiations in trade,” Shourie has said.

“We must continue to move up the value chain and evolve such solutions and services which are good and cost-effective and Indian IT companies must diversify to other markets,” Shourie said.

Indian industry too has reacted angrily to “protectionism” building up in the U.S. ahead of this year’s presidential election.

Software industry association Nasscom president Kiran Karnik said, “We are dismayed. Such legislations are not in keeping with the increasing globalization of trade which benefits all countries and is contrary to the spirit of free trade espoused by the U.S.”

Observers in India say that U.S. lawmakers are being shortsighted and populist and will be brought to their senses when enough qualified people are not found to do the job.

On the next course of action, the advice is to bide one’s time taking a leaf out of the response to outsourcing in U.K. The belief is that matters will die down. Some prominent American think tanks (Economic Strategy Institute, East West Center), have already advised India to keep calm for the moment, as the outsourcing backlash is likely to die out once the elections are over in the U.S.

Shourie has said: “The real action has to come from the firms who avail our services and they must know the consequences on their competitiveness if they are not allowed to outsource.”

In a broader context, the moves are being seen in India as a test of U.S. commitment to the ideal of free trade. To votaries of free trade, any attempt to erect barriers in services is as reprehensible as maintaining barriers in the movement of manufactured goods.

NASSCOM, the leading software forum, has advocated that India keep it counsel and observe a low profile strategy, as the anti-outsourcing bills are likely to be ineffective. They will end up costing more U.S. jobs than they save. The bills will be shelved the moment a new government —Democratic or Republican — is in place.

Siddharth Srivastava is a journalist based in New Delhi.


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