Thursday, April 21, 2011

Offshore Outsourcing - The Unspeakable Taboo

I recently participated in a contact centre industry event in Sydney. Predictably, many of the vendors that sponsored and presented at the event were promoting offshore contact centre services.

The sales messages, as always were very compelling. Offshore contact centre destinations such as the Philippines offer many benefits above and beyond lowering costs. The availability of skilled staff who are willing to work as contact centre agents is much greater than in mature economies.

However, what was most interesting to me was the unwillingness of delegates to openly talk about the benefits of sourcing contact centre services from offshore locations. Talking positively about offshore outsourcing has now become taboo. Companies that purchase these services prefer not to discuss them at all. Financial services organisations, in particular, seem terrified of negative stories appearing in the press about them ‘sending local jobs overseas’ and creating unemployment in their home markets. Worse still, they fear being forced to justify their business decisions to politicians that take a steadily growing interest in their operational activities.

Indeed, offshore outsourcing has become a major political issue. The most commonly articulated views on this matter are negative. Few politicians will argue publicly in favour of sourcing services from offshore destinations. Only the business press writes about any of the benefits of offshoring.

To me, the success of the offshore outsourcing market is one of the few obvious benefits that globalisation delivers to ordinary people. It creates jobs and business in parts of the world that have been starved of investment and opportunities. It also enables poorer countries to sell services to rich countries. Today, Australia sells a lot more to India than India does to Australia. So, it doesn’t seem right that people should complain about the balance of trade becoming more even as Australian companies buy more services from India. We cannot continue to live in a world where a few countries hoard most of the wealth and create international trading environments that reinforce global inequalities.

Indeed, large businesses in Western countries prefer not to discuss the massive benefits that offshoring is offering to communities in poorer countries. They seem to be unwilling to stand their ground on this issue. In the case of offshoring, it is one of the few areas in which financial services organisations can claim to be on the moral high ground.

An interesting paradox has emerged in Western countries. It is often argued that those that work in the banking sector must continue to receive very large bonus payments or their jobs will go offshore. On the other hand, it is also argued that we must be in a position to lower the costs associated with employing ordinary workers or risk their jobs going offshore. Many of those in the financial services sector are happy to publicly justify sky high bonuses that clearly demonstrate market failure to any student of economics. On the other hand, they are much less likely to publicly justify an activity in which the market is working to the benefit of ordinary people, namely the provision of services from poorer countries that benefit hugely from this trade.

5 comments:

  1. Great post Andrew on a tricky topic in business circles. I agree with your point that businesses view discussing benefits for the offshored ‘community’ as taboo and too much emphasis is placed on the absolute number of jobs lost as a result of an offshoring deal. There is sadly very little mention of the benefits it brings to the outsourcing country through jobs created in other segments through increased trade and through businesses being able to better focus on high value work (i.e creative or innovation focused).
    In case of the sky-high bonuses for banking executives, I am not so sure if you can extend it to a collective market failure though. Although I am not convinced that a select few should be paid stratospheric sums for the entire company’s performance, isn’t it normal competitive market behaviour to pay top dollar to the best in business? Isn’t allowing the market (demand) to dictate the pay/value (of a talent in this case) a key aspect of a capitalistic market? And would you be comfortable with the government interfering with market forces?
    Would love to hear you thoughts on this.
    AB

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  2. Thanks for the feedback, Anand. In response to your questions, I guess that typical answers are a matter of opinion. I personally believe that paying sky high bonuses to a small number of people while others who work equally hard in the world struggle to survive, suggests that there are failures in the market system. I also believe that the market does not provide outcomes that are in the public interest in many areas of the economy. It is in these areas where, I believe that governments should intervene on behalf of those that they represent. The clear failure of the market that led to the recent financial crisis is an obvious example of this. Sky high bonuses that were based on short term gains, were part of this problem.

    But, I think that the purchase of services from poorer countries by organisations in richer countries is a great example of how the market is working in the overall public interest. A lot of people in richer countries benefit from the provision of these services. Perhaps more importantly, an even larger number of people in poorer countries benefit hugely from this trade.

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  3. hello there and thank you for your information – I have definitely picked up something new from right here.
    Looking forward for such type of post. Good Going.
    offshore outsourcing

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  4. In case of the sky-high bonuses for banking executives, I am not so sure if you can extend it to a collective market failure though. Although I am not convinced that a select few should be paid stratospheric sums for the entire company’s performance, isn’t it normal competitive market behaviour to pay top dollar to the best in business? Isn’t allowing the market (demand) to dictate the pay/value (of a talent in this case) a key aspect of a capitalistic market? And would you be comfortable with the government interfering with market forces?

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  5. Thanks for this comment. These are great questions.

    In the original post, I was arguing in favour of market forces driving offshore outsourcing where the market, so far, appears to be working relatively well. On the other hand, the recent financial crisis indicates that the market has not worked well in the banking sector. Sky high bonuses were paid to executives who worked for banks that needed to be bailed out with taxpayer money. Banking failures have created recessions across the world. This suggests failure to me. It also indicates that there is no direct relationship between talent and remuneration in the banking industry. It is where the market fails to act in the public interest that governments, quite rightly, intervene, at least in democracies. This is one of the reasons why they are elected.

    In reality, no market is totally free. Governments always interfere to some extent, ideally in the public interest. The question that nobody can answer is the extent to which the government should intervene.

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