Reference no: EM131713271

OUTSOURCING OUR SERVICE JOBS

Business processing outsourcing (BPO) has become popular in recent years as developed countries seek to reduce labor costs in work which can be at a lower cost in developing countries. Once mainly confined to call centers and medical billing work, increasingly the jobs being outsourced are more skilled work which was traditionally higher paid positions.

India produces over 3 million college graduates a year. With high unemployment, companies have no difficulty in finding young college graduates who are content to handle customer service for American and European companies, at a fraction of the cost of their American and European counterparts.

While the call center and other lower-level service jobs which have moved to India are becoming commonplace, India is also embarking on a much more ambitious approach to job creation. India has attracted work from the United States and Europe in software development, chip design, IT consulting, financial services, and drug research. U.S. tax returns are now being prepared in India for American tax payers. The returns are prepared by Indian accountants familiar with the U.S. tax code and are signed by CPAs in the United States. Indians now process mortgage applications, do legal and medical transcription, and book travel reservations.        

The skill level of jobs being outsourced is increasing. GE has established the Jack Welch Technology Center in India and employs 1,800 engineers, many with doctoral degrees, to conduct basic research. The relatively new center has already earned 95 patents in the United States. India has an abundance of well-trained engineers and scientists, and MNCs are beginning to realize the potential of this human capital. According to the managing director of the Welch Center, it isn’t about saving money on labor costs. “The game here really isn’t about saving costs but to speed innovation and generate growth for the company.” Nevertheless, a top of the line electrical engineer in India earns only about $10,000 USD a year, a fraction of the salary of an American or European with the same qualifications.

While GE may not be primarily concerned with cost-savings, most companies moving, or establishing operations in India are doing so because of the labor rate differential. India has the advantage of having an educated workforce that can speak English and is willing to work for a fraction of the wage level of developed country workers. India, however, does have a number of disadvantages to consider when companies decide to outsource work. India has experienced very impressive economic growth in the years since economic liberalization; however, India is still very much a less developed country. An estimated one-third of the population is illiterate and only the higher classes speak English well. The official language of India is not English but Hindi. And India still possesses a very poor infrastructure with unreliable power sourcing and frequent flooding. Government bureaucracy is still very much a factor in business activity.

While educated Indians speak English, it is considered to be the “Queens English” and has a different accent from American English. Although many Indians are enrolling in accent reduction classes, some American customers have complained about the ability to communicate with Indian customer service personnel. Indians tend to speak rapidly, averaging 180 words a minute, compared to 120 for Americans and 90 for the British. GE, while investing heavily in research in India, nevertheless, moved its appliance call center from India back to the United States. GE had discovered that many Indian employees could not relate well to the concerns of GE’s customers because many did not own, or were not familiar with the appliances they were discussing.

While India was the lead country in BPO, the Philippines now takes the top position. Like India, the Philippines is an English speaking country with a low wage level. Unlike India, the Philippines, a former colony of the United States, is closer to the U.S. in language and culture. American consumers can more easily recognize an Indian accent but have trouble identifying a Filipino accent. Filipino workers are considered by some companies to have a more easy-going personality and are less likely to get upset with the sometimes demanding American customer.

It is estimated that over 1million Filipinos now work in BPO firms and the job creation has helped the Filipino economy grow to its current growth rate of six percent. BPO work adds an estimated $25B to the Filipino economy every year. Currently, Filipinos work in the Philippines for American companies doing medical and legal transcription, answering call centers, doing legal and accounting work, and providing technical support. The Philippines is especially strong in call center operations, even to the point where large Indian BPO firms have moved their operations to the Philippines. In addition to language, culture, and skill with customer service, the Philippines has a growing and young population with an abundance of college educated citizens needing employment. While the work can be difficult (almost always at night due to time zone differences) the pay is generally better than found working for a domestic company. Turnover, however, is high in the industry, estimated at around 60% a year.

In addition to the Philippines, a number of Eastern European countries may rival India for job outsourcing. One indication is the bidding process on a web site for programmers called Rent-A-Coder. Companies, mostly small and medium sized firms from the United States and Europe, post jobs for free-lancing software developers. Indians still are able to solicit most of the programming jobs from the site, however, Romania is the second most popular country for this outsourcing. Under Soviet domination, Romania like many Eastern European countries emphasized science, math, and engineering instruction and now has an abundance of technically qualified people who are willing to work at low wage levels.

While BPO operations continue to grow, the growth may slow as artificial intelligence (AI) takes over some of the more basic and repetitive work. Automated voice, chat, and email may replace many of the tasks now done by humans. An additional factor which may slow the growth of outsourcing to the Philippines and India is political backlash caused by job loss in the United States. Protection of domestic jobs is a very strong political motive and one that will likely be raised as more and more jobs are outsourced to other countries. While the more mundane work may be automated, an area for growth in outsourcing of service jobs is in the medical field. Nursing and physician consultations which can be done remotely are a growing niche in service outsourcing. As jobs in developed countries continue to be outsourced many will argue the costs and benefits of the process.

- Make a case either for or against BPO using one or more trade theories?