Monday, June 25, 2007

Outsourcing is out - it's a political cold potato


The issue of poor service does seem a real deal-breaker

The preliminaries to the US presidential election took a bizarre turn last week when a leaked document from the Barack Obama camp referred to Hillary Clinton as the "Democratic Senator for the Punjab". This clumsy jibe at a rival Democrat candidate, immediately retracted, was a reference to Mrs Clinton's supposed close connections to US corporations which have outsourced jobs. This subject, in particular offshore call centres, is in danger of becoming a hot potato in the election. But the politicians need not worry, for there is every sign that what was once believed to be an unstoppable trend is losing momentum.

The conceptual thinking behind BPO (business process outsourcing) is simple: companies stick to what they do best and spend their dollars on human capital in the most efficient way. Back-office outsourcing began in the US in the 1960s (payroll processing etc) and gathered pace along with the rapid advances in IT. The last decade's revolution in telesales and customer support propelled BPO into a new dimension.

A casual glance at any selection of Dow Jones annual reports will tell you that at least some outsourcing is virtually universal. In India, it is thought that call centres alone now employ in excess of a million people (compared to just 300,000 at the start of this decade) and pro- viders have sprung up in all elements of the BPO spectrum - from the lowest level of data processing, to functions that require customer interaction, to the transfer of intellectual capital.

Prices range from an estimated $10-$12 (£5-£6) per hour outsourced at the bottom, to around $14 for call services and much more at the top end. Workers in call centres see a much-reduced portion of this - albeit general opinion is that working conditions far exceed the local manufacturing equivalent.

At the sophisticated end, there have been many reports of New York investment banks outsourcing research functions to the highly educated and relatively poorly paid labour force of southern Asia. Similarly, in a recent report, McKinsey estimated that large US pharmaceutical groups were reducing the cost of new drug development (estimated at between $600m and $900m) by as much as $200m through outsourcing. Even at the bottom end, data-processing outsourcing at US retail banks is thought to save at least $18m in costs per 1,000 jobs transferred.

It is this angle, US job losses, that makes BPO such a political issue. The Communication Workers of America union has been particularly active and sought to influence the policies of individual states. At the start of this year, politicians in Minnesota pushed for legislation to give customers an automatic right to request an alternative, American, call centre, if they were dealing with personal or financial information.

The CWA's campaign has cleverly focused as much on the customer as the displaced worker. Three issues are cited: a generally poor level of customer service, data fraud and, this being modern America, terrorist risks.