When back-office work moves overseas

From Knowledge@Wharton, special to CNET News.com, 3 November 2002, 6:00 AM PT

It may be good for business owners to shift back-office operations overseas, but is it good for workers?

Advocates of the offshore strategy say yes. Contact centers and transaction-processing facilities in places like India and Mexico can provide good jobs to poorer countries, they argue, adding that U.S. employees who lose work may eventually find higher-skilled positions.

Critics, though, don’t buy that version of globalization. They say workers in the developing world can be exploited, and U.S. clerks, accountants and call center workers are by no means guaranteed a decent-paying replacement job. Given the slow pace of economic growth compared to a few years ago, moving back-office work overseas will hurt the most vulnerable Americans, suggests Jeff Faux, an economist with the Economic Policy Institute. “It's going to have an impact on opportunities for people to rise up the economic ladder in the U.S.,” he says.

The debate isn’t exactly new. It follows disputes over the loss of manufacturing jobs and, more recently, information technology work to lower-wage nations. In contrast to those earlier controversies, though, the labor issues involved in sending back-office operations overseas haven’t boiled over much into the public arena.

Perhaps that's because a relatively small amount of back-office work has been transferred away from the United States. Last October, research firm Gartner found that just 5 percent of U.S. corporations with revenue ranging from $100 million to $4 billion outsourced—or had the intention of outsourcing—portions of their back-office offshore. And although major names like General Electric, American Express and Conseco have established their own back-office facilities in countries such as India, China, Mexico and Jamaica, many smaller organizations have not jumped on the bandwagon.

The logic behind going global with accounting, data-entry and customer-service tasks is compelling. But they may soon. The logic behind going global with accounting, data-entry and customer-service tasks is compelling. While call center workers in the U.S. can make in the high $30,000 range or more a year, their Indian counterparts might earn $4,000 or up to $7,000 for a management-level post. Including other expenses, total cost savings of 30 percent to 40 percent are possible in moving back-office tasks overseas.

What's more, the quality of the work can surpass expectations. While clerical and call center jobs in the U.S. often are seen as mediocre-paying dead-ends, the same work is considered relatively high-paying and high-status in a developing country. That can translate into better-educated, more-motivated employees halfway around the globe. Betting that more and more U.S. and European-based companies will see this, business-process outsourcing outfits are springing up, in India especially.

India's National Association of Software & Services Companies (Nasscom) says the country's call center and BPO industry—what it calls IT-enabled services—grew by 70 percent during the 2001-2002 period to produce a total of $1.46 billion in revenue. And Nasscom has a bullish outlook as well. Indian revenue in IT-enabled services should jump to $16.94 billion by 2008, capturing more than 10 percent of the global market, Nasscom predicts. Indian employment in the field, Nasscom says, could rise from roughly 100,000 to 1.1 million people.

A study last year by London-based consulting firm Ovum found that call center capacity worldwide will nearly double within five years, growing from 7.3 million seats in 2001 to over 13 million early in 2006. Ovum also saw the call center industry growing particularly fast in the Central and Eastern Europe region and in the South and Central America region (including the Caribbean). Both of these regions' share of global call center capacity will jump from 2 percent of worldwide call center seats in 2001 to 7 percent in 2006 (a combined increase to 14 percent from 4 percent), according to Ovum.

In India's tropical climates, lack of air-conditioning all but guarantees a “data sweatshop” atmosphere. But it's not clear if the back-office overseas switch is ideal for workers in developing countries. Not all Indian facilities are air-conditioned, notes Vail Dutto, CEO of a U.S.-based contact center outsourcing firm. Dutto toured 20 Indian sites earlier this year while seeking an Indian partner for her firm InTelegy. In India's tropical climates, lack of air-conditioning all but guarantees a “data sweatshop” atmosphere. What's more, some back-office facilities in India have smaller personal work space standards than offices in the U.S., says Chuck McDonough, director of accounting for the World Bank, which moved some back-office operations to Chennai, India, last year.

Besides hot, cramped offices, another concern is the ability of workers in poorer countries to organize independent unions, suggests Candice Johnson, spokeswoman for the Communication Workers of America union. For example, she says, labor leaders in Mexico have been fired and beaten up. “It's still a very difficult thing to do to exercise your rights to organize as a worker,” Johnson says.

Gartner analyst Rebecca Scholl toured Philippine call centers and wondered about the toll taken on workers with late-night hours. Many employees lacked their own transportation, she said, which led them to stay several extra hours onsite until public transportation service began. Even though sleep rooms and karaoke entertainment were available, Scholl questions the long-term impact of the schedule: “You can just work at night so long before you burn out.”

On the other hand, Scholl says the facilities she visited were “world class” in terms of comfort, ergonomics and cafeteria services. Other organizations with overseas back-office operations also say they treat workers properly. The World Bank, for example, used its Washington, D.C., offices as the standard for work-space size at its transaction-processing facility in India, which now employs 110 people. Each Indian worker gets about 90 square feet of room. Dutto, whose firm InTelegy has formed a partnership with Indian-based HCL Technologies, says the 400-seat call center in New Delhi is air-conditioned and provides transportation for workers.

Daksh, an Indian-based business-process outsourcing firm, has imported office equipment to make sure its workstations are ergonomically correct. Its roughly 2,300 employees work in air-conditioned offices, get transportation to and from work, and are given breaks from sometimes-tedious call center duties to take on other roles, such as company librarian. Employees also are eligible for stock options.

So are the workers of Spectramind, another major Indian business-process outsourcer. Now 90 percent-owned by Indian information technology firm Wipro, Spectramind's nearly 3,100 employees also enjoy air-conditioning, as well as transportation services and health insurance benefits.

Layoffs at home

Daksh and Spectramind may treat their workers as well as the top American firms do, but what about those U.S. employees whose jobs are sent to India and elsewhere? The displacement already has begun. Last April, financial services firm Conseco said it planned to move 2,000 jobs to India within 21 months, though it has trimmed the goal to a total of roughly 1,500 jobs by the end of 2003. So far, about 1,100 workers are dedicated to Conseco operations at its Indian subsidiary Exlservice.com. The World Bank, meanwhile, axed 40 jobs from its Washington headquarters when it shifted some back-office operations to India.

Such layoffs are likely to become increasingly touchy given the possibility of a double-dip recession and the slow pace of job growth in the U.S. In July, for example, the U.S. economy produced a tepid 6,000 net new nonfarm payroll jobs and the unemployment rate remained at 5.9 percent. Meanwhile, the American public has grown enraged at corporate greed in the wake of scandals at firms such as Enron, Tyco and WorldCom.

“If U.S. process-support personnel are seen to be losing jobs to cheaper white-collar workers in India and the Philippines, it is likely to become a serious political and public relations issue for enterprises considering offshore sourcing,” Gartner wrote in a July report. Gartner suggests a wise approach may include using U.S.-based outsourcers with global operations and offering redeployment plans for affected workers.

Jeff Faux, though, suggests that redeployment training is only a Band-Aid for the bigger wound of job exportation. As he sees it, corporations have misled Americans by saying only low-skilled work would be transferred abroad. Higher-skilled jobs also have moved overseas, because of the ability of people elsewhere to be trained, he says. Indeed, some of InTelegy's Indian call center workers are handling customer support for software firm Oracle's small-business program, work that requires technical know-how.

What about those U.S. employees whose jobs are sent to India and elsewhere? The displacement already has begun. Faux also disputes the logic that call center jobs in the U.S. are inherently undesirable. If the jobs weren’t being transferred to India and other countries, the U.S. workers would have opportunities for more training and benefits, he says. “It's a vicious circle,” Faux argues. “You’re creating more ‘dead-endness' to these jobs.”

Faux's point is supported in part by the experience of the CWA, which represents workers at companies including Verizon Communications, AT&T and SBC Communications. Thanks to joint union-management efforts, CWA-represented employees can take a variety of training programs, including Cisco Systems technology certification courses. In addition, CWA-represented call center employees can make up to $40,000 to $45,000 a year doing customer service work, Johnson says.

Faux says that to generate jobs, state governments and the federal government ought to be able to limit overseas outsourcing. He points to a case where New Jersey welfare recipients calling with benefits questions were helped by agents located in India. When the situation came to light earlier this year, it prompted outrage that the jobs weren’t located in the U.S. Faux suggests, though, that free-trade legislation may erode the ability of government bodies to prevent privatization and the transfer of jobs overseas. “If you can’t allow the state of New Jersey the freedom to create opportunities in the public sector for its poor and unemployed, it's unlikely you’re ever going to be (able to) do anything about GE sending its back-office operations to the Far East,” Faux says.

Offshore advocates don’t share Faux's slippery-slope vision of job exportation. Organizations, they suggest, are likely to keep a chunk of their back-office operations in the U.S. to avoid becoming beholden to outsourcers and to prepare for disaster situations. What's more, advocates defend moving back-office work offshore as good for average Americans in the long run. InTelegy's Dutto says call center jobs going abroad can prod the U.S. workforce to raise its skill levels. “We become the knowledge workers,” she says. “The hourly rate, lower-paying jobs are going to be done where they best can be done.”

David Lewis, associate vice president of business development in North America for Spectramind, says helping ailing U.S. companies save money will allow them to earn more and eventually reinvest in more jobs. “It's in no one's best interest for U.S.-based companies to suffer the way they are right now,” he says. Lewis suggests wages rates eventually will balance out, with poorer countries' labor standards rising rather than U.S. standards falling.

The World Bank pursued that goal when it moved operations to India. The Bank chose to pay employees an above-average wage—at the 75th percentile—as it hired its Indian staff. And “many, many” affected workers in Washington found other jobs at the Bank, McDonough says. In any event, if some U.S. workers lost jobs while those in a poorer country benefited, the net result is still good, he suggests. “Our mission is to rid the world of poverty,” he says. “We’re increasing the standard of living in the member state we’re in. Our view is more global than local.”