IT folk should consider becoming plumbers

IT IS RARE that a day goes by without US and UK reports of yet another company retrenching local staff and sending the work offshore. It could be in computing or in call-centres but the flow of work continues. Indeed, the recent announcement of an uptick in IT spending in the UK and US has been received in India with some delight because it should lead to even more outsourcing work. The flood of work and the loss of jobs has many people questioning what is happening and there are signs that offshore outsourcing is starting to become a heated political issue in more than one country.

It is clear that the subject of offshore outsourcing is a highly emotional one that is characterised by subjective and often dubious statements from both sides. It is very difficult, probably impossible, to be a pawn in the offshore outsourcing business and yet have an altruistic attitude to the other party.

In India a call centre worker can expect a monthly salary five times the national average and more than twice as high as other openings for university graduates; a software worker with two years experience can expect a salary more than 13 times the national average but still way below US salaries for their counterparts. Is it any wonder that they are keen to take the work and are opposed to any attempt to limit it?

On the other hand, those workers in the countries signing up for outsourcing are seeing their livelihoods drastically altered. They often have loans for their education to be repaid and their lifestyles have been created on the basis of a certain level of income, but now their financial circumstances are changing, with many forced to draw on their savings or other assets. The impact is on them is also felt by partners, families and local communities. Even if you have not been retrenched or are not at risk of being retrenched by outsourcing, this phenomenon will probably not leave you unscathed because there has been a flow-on effect right across the industry.

One of the most interesting aspects of offshore outsourcing is the role played by the various governments.

There was a time when a government supported its people either through favourable employment laws or through the support of businesses which in turn created employment for its citizens. This no longer applies in many countries because big business calls the shots and employing local citizens is not high on their agenda.

In those countries winning outsourcing work the governments are trying to encourage the new industries and they work with industry associations by fast-tracking government and non-government developments, especially those providing telecommunications and facilities infrastructure. These governments are working to support their businesses and their people because all parties are winners.

On the other hand the UK, US and Australian governments are continuing their support for businesses with the full knowledge that those businesses are replacing local workers with offshore labour. It is hard to fathom whether these governments have been hoodwinked by business lobbyists or genuinely believe that what amounts to a sacrifice of a certain section of professional workers is highly desirable for the rest of their citizens. What is easy to fathom is that displaced high tech workers were also good spenders and good taxpayers and that a loss income to these people will have consequences right across the local economy.

Supporters of offshore outsourcing say that exporting jobs is nothing new and they point to the car industry and other industries where jobs have been transferred to other countries. Without exception these earlier jobs were in blue-collar trades, such as manufacturing, where the employees did not have several years of university education behind them and where their re-training for a new and financially comparable role was relatively easy, but the export of high-tech jobs is a different ballgame with different impact.

The UK government has shown its support for outsourcing by hiding behind industry and accepting the argument that it was better to lose a couple of hundred jobs than be forced to close down. This from a government whose own IT projects regularly run over budget and over schedule or whose outsourcing projects consistently fail to deliver the promised savings.

The Australian government declared its attitude by the endorsement of a White Paper that recommended that Australian companies send their IT work to other countries. In recent weeks Telstra, a telecommunications carrier majority owned by the Australian government, has said that it would export 1,500 jobs to India and cut $A957 million in IT costs over the next three years. Those savings are doubtful because they represent an annual saving of about $A200,000 per job and yet the average salary of the current employees is much closer to $A50,000.

In the USA the whole issue of outsourcing has become a political football with some states trying to limit the amount of work to be sent offshore and other people lobbying for changes and favours.

Various people in business and politics are proposing that the US should reduce corporate tax in order to compete with foreign countries. Others are blaming the education system for failing to produce certain types of graduates, or the government in general for failing to encourage skilled foreign students to stay in the country. Only a very few of the outspoken have admitted that they outsource because foreign labour is far cheaper than US labour.

Silicon Valley, and California in general, are especially hurting in this high-tech downturn because the loss of jobs has limited the funding for schools and other facilities and operations financed by the state. Some companies that have sent work offshore have offered to repatriate their profits to help the state but only if the current corporate tax on profits for them is slashed from 35% to 5.25%. Some of these companies have said they are headed for bankruptcy without these funds but others have said if this proposal is rejected, they are happy to spend the money in those other countries and the US will see no benefit.

Not surprisingly, other US companies have declared that the adoption of the proposed cut in corporate tax is an endorsement and encouragement of offshore outsourcing. They argue that these companies knew at the outset that they would be paying tax to those other countries as well as to the USA.

The matter of H1-B visas for high-tech has drawn more attention in Washington than has offshore outsourcing. The US government has now reduced the number of these visas despite the fact that workers on those visas pay US tax and spend money in the local community, which is something that cannot be said for jobs that are simply exported.

Even for displaced IT workers in the USA willing to accept any job in any industry the situation is not good. Official unemployment is about 6% but it is unclear how many more people have slipped out of view after exhausting the nine months of welfare benefits available to them. A study of the figures in September has shown that of the number of unemployed who moved onto federally funded benefits for the last three of those nine months, 75% were reaching the end of that period without finding a job.

Government hands are largely tied regardless of what they may wish to do about the exporting of jobs. That bastion of global trade, the WTO, has mandated that businesses have the right to move workers across national boundaries and arguably moving the jobs themselves is equivalent. Even if governments were under political pressure, it is highly unlikely that they would stand in the way of major companies.

Much has been said about the impact of offshore outsourcing, how it is not damaging the economy and how it will lead to better things, but most statements are either based on wishful thinking or ignore some fundamental truths.

A recent report tried to justify outsourcing by saying that for every $1 spent on business services that move offshore to India, the US gains about $1.13. It claimed savings of 58 cents mainly through lower wages; a further benefit of 5 cents was attributed to increased sales of computer equipment and the repatriation of profits by US companies with offshore divisions will contribute another 4 cents. It then optimistically claimed that US companies will spend the savings to train labour and generate up to 22 million new employment opportunities of higher value, thus creating a further 45 cents for every dollar that is spent offshore.

Nowhere did that calculation include the impact of reduced income for US citizens, the cost of the welfare to support the jobless, the reduction in money gained through taxation or the consequences on the local community which would result from reduced spending. It also neglected the long-term consequences to the economy of the retrenched people drawing on their savings and assets.

There have been confident suggestions that U.S. companies will eventually reinvest the money saved by outsourcing and they expand operations at home, ultimately leading to an increase in jobs at home. That is hard to believe when the CEOs of major companies are saying that they must increase operations overseas in growing markets.

Recent reports have also claimed that the coming en masse retirement of baby boomers will create a huge vacuum for IT skills -- one that even outsourcing companies will struggle to cover. That retirement might not happen because the nest eggs of many people took a battering from the massive falls in the stockprice of many high-tech companies and stockmarket darlings. These older workers are often skilled in older languages and operating but the maintenance of this kind of software has been as much a candidate for outsourcing as the roles of younger workers skilled with new languages and methods.

There have also been assertions that the displaced IT workers will become information workers but no-one has defined this role any more precisely or produced some clear examples of this happening. It is hard to imagine that all of the IT workers who have lost their jobs through outsourcing will find places in this rather nebulous field.

In similar fashion predictions have been made that the IT business will rebound and that there will be jobs for all but these predictions have given no hint as to why such work will remain at home and not also be exported to low-cost countries, assuming of course that such work materialises.

Others have declared that displaced IT workers will find higher roles in the IT departments of their companies but this is a fallacy because without the lower levels in that department there is little need for team leaders, section leaders. At a lower level, recent graduates will have no roles in which to develop their skills. There is also a lack of confidence about higher roles because even the role of the CIO is diminishing with many now reporting to their Chief Financial Officer (CFO) and not the CEO.

One consequence of offshore outsourcing is that students are shunning courses in IT for others with better job security. In Australia the number of university students in 2003 selecting information technology courses as their first choice dropped by 25% by comparison to 2002. They certainly understood the message when their own government encouraged offshore outsourcing.

It has been predicted that only about 500,000 U.S. IT jobs, roughly 5% of the workforce, will move offshore by 2015. It is difficult to know who to believe when others are saying that 10% or even 20% of IT jobs could disappear from the US in the next five years. Whichever figure is correct, it still means a double-whammy because the number of unemployed IT professionals will increase and there will be fewer jobs to employ them.

Inevitably the competition for jobs and the pressure of financial support for the unemployed being limited to nine months will mean that workers are prepared, however reluctantly, to accept lower salaries. Even now the various web forums on this topic often contain examples of where people who have lost jobs to offshore outsourcing have expressed great relief at being able to find a new job even if it pays only 50% of their previous salary. While that lack of jobs continues, lower salaries will progressively spread throughout the entire industry.

Information technology is becoming another utility, much like electricity or water, and like with most utilities, the cost is seen as more important that the quality, at least until something serious goes wrong. It is cost more than anything that is driving the jobs offshore to countries where the knowledge is comparable or even better t certain levels. The simple truth is that any almost job that can be done solely by telephone or data link is a candidate for offshore outsourcing.

There seems little doubt that offshore outsourcing will continue to grow and it is difficult to argue with the costs and logic offered by those performing the work even if one should wish to.

For those who are receiving the work their future looks assured. Indian companies have no trouble attracting employees but according to reports are having trouble keeping them because the employees quickly move to better opportunities in other companies. Those workers are thriving, their personal situation is improving and doubtless they are generally happy.

The choices are far more limited for those who are at risk of retrenchment by offshore outsourcing.

Immigration to the countries offering outsourcing is rarely an option, in part because those countries give first preference to their own citizens but also because no one country suits everybody.

The most sensible option for IT professionals who are on the losing side of outsourcing is to take steps towards a more secure future. Whether that be trying to move into higher levels of IT or into some new profession is something that each individual needs to decide.

Many former IT professionals have moved into the skilled trades and retraining as plumbers, electricians, painters, decorators or heating engineers. They have identified that the shortage of these skills in many English-speaking countries has meant that the money is quite good. In the US especially some IT professionals have moved into nursing because of its growing demand as the population ages and safety from outsourcing, although it is perhaps entirely safe from H1-B visas for foreign workers.

It is certainly very doubtful that any kind of political action will be useful. The power has moved from governments to the business world and even if the government could devise some action which is not in contradiction to trade agreements it is doubtful that companies would comply.

The offshore outsourcing of IT and call centre functions has been just the thin edge of the wedge because similar operations for legal, medical and business activities are already starting. The skilling of labour markets in low cost countries is causing a major shift in global work patterns. Some of this is undoubtedly good but there are major consequences for those whose jobs disappear and those people need to critically look to their future.