OFFSHORING IS NEW WORLD TRADE
By: Dick Jones, CEO of Consultants Exchange
The words outsourcing and offshoring were created in recent years by clever marketers but the concepts they describe are as old as the legendary Silk Road that delivered the exotic products of ancient China to Constantinople in return for those of European origin. You could even say that the British West Indies Company “outsourced” the production of beaver pelts to the native tribes of North America so that every proper English gentleman could sport the latest fashion in beaver hats. In fact, that same innovative company even “outsourced” the transportation of their gentlemen-traders via canoe across a vast network of lakes and rivers to a hardy breed of French paddlers, known as “Voyageurs.”
Historically, world trade has benefited all parties when it is not restrained by protective restrictions, such as tariffs and government subsidies. The free and fair forces of economics, such as raw materials, markets, and labor costs will ultimately determine where products are made or services performed. For example, in the last century, textile mills migrated from New England to the southeastern United States because of lower labor cost. Then the pre-eminent educational institutions in the northeast produced the skills base needed by the burgeoning software industry and the empty mills became offices for high-tech companies that created high-paying jobs for a new generation of New Englanders. In similar fashion software supplanted steel in Pittsburgh, and now some of those high-tech workers’ jobs have gone the way of loom operators and steel rollers.
Until recent years, offshoring has been restricted to manufacturing, based on one or more economic factors. It is interesting to note that Japanese and Korean automobile companies are now offshoring the production of automobiles to the United States, not because of lower wages but because of proximity to the world’s largest market for automobiles. Since labor only represents about 10% of the cost of auto production, the savings on transportation cost easily offsets the higher wages paid in this country.
In recent years, technological developments in communications and telephony have made it feasible to outsource information services such as data entry, call centers and software development. The outsourcing of data entry applications initially gave rise to a thriving industry in parts of the U.S. where labor cost was lower. However, as enabling technology emerged, that business has dried up and virtually no data entry companies now exist in this country.
Today, many large companies also have outsourced their call centers either to domestic or offshore companies, while most small to medium sized companies have not yet taken the plunge. Many of those toll-free numbers you see on products from chain saws to chicken soup are answered in far-away places where an ample labor pool of educated, English-speaking workers is available. Technology even makes it easy to handle complex requirements such as technical support and customer service with a tiered operational structure; easily resolved tier-one calls are handled by the call-center CSR while tier two calls are switched instantly to experts at headquarters perhaps thousands of miles away. In telemarketing services, call-center CSR’s are able to handle time-consuming cold calls and switch interested prospects to sales ‘closers’ at the client’s U.S. facility.
Of course the primary reason to offshore call-center work is to reduce labor cost but it also solves some other problems. American workers find call-center work boring and monotonous, which makes it difficult to hire qualified and motivated workers and even harder to retain them. Air Tran, for example, locates its call centers in college towns, where there is an abundant supply of qualified workers looking for part time work; however few, if any, such workers are seeking a career in that line of work. In the U.S., workers sitting at a PC all day, wearing a dead-set, are the ‘fruit-pickers’ of the information services world. On the other hand, workers in developing economies see call-center opportunities as their ticket to a middle-class career. One QA employee in Costa Rica proudly said that she had been with the company for eight years, starting as an agent, then supervisor, then trainer and now she was only one step away from project manager. In fact, colleges in these countries offer majors in call-center operations.
Understanding this, Amazon.com opened for business with their call center in the Philippines and Proctor and Gamble moved its 2,000 employee call center to Costa Rica. Similarly, Delta Airlines has outsourced much of their reservation call-center work to India. The decision to offshore any service inevitably raises the accusation of ‘shipping American jobs overseas. In reality, as with all free and fair trade, both countries benefit financially. A recent McKinsey & Co. study has shown that every $1.00 American companies spend on offshoring actually brings $1.12 in return to the U.S. economy, resulting in jobs that are higher up the food chain and pay better money. Offshoring is truly a manifestation of the familiar saying that, “A high tide raises all boats.”
For example, the off-shore call centers themselves buy PC’s, communications and telephony equipment, servers, and software from U.S. companies, creating jobs in American companies that produce those products. But more importantly, the career opportunities for people in developing countries enables those workers to buy American cars, clothes, I-Pods, Big Macs, and everything else they see advertised on American TV. A trip to the mall in San Jose, Manila, or Mumbai confronts you with so many familiar stores and products it can almost make you forget you are not in your favorite mall back home.
And it doesn’t end there. India has already offshored some routine functions to Thailand and Indian workers are clamoring about ‘foreigners’ taking their jobs. It’s never a painless transition, but it’s the way the world works.