The Export of IT Jobs Caused by Outsourcing - Research Paper Example

Introduction Outsourcing has significantly changed modern business environment. This essay discusses the export of IT jobs caused by outsourcing and brings three important perspectives, which must be considered when analysing this trend. At first historical and geopolitical view on outsourcing is introduced. Then it is analysed through effects it caused in contemporary business world. Further the essay continues with a company's perspective on outsourcing. Finally, some future possible outcomes are presented to give a full picture on export of IT jobs. Contemporary State of Outsourcing in IT Recent Evolution of Management Corporate governance had major changes during past fifty years evolving from a simple 'profit is king' approach to a much broader look at organisational performance. While making profit remains the ultimate goal of every business enterprise; it is considered that financial performance is not the only one that has impact on revenues. In other words, the 'rule of the bottom line', which was popular in the early XX century has much less weight nowadays. Taking into account overall organisational performance implies increasing role of management to the business success. "Top managers bring to the administrative setting a variety of idiosyncratic values, beliefs and behaviours the posture of the organisation, its actions and, consequently, its performance, reflect the bounded rationality, multiple goals, competencies and skills of its leaders." (Ramaswami and Thomas 1994, p. 74). Multiple management concepts developed in past decades tend to determine key factors and to use them effectively to increase organisational performance. For example, TQM (Total Quality Management) focuses on the quality of the final product as a way to increase competitive advantage and performance of the company. Among others the concept of HRM (Human Resource Management) operates an assumption that performance of the business can be increased through people working in it. Concept of Outsourcing One of the key accents in HMR is made on the importance of balancing between outsourcing jobs to external workers and completing them within the company: "firms must choose between alternative governance structures. When firms rely on outside suppliers, they are relying on market contracting as a form of governance. When they rely on internal employees, they are relying on organizational hierarchy." (Gainey et al 1999, p. 113) Outsourcing has always been and will be the best way to complete a job, in which your company does not tend to specialise. The technology has significantly changed the contemporary look of outsourcing. Companies had to work with available performers in the past. Nowadays with the recent rapid development of IT, new market of outsourcing services has emerged. Internet and Web services have made it possible to choose among all the companies in the world for outsourcing. Needless to say, IT industry was the first one greatly influenced by outsourcing. "Not long ago, everybody thought the big salaries were in IT. IT jobs have been exported to developing countries" (Gordon 2004, p. 41). US Case US have become the first country that felt significant changes made by the development of outsourcing. Following principles of increasing labor efficiency stressed in various innovative management concepts (HRM was one of them), managers started to transfer manufacturing processes to China and Indonesia significantly decreasing costs associated with labour. Anxiety among US workers was set at rest by the strategic position of companies: executives reassured outsourcing will only relate to 'blue collar' jobs, which do not require special skills. "Old technology, [experts] claimed: manufacturing is passe. The U.S. would enter the new global economy with the new technology. Information, services, cutting-edge research and development--these would be the clean, high-paying jobs that would keep America on top." (Jasper 2003, p. 10) However outsourcing was not constrained by 'blue collar' jobs. John McCarthy, analyst of Forrester Research Inc., has predicted that at least 3.3 million white-collar jobs and $136 billion in wages will shift from the U.S. to low-cost countries by 2015 (Jasper 2003). Qualified specialists from India, China, Russia, etc. have become a serious problem for their colleagues from western countries. A massive panic wave caused by outsourcing was even more dangerous than the outsourcing itself. India - a Country Outsourced To some people India has become a synonym of 'outsourcing'. Although IT industry emerged in India only in 1980s, it saw a 'bursting-growth' like development in 1990s. Generally it was caused by new governmental policy committed to liberalisation and privatisation. In 1994 Indian telecom sector was privatized. In 1999 IP telephony has ended state monopoly on international calling facilities. One of the first outsourced services was medical transcription, but outsourcing of business processes like data processing, billing, and customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries which catered to the process off-shoring requirements of their parent companies. (Outsource2india.com 2004) Outsourcing in India was flourishing. Indian specialists were making the same job as their western competitors but for 50-60% of their wages and, even more importantly with the same quality. India is considered to be a contemporary economic miracle: "It currently employs over 100,000 people and accounts for nearly $2 billion in revenues, virtually all hard currency foreign earnings going from almost nothing to having 400 centres in the last five years and adding 50 more per year" (Ninian 2003, p. 293). Export of IT jobs to developing countries such as India can be seen by unaided eye. Outsourcing in Australia Australian situation is similar to scenarios developed in the US and the UK. Executives of IT companies are as happy with outsourcing as specialist workers are mad with it. Labour productivity in Australia is lower than in the US (Lewis et al 1996, p. 91) therefore companies have even more reasons for outsourcing.. "96% of MTIA respondents had outsourced at least one activity, and more than half the firms had outsourced cleaning, transport, catering and maintenance work. Where these functions had not been outsourced, most firms anticipated doing so within three years" (Benson and Ieronimo 1996, p. 59). Despite numerous warnings and the dislike of outsourcing among many workers global economics benefits from it. US and Australia are also making profit on outsourcing. "In fact the US and Australia export all kinds of services, whether it is education, whether it is training, whether it is financial services, business consulting and also just in the IT area" (Ryan 2004). Talking about Australia one cannot forget Japanese companies, which outsource some of their services to Australia. for example, if you buy an IBM computer in Japan, when you ask for help on your phone, you are talking to Japanese speaking people who live in Australia. The Analysis of the Effects Ultimate Discrimination Removal If we will try to dig deeper into outsourcing it can be seen as another step in removing discrimination for employees. There was a struggle for eliminating discrimination related to gender (EOWA), race, nationality, age and social status. Ethical principles implemented in Human Resource Management apply to treating people not as means but as personalities (Woodhall and Winstanley 2002). One the one side this approach stimulates ethically fair relationship towards many employees. On the other side treating to humans as personalities always implies personal approach, i.e. it also causes negative treatment to some 'undesirable' groups of applicants. Internet is a genuine technology that influences that greatly. Web services and text strokes as the only way of interaction between the employer and the employee remove personality. Internet also allows globalisation; therefore we can widen an aspect of discrimination removal on applicants from other countries. That is, if we are fighting for the rights of national minorities within our countries, why should not we apply this to applicants worldwide This question cannot be countered by the stating that outsourcing helps to develop economics of other countries while it has a negative effect on the national economics - previous findings illustrated above show that, speaking in financial context, everybody wins. Principle of Equality When implementing outsourcing managers simply apply the principle of equality in giving the job opportunity to everyone in worldwide scale. It is pure racial to think that applicants from developed countries always can handle the specialist job better than their competitors from less developed regions. Cultural and language differences present some handicap on the overseas workers, but if subdued than a specialist from India can be as effective as from Queensland. Moreover some companies have been successful in hiding the outsourced nature of their services. For example, "customers who ring a local bank number [do not know] they were not being dealt with locally. Some American companies even train their Indian operators to speak with an American accent and to comment on the weather caller's area" (Ninian 2003, p. 293). As can be seen outsourcing is not ethically unjust to locally dominant group of employees, it just gives equal opportunities to distant specialists. Lower Labour Costs Eventually if an applicant shows his or her skills are sufficient fro the job, he/she has a significant competitive advantage over his local rivals: significantly lower demands on wages is always seen by adversaries of outsourcing as the root of all evil. Simply, saving money is the main reason for outsourcing in many cases (Plunkett 1991). Why applicants from less developed countries have smaller demands There are two main reasons. The first reason is that, as the economics is less developed, costs associated with living are significantly smaller in general. People spend less money for living therefore they demand smaller wages. The second reason is associated with the first: cheap education. While education in countries, such as Russia, offers high class specialists its cost is lower. India produces some two million graduates per year who speak English, many of whom are qualified in accountancy, computer studies, business and commerce. If costs associated with education are lower, then eventually graduates demand lesser wages for their services. That becomes a real problem for specialists from developed countries when it comes to competition: they cannot work for the same money; that is why the only aspect they can play on is higher reputation of workforce. It can play a serious role in 'markets of style', such as luxuries or perfumery, but IT market has little care about style, especially when it comes to cost reduction. Panic Caused The real negative impact made by outsourcing is the panic it unleashed upon the qualified labor markets of developed economies. The idea of being fired after twenty years of honest working on the company, while your place will be taken by a foreign newcomer, disrupts loyalty of employees and reduces their productivity. Whose job is next, maybe mine - these thoughts distract employees from their duties. Unfortunately, these fears are not groundless, since managers that have little care for business ethics exist. The idea that "good ethics is good business" as an incentive is looked upon with skepticism by those with bottom line responsibility. However, if managers were aware of the extent to which certain business behaviors impose significant costs on individual transactions and relationships, a valid incentive would exist. (Muskin 2000) It should be noted that ethical subject of Human Resource Management is still a matter of discussion among experts. Meanwhile outsourcing can be set as an example of how unethical business behaviour implemented by some managers is causing damage to the whole outsourcing labour market. Therefore, companies need to put maximum efforts on assuring their high-quality employees they will be treated with all respect they deserve. Unemployment Threat Outsourcing is seen by many specialists as a threat to their workplaces. "Our country's entire production capability will be stripped bare if this continues. And with it will go all of the jobs and small and medium-sized independent businesses that are the bedrock of the middle class" (Jasper 2003). Some of the United States have taken legislative limitations on outsourcing, as they see it as reason for future unemployment increase. Although the scale is much lesser the same moods can be observed in European countries and in Australia. Regardless of its benefits, outsourcing is perceived as power leaking to developing economies. Nevertheless, cases of outsourcing implementation become more frequent. Competitive advantage of IT specialists from overseas is a hard thing to fight. Export continues. Company's Perspective Mythos Harm While labour markets of developed countries look on the outsourcing as on a threat, businesses tend to see a way to retain competitive advantage. IT industry has penetrated in every business therefore lots of companies have to implement IT services while not specialising on them. This is classic case for outsourcing: e.g. "the bank would have to consider outsourcing overseas to remain competitive The turnover rate is very high in our operations, consistent with some pressure on the labour market we just see better utilisation of skills rather than job losses" said David Murray, chief executive of the Commonwealth Bank of Australia (Indiadaily.com 2005) Unfortunately, mythos surrounding outsourcing sometimes can serve as reason for not using it, when the company needs it as air. The number of people affected by It jobs export so far in Australia is very small. The second myth is propagated by those who think that losses of jobs will continue in future. "What happens when we lose services jobs Well we gain more services jobs in the economy and in fact all predictions are that Australia faces these labour shortages in most categories of services jobs moving forward" (Ryan 2004). Resuming, mistakes related to outsourcing must be taken into consideration by companies as despite they are misleading, these fallacies have gained a considerable strength. Performance Increase Due to Outsourcing So, when outsourcing is needed Theoretical frameworks imply that a company should outsource every activity, which goes beyond its core competencies. "Examples of conditions which might favor outsourcing are: increased numbers of tasks to be performed and reduced budgets for their performance; inability to recruit and retain expert staff; organizational growth or downsizing; and reductions in force." (Siegel 2000, p.225) Performance is increased not only because with outsourcing IT functions they are left to professionals, but also because of capital expenditure decrease - now the company pays less funds for services of better quality. While reducing costs can be seen as the most important issue for exporting IT functions it is not the only positive impact on the organisational performance. Among other benefits of outsourcing are: improved service delivery and significant time savings. Avoidance of investment in new technology can also be seen as a reason for outsourcing. Additionally, "seeking alternative service suppliers gives the advantage to confront reduced staffing in HR areas accompanied by increased responsibilities." (IPMA 1996-1997). Distance Factor Of course, not everything can be outsourced. The simplest example is related to core activities - outsourcing them, a company losses its competitive advantage and becomes merely an intermediary. Exporting activities overseas can only be made when personal approach is unnecessary. Moreover companies that use overseas workers have difficulties for including them into their full-time staff. It is almost impossible to hold an interview with new employee or test his or her personality without personal contact. While some authors argue that personality testing is unnecessary in most cases (Spillane 1994) it still can be a serious argument against outsourcing. Finally, a simple difference in time zones can lead to inconvenience when working with employees from overseas: "Working hours can be something of a problem for the reason that much of the work is night work." (Ninian 2003, p. 293) Flexibility Increasing Business flexibility can have many meanings. Harrison and Kelley suggest to distinguish three aspects of flexibility: Functional flexibility is the ability of the enterprise to redeploy labour to cover new work tasks or new production methods. The second form is wage flexibility, in which the enterprise attempts to link wage payments to productivity and product demand. Finally, numerical flexibility is the ability to adjust labour inputs to product demand. (1993) Outsourcing can help to improve every of the aspects of flexibility. Wage flexibility was already discussed in this essay. Numerical and functional flexibility obviously also can be increased with the help of functions' export: "Tasks undertaken are contract- not craft-related, payment is made only for work completed, and worker numbers can be adjusted to the production requirements of the plant." (Benson and Ieronimo 1996, p. 59). Cultural Aspect Dealing with workers raised on the different cultural ground a company must always consider it when outsourcing past of its activities. For example, "sourcing patterns of European and Japanese firms are significantly different from those of U.S. firms. Generally, European firms do relatively little foreign production for reimport to the home market, while Japanese firms manufacture components and products abroad" (Kotabe and Swamidass 1993, p. 81). Of course, it can be challenging for smaller company to get used to IT workers bearing a completely different culture. However, more experienced enterprises cooperate with other cultures gladly, so the cultural aspect of outsourcing can be presented as a temporary barrier. Future perspective Outsourcing continues to develop, not only in Australia, but worldwide embracing new fields and markets. What are possible outcomes of this trend seen in future There is a point of view according to which outsourcing, or exporting jobs to developing countries can be eliminated. It bases on the presumption that cost and availability of energy sources will be a deciding factor when determining the price of outsourcing in future. China and India may experience hyperinflation due to increase on energy costs and therefore to lose their main competitive advantage: low price. "According to some think tanks by 2015, outsourcing may not exist, as we know of it today The immediate energy scarcity and resulting hyperinflation in India and China will trigger the craze of automation among Western companies" (Baliga 2005). This hypothesis assumes that outsourcing will be substituted by automation in future. This can occur in manufacturing sector, but it is technologically highly unlikely in the context of jobs, which require creative skills. World of tomorrow will be much more globalised than it is today. Alternative forecast assumes that the increase of outsourcing will be dictated not by economic development or legislation but by technological limitations. We are faced with new issues with respect to economic development that challenge job creation as a central goal of politics. Technology will determine the type and form of work, not physical resources, tax breaks, low wages, or location assets that local communities control." (Blakely 2001) Indeed, currently IT communications face some challenges (e.g. lack of personality), which limit the use of outsourcing. As these barriers will be mastered, more labour markets will be open to worldwide outsourcing and the distance factor will be of lesser significance than it is today. Conclusion Outsourcing is a currently developing trend and it has a lot of potential to grow further. Even now some unrealistic forecasts think of children nowadays will be freelancer workers of tomorrow, without a single company offering a constant job. Of course, such assumption is hyperbolic, however it is true in the essence. Our world generally and business environment particularly tend to further integration. Outsourcing is economically viable and most of the countries use the external IT specialists to their benefit. There were a lot of debates on the ethical matter of outsourcing. Business ethics per se is a very misty concept that is often understood in different ways with different people. What can be said with confidence is that outsourcing gives equal opportunities to all applicants. The export of IT jobs caused by outsourcing is only a consequence of economic differentiation between countries; therefore it can be stated as ethical or unethical. It is merely a fact, a modern reality we are facing. 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