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Holding the line: Focus on offshoring call centre jobs

By Ian Fraser

Sunday Herald

December 7th, 2003

Ian Fraser examines the economics of “offshoring” call-centre jobs to India and asks whether this makes any business sense.

THE executive had been given a clear brief by his boss. He was to go to India and report back on a major offshore outsourcing deal that would have seen the company shift hundreds of administrative jobs to India.

He came back and reported that everything was fine, except for one thing. The putative call centre was situated right next to an Indian Air Force base. End of project.

The prospect of a ‘hot’ war between India and Pakistan may have subsided, but this is the sort of consideration that is increasingly being taken into account when companies consider “offshoring” IT functions, business processes, or call-centre work to the Indian subcontinent.

Seduced by the prospect of massive savings, more and more companies have been able to reassure themselves that this is the right thing to do. Nowadays barely a week passes without some major UK organisation announcing it is to transfer thousands of jobs to India.

The subcontinent is favoured because of a combination of spectacularly low wages – between a 10th and a fifth of what similar work costs in the West – high educational standards, IT literacy and the imperial legacy of the English language.

Also, among the country’s billion inhabitants is a huge middle class of between 180 million and 250 million people. Many are English speakers who are only too willing to take up jobs which their Western counterparts would not, because in India it can so dramatically enhance their spending power.

But the offshoring revolution – which last week stepped up a gear as Aviva, the insurer formed from the merger of Perth-based General Accident with Norwich Union and Commercial Union, announced the transfer of another 2,350 jobs to the subcontinent – is not all plain sailing.

Increasingly, job transfer announcements are being treated with dismay by trade unions and consumer groups. At a political level, they have prompted protectionist calls on both sides of the Atlantic — including an outright ban from the State of New Jersey.

Outsourcing has even led to apocalyptic predictions that the UK’s whole services-based economy — which has kept us ticking over so nicely since the collapse of many manufacturing industries — must be teetering on the brink of collapse.

Unions are furious about the spate of outsourcing decisions. Mark Brown, assistant general secretary of the Lloyds TSB Group Union says: “We believe the bank’s current pilot is only the start and that thousands of jobs in Scottish Widows could be lost over the next few years.

“My union is vigorously campaigning against the transfer of Lloyds TSB group jobs abroad. The centrepiece of our strategy is to exert pressure on the bank to drop its plans through engaging its customers – business and personal – in our campaign.”

Brown believes the campaign stands a real chance of success because banks are so “sensitive to adverse customer feedback and media attention”.

Separately, Lloyds TSB is facing a strike ballot over the closure of its Newcastle call centre because of the transfer of posts to India.

Following last week’s Aviva announcement, which will spell at least 500 redundancies, Dave Fleming, national secretary of white collar union Amicus, said: “This deplorable announcement by Aviva is based purely on greed.”

Amicus — which estimates that 200,000 UK call centre jobs will be lost by 2010 — has written to Patricia Hewitt, the trade and industry secretary, expressing its concern about the “lack of understanding within government about the impact of offshoring on local communities, the UK economy and its skills base”.

But the government has said it will not intervene. Doug Lockhart, managing director of Glasgow-based Absolute Quality, which provides multilingual contact-centre services to European consumers, argues that there is something Canute-like in trying to stem the flow.

He said: “I am old enough to remember Jimmy Reid defending the Clydeside workers back in the 1970s. It strikes me that we have a similar situation today. As before, the realities with which we are faced are lower labour costs and increased skills in other parts of the world.”

Lockhart wants to expand Absolute Quality’s operation in Glasgow, with plans to increase staffing levels from their current 60 to 400 by 2008. “We’ve grasped the opportunity by skilling up in European languages. Our work is 90% European-language dependent.

The offshore route is certainly not for everyone. Some firms have decided against it, largely because they believe showing themselves to be committed to UK jobs will bring a greater competitive advantage than any cost savings derived from offshoring.

They also do not want to risk the reputational damage that can be fomented in the wake of big offshoring announcements.

Moreover, they question how long the cost advantage of operating from India will last — a call-centre operative there currently earns £1,000-£2,500 per annum.

In a recent study, Dr Philip Taylor of Stirling University and Dr Peter Bain of Strathclyde University, report that: “The pressures generated by rapid growth have begun to erode India’s principal competitive advantage — low labour costs.”

Companies that are firmly against outsourcing also believe that, irrespective of how many episodes of EastEnders they have watched, call-centre operatives 6,000 miles away will never be fully attuned to the needs of the UK consumer.

At least four of Scotland’s largest companies — Royal Bank of Scotland, HBOS, Standard Life and Scottish & Southern Energy — have therefore declared themselves against the idea of outsourcing to India.

Standard Life, which employs 8,000 people in Edinburgh, says it has no intention of jumping on the bandwagon.

Marcia Campbell, managing director of human resources, says: “We believe that having our customer services operation — the eyes and ears of the company — firmly attached to the main body of the organisation delivers a real competitive advantage. We have one of the lowest staff turnovers in our industry and the depth of experience which has been built up could not be replicated by moving jobs elsewhere.”

Banks which were mistrustful anyway of the offshoring model had their opposition reinforced in October following HSBC’s announcement that it would axe 4.000 UK jobs by 2005 and transfer them to India.

HSBC’s move, coupled with some tactless remarks by its former chief executive Sir Keith Whitson, prompted significant numbers of its UK customers to contact other banks with a view to moving their accounts.

As Taylor and Bain put it: “Organisations which have outsourced or are proposing to do so, may suffer damage to their brand or image and lose customers and revenue.” Other banks, including HBOS and RBS, have no desire to find out how this may affect them.

An HBOS spokesman said: “We are a UK business, our call-centres are in the UK and we have no plans to change that.”

An RBS spokeswoman said: “We have recently completed a very successful project which has proven that we can locate some of our operations in offshore locations, but after considering all the factors we have decided not to pursue this option. We have concluded that the best outcome for our staff, shareholders and customers is to continue to employ people in countries in which we operate, provided that the fiscal and regulatory climate is supportive to our business.”

Another company with no intention of transferring jobs en masse to India is BSkyB.

The digital broadcaster employs 4,000 people in its two UK contact centres in Dunfermline and Livingston. But it recently confirmed its commitment to these sites by announcing a £70m investment programme for the two locations. Last month, the company said it would add a further 300 jobs across its Fife and West Lothian sites even though it admitted a “small-scale pilot” is underway in Bangalore.

A spokesman said: “We have always used outsourcers to help manage the peaks and troughs of call volumes. The Bangalore pilot is simply an additional option to outsourcing within the UK.”

But could the offshoring revolution really create enduring unemployment at home and cause or own economy to suffer?

Not according to the management consultancy McKinsey & Co, which published a report in August pointing out that the vast majority of services jobs still involve face-to-face interaction – for example in retail and leisure – and therefore cannot be exported.

McKinsey also estimated that for every £1.45 of economic gain created by shifting £1 of labour costs abroad, all but 30p is captured by the exporting country. That would appear to be a win-win situation for both economies but, bizarrely, a bigger win for the country losing the jobs.

The line appears to have been endorsed by Peter Hain, Leader of the Commons, who last week got into political hot water when he too suggested the loss of thousands of jobs to India would be beneficial to the UK economy.

Hain told MPs that evidence from the Call Centres Association suggested that “those companies outsourcing part of their work are getting a big return on that A surplus is coming back into this country enabling them to expand services and create more jobs and contribute to the prosperity of the country.”

McKinsey believes that offshoring has moved on from the days when the jobs shifted overseas were merely in low value work such as back- office processing, call centres and accounting.

The paper ended by saying the range of functions that have been “offshored successfully” is “substantial” and “widening all the time”.

But according to Taylor and Bain, future transfers to India are most likely to occur where services are “high-volume, low-value, routinised, repetitive, with short call cycle times, largely in financial services, initially in insurance but increasingly in banking.”

The suggestion is that more complex work, involving for example relationship banking with high net-worth individuals may well be immune. That is an assertion upon which the hopes of many will depend.

Copyright 2003 SMG Sunday Newspapers Ltd.

Sunday Herald website

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