The Implications of Outsourcing IT Positions to Low Cost Countries
Written by admin on July 21st, 2011spreading in South Asia, the lack of infrastructure, antiquated legislations, language barriers and the high cost of Internet access are hampering growth. We can see that the South Asian IT infrastructure is facing problems, but the industry is trying to overcome it and keep its position as a favored outsourcing destination. (Rao, Bhandari, Iqbal, Sinha & Siraj, 1999, p.7)
Offshoring High wage Jobs from Us to Low Cots Locations :The off shoring of high wage jobs from the United States to lower cost overseas locations is currently contributing to unprecedented levels of unemployment among American electrical, electronics and computer engineers. Off shoring also poses a very serious, long-term challenge to the nation’s leadership in technology and innovation, its economic prosperity, and its military and homeland security.Prudent steps must be taken to ensure that offshoring, if it does occur, is implemented in ways that will benefit the United States and all its citizens, including high tech workers. To this end, IEEE-USA recommends that:
The Federal Government must collect and publish reliable statistics on the kinds and numbers of manufacturing and service jobs that are being moved offshore.
Government procurement rules should favor work done in the United States and should restrict the offshoring of work in any instance where there is not a clear long-term economic benefit to the nation or where the work supports technologies that are critical to our national economic or military security.
New U.S. workforce assistance programs should be created to help displaced high-tech workers regain productive employment and ensure that employed workers can acquire the knowledge and skills they need to remain competitive.
The H-1B and L-1 visa programs should be reformed and new trade agreements should incorporate such reforms. These temporary admissions programs for skilled workers are often used to import lower cost labor and can result in displacement of U.S. professionals, exploitation of foreign workers and accelerated offshoring of engineering and other high tech jobs.
A coordinated national strategy must be developed to sustain U.S. technological leadership and promote jobs creation in response to the concerted strategies being used by other countries to capture U.S. industries, jobs and markets.
Federal investments and tax credits for research and development should be limited to work performed in the U.S. R&D that must, by its nature and content, be carried out offshore, is not covered by our recommendation.
This statement was developed by the IEEE-USA’s Career and Workforce Policy Committee and represents the considered judgment of a group of U.S. IEEE members with expertise in the subject field. IEEE-USA is an organizational unit of The Institute of Electrical and Electronics Engineers, Inc., created in 1973 to advance the public good, while promoting the careers and public-policy interests of the more than 225,000 electrical electronics, computer and software engineers who are U.S. members of the IEEE. The IEEE is the world’s largest technical professional society.
The Consequences or Impact of off shoring on Banking Industry and Others :Whether the United States will benefit from the off shoring of jobs will ultimately depend on how the process is implemented. As in all competitions, there will be winners and losers. Potentially adverse consequences include: loss of employment opportunities and income by technical professionals; loss of payroll and income taxes by national, state and local governments; growing trade deficits in goods and services; transfers of investment capital and intellectual property to overseas locations; and increasing dependence on foreign sources for consumer products and defense critical weapons systems. IEEE-USA is particularly concerned that offshoring of engineering, computer science and other high tech jobs could eventually weaken America’s leadership in technology and innovation, a threat that has serious implications for our national security as well as our economic competitiveness. Fewer job opportunities and the downward pressures on wages that will occur as more and more scientific and engineering jobs are shifted to lower-cost, overseas locations are also likely to discourage many of America’s best and brightest young people from pursuing careers in science and engineering. Offshore outsourcing can also result in intellectual property and sensitive personal data exports, including medical and credit information. And because U.S. laws that protect information and safeguard privacy do not have extraterritorial application, the U.S. government, corporations and citizens will become increasingly dependent on foreign laws to protect their interests. The risk posed to these interests by individuals and organizations who would take advantage of weak laws, loopholes and limited access to enforcement is not insignificant.Worker Shortage
IT faculties in India are already in short supply for IT workers. The All India Council for Technical Education (AICTE), the main body for accrediting post-secondary engineering schools, finds a faculty-student ratio of 1/45 in IT courses at AICTE-approved institutions. AICTE recommends a ratio of 1/15. This faculty shortage will reach critical proportions as MIT’s plans to triple the number of IT engineering graduates are implemented.The quality of computer science education will suffer as a result of faculty shortages. Indian undergraduate degree programs are only three years long, compared to four years in North America. Wage scales for IT professionals are increasing as firms seek to minimize turnover. The Indian software giant Infosys reportedly raised salaries by 30 percent in 2003 and 16 percent in 2004. Other firms are providing employee stock ownership plans and opportunities for international travel in efforts to reward staff and keep them from leaving.
Other Countries: India’s IT workforce shortage is welcome news in Pakistan, where turnover is less than 10 percent and the average employee wage and benefit package at IT firms is 0. Of that, 0 is for wages.The inflationary effects of a tight labor market can be illustrated by the history of the international call center industry in the Philippines.The labor market for call center employees in the Manila region is the tightest of any developing country’s IT labor market that we know of. The tight labor market has seen our total service costs rise to to per production hour for simple voice services to the U.S. without telecommunications redundancy, up from to in the Philippines in 2002.Agent quality in the Philippines is excellent for general customer-service work, but at those prices we can recruit and retain highly trained technical or medical personnel elsewhere in South Asia. Or we can go to South Asian centers with onsite American trainers and managers. For an hour we can go to Canada and for an hour we can stay in the U.S. When the Philippines experienced a modest call center boom in 2002, it did not appear at that time that the boom was sustainable because when available labor supplies were fully utilized, the labor market would tighten quickly and wages would rise correspondingly. This dynamic is common in small labor markets.The former British colony of Sri Lanka has many of the advantages of India and Pakistan in terms of English language skills and an emphasis on education. The population of Sri Lanka has a relatively high quality of life but a per capita income of only 0. In comparison, India’s per capita income in 2003 was 0. Sri Lanka
The civil war that began in Sri Lanka in 1984 has been winding down and the business climate is improving. With a little more pressure exercised on the Colombo government to compromise with the Tamil rebels, long-term peace and stability will be within reach.
A mix of domestic and international IT firms have been cautiously setting up operations in the Colombo area. Rapid tightening of the labor market for customer service personnel will happen in Sri Lanka if the IT industry expands too quickly there. Escape velocity and a tightened labor market could be reached in six to eight months if India implements taxes on U.S. clients of domestic or foreign-owned outsourcing facilities in India.
The average size of new merchant call centers going up in Colombo in 2004 is only around 60 seats to start, expandable out to about 150 to 200 seats. One South Indian firm is setting up operations in Colombo in order to provide redundancy for inbound mission-critical work from its international call center in Tamil Nadu. It is bringing over technicians and support personnel from India to compensate for a shortage of specialized call center technicians in Sri Lanka.
Public Policy Recommendations:
Providing Good Data for Policy Analysis: The U.S. government does not presently collect statistical information about the offshoring of jobs or its impact on employment, technology and capital investment in the United States. The lack of objective data forces policy-makers to rely on speculative projections, and diverts attention from the real task of solving the problems that offshore out- sourcing creates.
Government Procurement: Federal, state and local governments are a significant consumer of high tech goods and services. Government spending increases aggregate demand and helps create jobs. If government contracts
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