The Hindu : BPO backlash

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Sunday, Feb 08, 2004

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BPO backlash

The recent developments in the outsourcing sector show that the 'shine' can dull, says Sandeep Dikshit.

THESE DAYS, the "India shining" slogan may no longer apply to the BPO segment of the country's booming information technology sector.

How serious will the impact be of an American and European (mainly British) backlash against back-office jobs being relocated to countries like India where the workforce is prepared to work for low wages, with no social security system and in the dead of night?

So far, six lakh jobs have been created in India due to the relocation of backroom operations, mainly from the U.S., generating an estimated Rs. 70,000 crores. India gets about one-third of the proceeds and the wage labour, 10 per cent. The second largest destination for business process outsourcing is Canada whose turnover in this sector is half of India's. If the U.S. is the major source of outsourcing, the reverse is also true. U.S. businesses account for 70 per cent of the global outsourcing market.

Signs of growing public anger in the U.S. have been apparent for over a year. At the same time, the alarm signals sent by Indian diplomats did not set the industry and the Government on a damage control exercise of the magnitude needed.

The resentment began with American trade unions taking note of media reports of India's success in accepting contracts from major Western companies for their back-office business. "America's pain, India's gain" ran a headline in The Economist. "American legislators are accusing India of stealing jobs" said Business Week. Associated Press circulated an article titled "Tech jobs leave U.S. for India, Russia. Who's to blame?" But the Indian IT industry and the Ministry of IT and Communications failed to adequately judge the growing resentment against Indian workers gaining at the expense of their American counterparts.

New Delhi's failure to gauge the resentment was because of its approach to the opportunities in the outsourcing sector. The industry had constantly clamoured for a hands-off policy for the software sector. The sector had been spectacularly successful all along because it was allowed to go its own way, it was argued, and there was no reason why it should be "shackled" by bureaucrats.

So, when the tide turned, industry and its small band of loyal lobbyists with their blinkered "corporate only" outlook were too inadequate to understand the full strength of the sentiment behind at least a dozen American States considering laws similar to the one passed by the Senate banning relocation of Government contracts outside American shores.

Besides the threat posed by the enactment of the law on outsourcing, free market arguments about global competitiveness are being flung back at India. In the past week, three U.S. administration officials have reminded India about international trade being a "two-way street." The resentment over outsourcing has now developed into a storm over the alleged misuse of U.S. visas by almost all the major Indian IT companies. Not only is outsourcing of jobs under siege — even the work being done by Indian firms will soon come under scrutiny.

The British are also talking on the same lines. Outsourcing is inevitable, they concede, but New Delhi must increase the foreign investment limits in several critical areas.

However, resentment is also tempered by caution in some American States. The Indiana State Legislature rejected a law to ban non-Americans from taking up government contracts. The immediate gainer was Tata Consultancy Service, which picked up a Rs. 60-crore contract. Despite the election-year protectionism in the U.S., a large part of the India software industry will remain unscathed. Many IT Indian majors are developing software that is impossible to replicate in the U.S. at the same price.

The flow of semi-skilled jobs in the form of young boys and calls mimicking Western accents and working at unearthly hours will slow down.

The controversy provides an opportunity for mid-course correction. Companies employing just-out-of-school and college students must be persuaded to offer some type of social security if only because the job is exacting. The government and the industry too have to revise their current strategy. The joint industry-government brainstorming sessions that were initiated two years ago should be revived. The recent developments have indicated that the shine in the software sector can dull.

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