Friday :: Mar 26, 2004

Accepting The Lowest Bid, Part 2

by pessimist

Space limitations define the posting. Continuing ...

Does Mr. Powell have a position on this outsourcing issue? Sure does!

Powell supports high-tech brain drain

Will float Silicon Valley to India if he has to

US Secretary of State Colin Powell took the unusual step of pledging to the Indian government that any Bush administration would not try to halt the brain drain of high-technology jobs to Asia. Hey, it's almost traditional.

Powell explained to India that because outsourcing had created a political problem in the United States, India could help by lowering its trade barriers. He said he was making that request, not as a condition for the United States allowing outsourcing to continue, but because it was in India's interest to be more open. But David Wade, a spokesman for Senator John Kerry, the presumptive Democratic presidential nominee, said Mr. Powell's comments demonstrated how the Bush administration has "failed to fight for American workers."

Some of you out there are too young to know this, but administrations of both parties essentially stopped fighting for workers by 1968. The dominant issue became corporate campaign contributions, and when these are waved about, the worker's needs are forgotten.

In spite of this corporate-oriented vision, however, not all is going well for Mr. Powell's efforts:

Powell dogged by diplomatic missteps

There were hints of trouble and a disturbing lack of preparedness during Mr Powell's first stop in India. In exchanges with political leaders and college students, he explained that there was concern in the United States about the outsourcing of high-technology jobs to India. He said it would help the US counter this difficulty if India would open up its markets to American products. But his chastisement seemed only to create more annoyance that later turned to anger.

Back-office deals out of trade haggle

Powell said though Washington wanted reforms in India to continue, perhaps at a faster pace, outsourcing was a global reality of the 21st century. I think it is time for us to educate the American public about these realities, he said. The Democrats in the US have successfully turned outsourcing into a major election issue.

Outsourcing the US corporate practice of shifting jobs to lower-wage countries like India has become an issue in the US presidential campaign. This is the first categorical statement on outsourcing made by a senior American leader and should allay fears in Indian Inc especially in the business process outsourcing segment which has been worried by recent moves to pass legislation in the US to stop outsourcing of jobs on government contracts to countries like India. Powell said the number of Indian jobs created as a result of outsourcing estimated by one US official at 100,000 to 180,000 is small relative to the US economy.

That's it - minimize the problem! I'm sure that this number of jobs "created" in India can be verified, but India is but ONE country where US jobs are relocating.

The Financial Times: Outsourcing of IT Jobs Predicted To Continue

The Lure of China

The San Jose Mercury News has highlighted the Chinese technology market and its ties to U.S. companies in a series of articles. "With 21 percent of the world's population, China is simply too big for Western tech giants to ignore. The country is the second-largest personal computer market in the world after the United States. More than 300 million Chinese use mobile phones and an estimated 90 million Chinese surf the Web," the newspaper wrote in an article focusing on Microsoft's foray into the country. "Even though Microsoft doesn't make a dime of profit in China, it continues to pour money into the world's most populous country, investing in the hope of long-term success. Microsoft's experience provides a glimpse of China's enormous potential as the nation moves beyond its strength in hardware and manufacturing to newer areas like software."

The manufacturing ability of the Chinese is a known fact already. Where else can you get pirated copies of the latest version of Windows on the day it's released in the US and have a copy with quality that is just as good as you would get from Microsoft?

The San Jose Mercury News: Microsoft Hopes For Return On Costly Investment In China

In a separate article on Sunday, the newspaper wrote that China is both an attraction and threat for U.S. tech companies. "Propelled by a decade of stunning economic growth, China is racing to build a world-class technology industry, a prospect that is exciting and, increasingly, unsettling Silicon Valley. China's appeal comes from its huge and fast-developing domestic market and its growing importance as a manufacturing partner for the world's tech companies. The uneasiness comes from China's unexpectedly rapid progress toward its goal of becoming a center of both innovation and manufacturing that could challenge the valley and other U.S. tech centers," the newspaper reported.

Indeed! But even here things aren't as rosy as desired:

The San Jose Mercury News: China, Partner To U.S. Tech Firms, Is Also A Fast-Growing Threat

The Sino-U.S. 'Semi-Challenge'

A row between the United States and China related to technology imports could boil up any day now. "The Bush administration plans as early as this week to file its first formal trade case against China over what the U.S. says is an unfair tax on imported semiconductors," The Wall Street Journal reported (Subscription required. "The administration faces intensifying pressure from Congress, U.S. industry and organized labor to challenge various Chinese trade practices ranging from the pegged value of China's currency to some of its domestic tax rules. China racked up a record $124 billion trade surplus with the U.S. last year. The administration sees the semiconductor case as the best opening assault on Chinese trade practices. ... A U.S. semiconductor case would mark the first challenge against China by any country since Beijing joined the [World Trade Organization] in late 2001."

The Financial Times: US To File WTO Complaint Against China

"The case, which US officials said could be filed as early as Wednesday, will mark the end of a two-year honeymoon in which Washington has tried to resolve a series of disputes with China without resorting to the WTO."

"A combination of election-year pressures on the Bush administration to take a tough stand on China and Beijing's refusal to budge on the tax issue has led Washington to bring the case," the newspaper reported. "At issue is a 17 per cent value-added tax that China imposes on all semiconductors. The Chinese government rebates all but 3 to 6 per cent of that tax for domestic producers but retains the full tax on imports, giving domestic chipmakers a huge advantage in an industry with narrow profit margins. The Chinese tax has become the biggest international trade issue for the $70bn (39bn, E57bn) US semiconductor industry, which fears the rebate is encouraging semiconductor production in China at the expense of US imports."

So, with all of these problems with international trade, as we really sure that outsourcing jobs is such a good idea? What if in the process of sending jobs offshore we send something else, something really valuable, with it?

Powell Reassures India on Technology Jobs

The United States has intensified its drive to open Indian markets and wants to sell advanced civilian space and nuclear technology, but only if India imposes controls so that the technology is not passed on to other countries.

Didn't we just whack General Musharraf's lead nuke scientist for exactly this reason????? We really should rethink this policy, because what would happen if the genie gets out of the bottle, and someone takes offense over something like this?

Leader in outsourcing a victim of backlash

Azim Premji is the Bill Gates of India. By transforming his family-owned vegetable oil business into a global technology powerhouse, Premji has become the richest man in the country, with a net worth hovering around $8 billion. Outside India, however, Premji is not exactly Mr. Popularity these days. A British newspaper recently went so far as to describe him as "the man who wants to take away your jobs." That has to do with the nature of Premji's line of work: His company, Wipro, is one of the biggest offshore outsourcing businesses in the world.

At Wipro's sprawling suburban campus near Bangalore, enthusiastic young engineers in blue-and-cream cubicles write code, build software and maintain computer systems for a host of U.S. companies, including Lehman Brothers, General Motors, Home Depot and Boeing. And they do it for a small fraction of what it would cost these companies to do the work themselves.

But in the United States and elsewhere, Wipro and the rest of India's growing technology services industry are increasingly denounced as a major cause of job losses. Senator John Kerry of Massachusetts, the likely Democratic presidential nominee, has called chief executives who shift work overseas "Benedict Arnolds," invoking the name of a U.S. Revolutionary War traitor.

Indian firm sees threat in U.S. sentiment

Premji, 58, contends that Americans are blowing the issue out of proportion. Still, as he sits in his elegant office, gazing through its huge glass windows at the eucalyptus trees in the distance, the chairman of Wipro allowed that he was feeling the pressure. "How can you ignore such rooftop shouting against outsourcing unless you are an ostrich with your head stuck in the sand?" he asked. So the dapper, ordinarily reclusive Premji has reluctantly turned himself into one of the industry's chief spokesmen and defenders. Early this month, he set out on a 48-hour mission to New Delhi. In meetings with India's most influential policy makers, including Prime Minister Atal Bihari Vajpayee, he conveyed a succinct message: The political backlash in the United States is potentially explosive, and India needs to deal with it as a national priority. As his audience in New Delhi understood well, protectionist measures in the United States could choke the industry. Legislation could curb the offshore outsourcing of government work, and caps on the number of visas issued to foreign workers limit Wipro's ability to place Indian programmers and managers at U.S. sites.

Premji is not taking anything for granted. He said he had asked government ministers to publicize Indian purchases of U.S. products and to underscore the advantages of doing business with India. For example, he pointed out that the U.S. financial services sector alone had saved $8 billion in the past four years by outsourcing to India. Premji has also spent the past few weeks collecting a variety of statistics. In an interview, he rattled off a few of them: The Indian technology industry employs 800,000 people, while the American technology industry employs 10.2 million. And 300,000 people work in Indian call centers, compared with six million in the United States. The point, he said, is that Americans are unduly worried. "We are not dealing with cold reasoning here," he said, "but with emotions of Americans whose personalities changed after 9/11 and who feel threatened by anything that hurts their security, their wealth and their jobs."

To be closer to customers, it set up a U.S. headquarters in Mountain View, California, in February last year. In 1999, it hired Vivek Paul, a former General Electric manager, as its chief executive and was listed on the New York Stock Exchange. With $125 million of acquisitions in the past two years, Wipro has moved closer to its goal of becoming a full-service outsourcing company. Today, software and related services account for 92 percent of Wipro revenue, though most Indians identify the company's brand by other products that it now makes: soap, diapers, light bulbs and medical equipment.

"Looking back, neither did we dream that outsourcing would be so big, nor did we imagine that we would face such fierce opposition to our business," Premji said. In the past 11 months, as the debate about layoffs at U.S. corporations has reached fever pitch, Wipro has roughly doubled its work force, to nearly 30,000. Most of its workers speak the same impeccable English as Premji and perform a wide variety of tasks for U.S. companies, from staffing telephone help desks for the baggage-claim services and frequent-flier program of a top airline to designing the car navigation system for a leading automaker. Some workers even interpret X-rays for a Boston hospital. (Increasingly, Wipro's clients are asking it not to reveal their names.)

Given the political environment, Wipro strives to make offshore outsourcing risk-free for its customers - at least as a business proposition. "Failure is no longer an option. Every project needs to be a resounding success," said Girish Paranjpe, Wipro's president, who oversees its banking, insurance and other financial outsourcing businesses. Paranjpe's prospective customers are peppering him with questions about how other companies are dealing with the transition to offshore outsourcing. "They ask: 'What do we communicate to employees? When and how do we do it?'" he said. In recent months, another manager said, clients were so nervous about the sentiment against outsourcing that they had Wipro take their names off the company's Web site. Paranjpe and other top managers advise companies to be forthright in their communications with employees. "We tell them, instead of sending a vague, generic e-mail or leaving a voice mail and sending all the employees into a tizzy, define the exact scope of your offshoring activity," he said.

There you have it. These guys see the US, and the corporations that used to be somewhat good American citizens, as a money mine to advance their own riches. We individual Americans are just threatened. Just like some businesses seem to feel:

Play by same trade rules

India needs to open its market to American imports


Free trade can be good for the world economy -- if everyone plays by the same rules. This week, Secretary of State Colin Powell criticized India's protectionist trade barriers to the importation of U.S. goods. India has one of the world's most closed economies. That's helped to produce an $8 billion trade deficit between it and the United States. U.S. exports to India were $5 billion, compared with $13 billion in imports. India and the subject of outsourcing -- in which U.S. companies hire Indians for service jobs formerly held by Americans -- has become a prickly issue on the campaign trail. Democrats have accused the Bush administration's free-trade policies of allowing these white collar jobs to migrate overseas. Despite the perception that millions of these jobs have been lost to India, the number is actually fewer than 200,000. Still, perception is everything, and the fact remains that if India were importing more U.S. products, that would create more of a market for them in India, plus increase sales and be beneficial to U.S. workers. If India doesn't want to incur a possible backlash in the United States in the coming years, it should follow Powell's recommendation for opening its market to U.S. goods. Then, everyone can benefit economically in the long run.

Note the collar color. Blue isn't such a big concern, obviously. But this issue is not ubiquitous across some industries, as this article demonstrates:

Offshore Outsourcing Divides Teleservices Industry

Opinions on offshore outsourcing are splitting the telemarketing industry at a time when politicians are responding to fears in the electorate about U.S. jobs being lost overseas. The dividing line often falls between larger service agencies that can afford offshore call centers and smaller shops that are limited to domestic locations and thus are threatened by cheaper labor in foreign markets. Divisions in telemarketing on the issue have created a dilemma for its trade organizations, the American Teleservices Association and the Direct Marketing Association, which cannot take a stand without offending some portion of their membership.

ATA membership is split about 50-50 on the issue, said Tim Searcy, the association's executive director. As a result, the ATA has taken no position on the merits of outsourcing. "The ATA's position is that outsourcing is a much bigger issue than the call center business," he said. The ATA is lobbying the government to ensure that companies outsourcing overseas receive equal enforcement under telemarketing regulations such as the national no-call list. Offshore call centers shouldn't have a regulatory advantage over U.S. providers, Searcy said.

In contrast, the DMA has lobbied at the state level against legislation that would harm direct marketers who want to outsource, DMA spokesman Louis Mastria said. Individual U.S. businesses know best whether offshore outsourcing makes sense for them. "We would be very skeptical of any laws that would hinder the ability of any company to make a decision such as this, especially in a tough economy," he said. "It takes away one of the tools American businesses have."

Companies that have located offshore say they had little choice. Cutting prices is impossible using U.S. labor, even when call centers are in areas where jobs are scarce. "Clients were pushing us," said Hayley Weinper, senior vice president of sales and marketing for Influent, Columbus, OH. "We did it as a matter of survival." Weinper's company has six U.S. call centers representing most of its seats. However, it opened a center in the Philippines last year and plans to open another in Panama.

Small service agencies cannot hope to compete with labor overseas, where college grads staff call centers for $3 per hour, about $10 per hour less than their U.S. counterparts who often lack college degrees, said Edd O'Connor, president of Consumer Advantage Research & Marketing, Cincinnati. O'Connor, whose company formerly was known as Tel-A-Sell, said he has a problem with sending U.S. jobs overseas to preserve profits. "I get offers all the time to send stuff over there," he said.

"But I want jobs to stay in America. If we have to go out of business, that's the way it is."

Estimates on how many U.S. jobs are threatened by offshore outsourcing vary. An oft-quoted November 2002 Forrester Research study predicted that 3.3 million U.S. service jobs and $134 billion in wages would move offshore by 2015. Last week the Associated Press reported that U.S. companies have hired 170,000 workers in India for service jobs and that industry groups expected the figure to grow to 1.1 million by 2008. Much evidence is anecdotal, and the U.S. General Accounting Office is working on a study of outsourcing's effect on the U.S. economy, with results expected this spring.

Nevertheless, U.S. lawmakers are pushing ahead with legislation aimed at limiting offshore outsourcing. Teleservices particularly has been targeted with "location disclosure" bills that would require call centers reps, inbound and outbound, to identify their location to consumers. The Call Center Consumer's Right to Know Act, proposed in the U.S. House of Representatives and Senate, would require such a disclosure at the start of every call. In addition, 20 state legislatures have location-disclosure bills pending, and some would require overseas call centers to reroute calls to a U.S. location upon consumer request. However, questions exist about whether states can regulate international trade, which in the past has been the province of the federal government. It's unclear whether such bills would deter offshore outsourcing. Considering that U.S. manufacturing jobs began moving offshore years ago, teleservices is actually late to the game, Weinper said.

For small outbound agencies, options are limited. Business-to-business and other specialized markets unaffected by the no-call list got flooded after the list launched in October as providers moved away from business-to-consumer outbound telemarketing. O'Connor said he is trying to move his business to inbound. He also is partnering with other small agencies and pooling resources so they can collectively take larger projects that only a major call center could handle otherwise.

In the end, Americans, and especially corporate America, will have to decide whether they want small, U.S.-based businesses to exist in the era of outsourcing, O'Connor said.

"Do we want to keep the entrepreneurial spirit?" he said. "Do we want these businesses to survive?"

Please add any comments to the third section - Thanks

pessimist :: 7:20 PM :: Comments (0) :: Digg It!