NEW DELHI - Usually the two countries are in
harmony on all issues, including the invasion of Iraq.
The difference, however, could not be starker when it
comes to outsourcing. The United States and the United
Kingdom find themselves at opposite ends of the
spectrum. While an anti-outsourcing movement rages
across the US, in the UK, apart from some trade unions
and people affected, nearly everybody (politicians
included) wants to join the party of cutting costs.
Outsourcing is turning out to be a major issue
in the buildup to the US elections. US-based top
executives of Indian information technology and business
process outsourcing (BPO) firms are boycotting
fund-raising dinner parties for John Kerry, the
Democratic aspirant, who has been dubbed the "BPO party
spoiler". President George W Bush has had to turn
defensive after a backlash over an aide's contention
that the free flow of jobs, including the migration of
services to India, benefited the US economy in the long
run. Although White House economic adviser Greg Mankiw
was merely echoing what was stated in Bush's economic
report to Congress, Washington's political class lashed
out.
The case of the UK, however, is different.
It will be "wholly wrong" to adopt a protectionist
attitude regarding outsourcing by British companies to
India, a 10-member all-women delegation of Labor
parliamentarians said after a visit to India last week.
"The whole group felt that it will be wholly wrong to be
protectionist on the issue of outsourcing, which not
only helps India but also the British companies," Dari
Taylor, leader of the delegation, said.
Similar
sentiments were echoed by Stephen Timms, the UK minister
for e-commerce, department of trade and industry,
earlier in the month. "We don't want to interfere in the
decision-making process of investing companies. We will
leave it to the market forces to make decisions. I
believe protection is not the way for progress," he
said.
The list of companies based in the UK
outsourcing to India has grown exponentially over the
past couple of years. They include many big names -
Abbey, ABN Amro, American Express, Aviva, Axa Insurance,
Barclays, Citibank, Deutsche Network Services, Goldman
Sachs, HSBC, Morgan Stanley, Prudential, Standard
Chartered Bank, JP Morgan Chase, Capital One, Lloyds
TSB, Accenture, AOL Online, British Airways, British
Telecom (with plans to mover more than 7,000 jobs,)
Dell, GE (over 11,000 employees), Ideal Shopping
Channel, National Rail Enquiries (plans to move 600 call
center jobs to India), TESCO, Vertex. Among the US
biggies assigning work to Asia are Oracle,
Hewlett-Packard and AIG Life Insurance.
The
difference in approach in the UK and the US is due to
economics scoring over politics, or vice versa. While
political compulsions score high in the US in an
election year, in the UK the movement of jobs is mostly
seen as related to good business sense.
Indeed,
as far as business is concerned, there appears to be a
near unanimity that outsourcing is good for individuals
as well as economies. There will be the initial hardship
of job loss compensated by re-training and creation of
other jobs. A Bloomberg report says that Atlanta-based
Delta Air Lines created 1,000 call-center jobs last year
in India. The Indian operations saved US$25 million in
2003, enabling the No 3 US air carrier to add 1,200
positions for reservations and sales agents at home. But
no Delta employee lost his or her job as a result of
outsourcing.
General Electric has created 20,000
jobs in India since 1997. Peter Stack, a GE spokesman,
said: "When we sell effectively to international
markets, it grows our business, and that benefits our
workers here [US]."
Economists including Stephen
S Roach of Morgan Stanley have come out in support of
outsourcing, saying that it will benefit the US on a
long-term basis. US Federal Reserve Chairman Alan
Greenspan has strongly defended free trade in goods and
services. McKinsey has estimated that every dollar of US
labor cost assigned overseas will generate $1.12 to
$1.14 in additional value for the American economy by
making goods and services cheaper and companies more
competitive.
Hewlett-Packard chief executive
Carly Fiorina has urged tax reductions and better
schools to improve the competitiveness of US industry.
Business groups in the US are protesting the
measure. "We want to grow the worldwide economy and
create jobs. Isolating ourselves is not the way to do
it," director of communications from Business Roundtable
Tita Freeman has said. Business Roundtable is an
association of chief executive officers of the biggest
firms in the US and it recently urged the Bush
administration not to be swayed by the public furor over
the loss of American jobs overseas and not to espouse
policies that would prevent American firms from getting
jobs done cost-effectively, including outsourcing and
sub-contracting to countries like India, China and
Russia.
Opponents of moving work offshore, such
as Paul Craig Roberts, former assistant secretary of the
Treasury during the Ronald Reagan administration, say
that times have changed and that today's migration of
service-industry positions isn't likely to provide the
benefits that some economists say it will. "It is not
your father's traditional foreign trade," Roberts said
in an essay published by NewsMax.com. "Goods are not
being traded. Offshore production is not a case of the
US making good X and trading it to China for good Y. It
is a case of the US ceasing to make good X in the US and
making it in China instead."
In India, the
reactions have been of unqualified umbrage. "The laws
are a surprise," union commerce and industry minister
Arun Jaitley said, recalling his meeting with US trade
representative Robert Zoellick in June last year in
which Zoellick had termed as "bad policy" attempts then
being made some state legislatures to ban outsourcing of
government contracts to countries such as India.
Zoellick, who was in New Delhi recently, met
Jaitley to discuss a range of trade-related issues.
Speaking to reporters after the meeting, Jaitley said
that any further progress in the World Trade
Organization linked to opening up of Indian agriculture
will be pegged to the US approach to outsourcing. "It is
strange that on the one hand, people are talking about
opening of markets, and on the other hand, banning
business process outsourcing. Our agriculture is fragile
as it is not subsidized, like in the US," Jaitley said.
Echoing similar sentiments, information
technology minister Arun Shourie has said that this was
not the way Washington could advance in the backdrop of
multilateral trade negotiations. "I feel this would
worsen prospects of multilateral negotiations in trade,"
Shourie has said. "We must continue to move up the value
chain and evolve such solutions and services which are
good and cost-effective and Indian IT companies must
diversify to other markets," Shourie said.
Indian industry, too, has reacted angrily to
"protectionism" building up in the US ahead of this
year's presidential election. Software industry
association Nasscom president Kiran Karnik said: "We are
dismayed. Such legislations are not in keeping with the
increasing globalization of trade, which benefits all
countries and is contrary to the spirit of free trade
espoused by the US."
Observers say that US
lawmakers are being shortsighted and populist and will
be brought to their senses when enough qualified people
are not found to do the job.
On the next course
of action, the advice is to bide one's time, taking a
leaf out of the response to outsourcing in the UK. The
belief is that matters will die down. Some prominent
American think tanks (Economic Strategy Institute, East
West Center), have already advised India to keep calm
for the moment, as the outsourcing backlash is likely to
die out once the elections are over in the US at the end
of the year.
Shourie has said: "The real action
has to come from the firms who avail our services and
they must know the consequences on their competitiveness
if they are not allowed to outsource."
In a more
macro context, the moves are being seen in India as a
test of US commitment to the ideal of free trade. To
votaries of free trade, any attempt to erect barriers in
services is as reprehensible as maintaining barriers in
the movement of manufactured goods. It is also seen as a
battle that is being waged in the political realm. It is
the politicians, and not industry spokespersons, who are
attributing America's so-called jobless recovery to
outsourcing.
From India's point of view, the
recent advice by Nasscom is instructive. Nasscom has
advocated that India keeps it counsel and observe a low
profile strategy, as the anti-outsourcing bills are
likely to be ineffective. They will end up costing more
US jobs than they save. The bills will be shelved the
moment a new government, whether Democratic or
Republican, is in place, Nasscom argues.
Siddharth Srivastava is a New
Delhi-based journalist.
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