India Fears Impact of Bid to Curb Jobs Exports

Following the lead of many other American and British firms, the British insurance company, Prudential, is planning to export jobs from the UK to India. Outsourcing to low-cost offshore centers is saving companies billions of dollars a year, since it allows them to set up shop where labor is plentiful and cheap. Though company executives maintain that outsourcing merely follows economic law and is an integral part of globalization, unions and politicians around the world are angered by the threat it poses to domestic jobs and are pushing legislation that would penalize firms that chose to do work abroad. Such legislation is unlikely to pass, however, since it faces intense opposition from IT companies and is condemned by countries such as India as "back-door trade restrictions." Companies describe these concerns as "a backlash against globalization," maintaining that protectionist policies would hinder productivity and competitiveness and could be challenged under the WTO. – YaleGlobal

India Fears Impact of Bid to Curb Jobs Exports

Edward Alden
Wednesday, June 4, 2003

Prudential, the British insurance company, is planning to save £16m ($26.2m, &euro22.3m) a year by shifting about a third of its remaining 3,000 customer-service jobs in the UK to India.

But the insurer's plans, which include a wholly-owned $10m (&euro8.5m, £6.1m) call centre unveiled in Bombay last week, are attracting interest far beyond the thousands of Indians likely to apply for one of the 850 jobs.

Similar moves by other companies in the US and the UK to low-cost offshore centres are now gaining international political attention. US unions and politicians are launching campaigns to protect jobs and the British Communication Workers' Union this week issued a new warning of strikes against BT, the telecommunications giant, over its Indian plans.

Unemployment in the US IT sector, now in its third year of downturn, hit 5.2 per cent last year, up from 3.7 per cent in 2000. Giga Information Group, an IT researcher, says that by 2015, a cumulative total of more than 472,000 IT jobs will be moved from the US to overseas locations, up from about 27,000 in 2000.

The "Great Tech Job Exodus", a campaign to stem the export of technology jobs to low-cost centres, was recently launched by the Washington Alliance of Technology Workers based in Seattle, the hometown for Microsoft, the world's largest software company.

WashTech posted on its website an internal Microsoft memo in which a senior executive wrote that by using low-paid Indian software developers, the US company could get "two heads for the price of one".

Last year, Microsoft set aside $400m for IT and education projects in India - its largest investment outside the US, and it plans to double the number of engineers at its centre in Hyderabad to 500 in three years.

Last month, legislation was introduced in the US Congress that would restrict foreign companies' ability to transfer Indian workers to their subsidiaries in the US. The transfers are said to violate the terms of special visas known as L-1, which are supposed to be used in a limited way for intra-company transfers.

Lawmakers in four US states have also introduced legislation that would deny government contracts to companies that choose to do the work abroad.

While the bills are likely to be withdrawn in the face of opposition from IT companies, anxieties are rising in India over what many see as back-door trade restrictions.

At an Indo-US business forum in Bombay last week, Robert Blackwill, the US ambassador, was asked by an executive with a US bank: "What is it [India] expected to do when it is the US companies that are voluntarily choosing to go to low-cost centres?"

The proposed legislation is among the first signs of a backlash against the loss of once high-paying jobs. Technology companies acknowledge that they face a struggle this year in persuading Congress to maintain the high numbers of foreign technology workers allowed to enter the US on H-1B visas for people with specialist skills. Under lobbying from the industry, Congress in the 1990s raised the annual limit to 195,000 workers, but that will fall to 65,000 next year unless Congress acts to extend the higher quota.

India's business process outsourcing, still a small proportion of its $10bn IT services sector, is forecast to grow for a third consecutive year at over 60 per cent. Foreign clients may initially have turned to India because of cheaper labour costs of at least 40 per cent. But most have ramped up their relationship with their Indian technology partners because of productivity gains.

The National Association of Software and Service Companies (Nasscom), India's top IT umbrella group, says its survey of customers has revealed productivity gains of 20-25 per cent.

US companies have saved nearly $8bn in the four years to 2002 by outsourcing to India, and the benefits in terms of productivity and competitiveness as well as savings are rising, says Nasscom. It also believes the proposed legislation by the four states could be challenged under the WTO.

Vivek Paul, president of Wipro Technologies, India's largest listed IT company, described the US moves as a backlash against globalisation. "It is a basic economic law that companies will seek lower costs. Services are following the same path as manufacturing."

Prudential, for example, selected Bombay over rival locations in east Europe, Asia and Ireland not only because of lower hiring costs but, as Philip Broadley, Prudential's finance director, says: "The infrastructure and potential for savings and productivity gains made India a winner."

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