Global Policy Forum

By Alex Whiting

Until recently, words like ‘call centres' and ‘outsourcing' in Britain stayed firmly in the business pages of newspapers, read mostly by entrepreneurs looking for the next big trend in buck-saving. Now they are making headlines and grabbing the public's attention, as one household name after another announces its decision to move jobs overseas. Globalisation, it seems, is making its presence felt. And some don't like it.

The Communication Workers Unions – one of the largest telecommunications and financial services unions – launched a high-profile tour across the country with a giant pink inflatable elephant, campaigning against what it called the "UK job stampede" to developing countries, where wages and other costs are dramatically lower. "Over 200,000 office-based jobs throughout the UK are at risk in just about every sector, but especially in call centres, banking and communications," says Geannie Drake, deputy general secretary of CWU.

The fear is understandable. In the last decade call centres have created much-needed work in British regions where manufacturing jobs were lost in the 1980s. The average wage in a call centre is £12-15,000 ($19-23,500) compared with the per capita income of $24,160. Still, the 6,000 call centres in Britain employ nearly half a million people – 1.7% of the working population. Worryingly (for British unions) a recent report by Mitial International, analysts of the call centre industry, predicts a sharp drop in jobs – partly as a result of competition from cheaper destinations such as India. The report says a third of Britain's larger call centres will close by 2005, triggering about 90,000 job losses. "Our main fear is that communities in this country could be devastated by this short-term cost-cutting and at the moment no-one is taking this seriously," says Drake.

Communities most affected are in northern England and Scotland. Typical is the city of Newcastle, 440 kilometres north of London, whose economy took a nosedive after its steel, mining and shipbuilding industries shut down in the 1980s. Things worsened when the textiles industry outsourced jobs to Asia in the 1990s. Call centres, set up in the mid-1990s provided welcome relief, and now employ some 27,000 people in the region. Dai Davies, director of communications at Unifi, a union for the financial and insurance sector, is concerned about what will happen if jobs do leave these areas: "There won't be anything to replace them. There's nothing there." British Telecom, Britain's largest telecommunications company, is one of the latest to announce outsourcing plans. The company says it will move 2,200 jobs to the southern Indian city of Bangalore by the end of 2004. Indian staff will be paid a dollar an hour compared with nearly $10 in Britain, according to CWU. Although BT have promised to keep all jobs, in practice many offered redeployment in other parts of Britain are likely to take voluntary redundancy instead, say unions and call centre industry analysts. Now unions are pressing for companies like BT who derive their profits from British customers to be "socially responsible" – meaning they must support the domestic economy by employing British workers.

While outsourcing itself is not new (textiles were outsourced to Asia as early as the 1970s, manufacturing jobs in the 1980s and IT in the 1990s), the shifting of call centres and other business processes – such as administrative work and data analysis – began booming eight years ago when the multinational General Electric moved thousands of jobs from America to India. GE now has 11,000 Indian employees, mostly agents in call centres, and a core of about 400 who analyse credit card data and market trends. India is driving the current outsourcing market, followed closely by China, South Africa, Mexico, Philippines and Ghana. According to McKinsey consultants, 203 of the Fortune 1000 list of the world's top companies outsource to India. By 2005, they estimate, business process outsourcing will be worth $235.4 billion, and India's share of this will be 10%.

The bad news for developing countries that want a larger share of the globalisation pie is that the trend seems to be causing a rush toward protectionism in the West. The American states of Maryland, New Jersey, Washington and Pennsylvania are either considering or have already proposed legislation to ban outsourcing government contracts abroad. In Britain, independent information technology consultants have urged the government to make it harder for Indian IT consultants to operate here. And the parliament's trade and industry committee is launching an enquiry into the loss of call centres and IT jobs overseas.

In June, India's Information Technology Secretary, Rajiv Ratna Shah, responded to the potential backlash by warning Western companies that if they limit outsourcing they will suffer in the long-run. "The stark reality of the cost advantage makes it profitable, and if they do not realise it, [firms resisting it] will cease to exist," he said. "It is a choice of losing some jobs, or losing all the jobs." The government agrees. "It [outsourcing] is good for British business, and in the long term benefits the British economy," says a Trade and Industry department spokesperson, while admitting it will cause unemployment in the short-term.

The union protests do not convince many entrepreneurs either. Ab Banerjee, chief executive of London-based financial media specialist Raw Communications, which is about to outsource its software development work to India, says: "I think it's a huge opportunity for the UK, particularly in the pan-European context, because outsourcing is being driven by the Indian market, and India is largely English-speaking. There are big opportunities for UK companies to stride ahead [of European rivals]."

Researchers predict outsourcing is set to increase dramatically in the near future. American analysts Forrester Research say that 3.3 million American white-collar jobs could shift to developing countries by 2015. And British analysts at Deloitte Consulting say falling share prices and increasing competition are "creating a ‘burning platform' for all financial institutions to embrace offshoring as a way of remaining competitive". "The reality for many companies is that while they relocate offshore for cost, they stay for quality. Indeed many companies – both financial and non-financial – discover that not only is the cost reduced for many business processes, but the efficiency and effectiveness often improves significantly."

Dr Henry Overman, at the Centre for Economic Performance in the London School of Economics, says that while this trend is good for the British economy, it does create difficulties in the labour market, particularly for those with few skills. "I think a worrying aspect of it is everything we understand about globalisation and liberalisation of trade says if people with lower skills want jobs, it's going to be difficult to pay them."He says there seems to be a widening income gap between the skilled and unskilled in the West. "But this has been going on for 20-30 years, predominantly dictated by technological changes, not outsourcing." One possible solution that the British government, unions and academics all propose is to retrain jobless workers in order to move them higher up the ‘value chain'. "We're a rich society, we can afford to invest in getting people skilled and that's what we should be doing," says Overman.

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