What does BPO stand for? And how does this term function?

Business process outsourcing (BPO) is the method of using a third party who sign the contract with multi-years to handle the specific, specialized processes on a company's behalf in foreign countries. This process that is related to IT-related activities can be done more cheaply, quickly, and efficiently.

Back office and front office outsourcing are two primary types of Business Process Outsourcing. Back office processes consists of payroll, billing, logistics and human resources. And front office outsourcing encompasses technical support, customer service, marketing and advertising.

BPO (Business Process Outsourcing) is mainly popular in IT (Information Technology) Outsourcing. This process can be clarified as hiring a third-party company or service in other countries to do IT-related activities. Those activities are usually related to System Development, Data Center Operations, Project Manager, Open Source, Web Development, Application Management, Application Development, and Quality Maintenance (including testing and quality assurance).

BPO is also considered as "no-core" to the primary business strategy. By outsourcing certain niches of business, the employers can focus on their primary purposes.

Besides, BPO is also common for organizations to outsource Financial and administration (F&A) processes, Human Resources (HR) Functions, and other activities relating to Finance and Investment.

This strategy is also well-known for the practice of hiring a company based in another country in ITES field (Information Technology-enabled Services).

The Advantages of BPO strategy can be characterized as the following things: Cost Reductions, Concentration on core business, Outside Expertise, Cater to changing customer demands, and Revenue increase…by using this method, the employers can save time and money for training and controlling the third-party company.

The Advantages:

Cost reductions: In this method, the employers can reduce the cost by having process improvements done easily; and with easy control and administration.

 

Concentration on core business: The employers can have time to focus on their plans when the third-party company take care of the rest.

 

Outside expertise: The employers don't have to take time to do recruitment and training to personnel. And the qualifications of employees are high due to the serious cooperation.

 

In conclusion, although BPO may be popular for profitability now, consumer and employee backlash related to government restrictions or taxation can reduce its popularity.

Outsourcing Articles >> Pro and Cons of Outsourcing

Outsourcing has many advantages but at the same time it has some disadvantages that

cannot be ignored. So let us look at some outsourcing pros and cons.

Pros of Outsourcing

Outsourcing as a trend has come into major scrutiny by the workers and media alike in the

developed countries. But most economists are sure that this condition is just a temporary one

and will die down as conditions develop and people start taking a mature outlook towards

outsourcing. The Outsourcing advantage lies in the fact that it helps companies cut costs and

stay ahead in the competition. Outsourcing also benefits the citizens in developed counties as

it provides high quality products at a cheaper rate also with better customer service.

Advantages of Outsourcing

Companies can save up on operational costs. In fact most companies can cut their

operating costs to half by outsourcing

Get access to cheaper and more efficient labor

Cut up on labor training cost

Get access to better technologies at a cheaper cost

Increase productivity

Concentrate on core competencies

Companies today want to make use of the outsourcing advantage in order to progress and

stay abreast of the competition. This is the reason why more and more companies

irrespective of certain failures are entering the race of outsourcing.

Disadvantages of Outsourcing

The company that outsourcers can get into serious trouble if the service provider

refuses to provide business due to bankruptcy, lack of funds, labor etc

Outsourcing requires the control of the process being outsourced by transferred to the

service provider. Thus the company may loose control over its process

The service provider in developing countries generally services many companies. So

there are many chances of partiality owing to more payment by other parties

The current employees in the company that outsourcers may feel threat due to

outsourcing and may not work properly

he attitude of people in the developed countries against companies that outsource is

generally bad

These disadvantages are the reasons why companies should think twice before outsourcing. Companies should adopt a planned approach towards outsourcing taking into account the interests of employees and customers alike and come up with a balanced advance. Outsourcing services simply to beat competition or to follow your competitors can lead to problems in the future.

The Impact of Outsourcing Business, Jobs and Economies of Wealthy and Poor Nations.

The truth about the speed, scale and unstoppable momentum of business process

outsourcing and offshoring. What will be the net impact on the American and European

economies? How should company executives and union leaders respond to emerging

markets? Can or should the offshoring process be reversed? Advantages and disadvantages

of outsourcing? By Patrick Dixon, who was ranked as one of the 20 most influential business

thinkers in the world in 2005 (Thinkers50).

Media interviews on outsourcing: +44 7768 511 390

Outsourcing is very controversial and affects every part of business from manufacturing

through to design, software development, financial control, logistics management,

customer support and sales. Outsourcing has been praised as cost-effective, efficient,

productive and strategic - but also condemned as evil, money-grabbing, destructive, ruthless,

exploiting the poor. See also Presentation for MBAs on Emerging Markets and contribution to

Adeco's Offshoring Workshop at London Business School.

Outsourcing incentives are huge - and can lead to falls in service costs of 50-60%. Up to half

of the $19 trillion spent every year by European companies on sales and administration could

be outsourced, yet only 8% had moved by early 2005 according to IBM.

China is now seeing 100% salary inflation at top end and India is not far behind - acute

shortage of experienced business leadership. Some companies are now thinking of moving

operations to places like Pakistan (50% lower costs and over 200,000 IT graduates looking for

work), Bangladesh or Vietnam. Changes are happening very quickly.

Outsourcing can generate weeks of hostile media coverage, widespread protests and

industrial action. The issue is so sensitive that decisions are usually taken behind closed doors

at the most senior levels in the organisation, and only announced after much careful research

into how the proposals are likely to be received.

If handled badly, business process outsourcing can damage corporate image, weaken a

brand, unsettle customers, and result in lower quality of products and services. But when

handled well, the results can be good enough to save a failing corporation

(extract from Building a Better Business - take the online $20,000 Challenge - relevant to

outsourcing, change management, leadership, marketing and motivation)

If you want to save money fast and take everyone with you, you have to convince those

involved that the world will be a better place as a result. Take the high moral ground.

A good example of this has been tensions over relocating call-centres and software support

from countries like the UK and the US to India . More than 230,000 jobs are bring lost each

year in America as a result of outsourcing - but many economists believe that a similar

number of new jobs are being created at the same time.

Union members have protested that jobs are being destroyed in an immoral way, not only

because communities are hit back home, but also because they argue the new jobs created in

other countries pay very little and exploit the poor. They have often driven vigorous

campaigns at work and in the media, designed to block the process.

This has happened because many of the corporations concerned have failed to tell a good

news story in a convincing way, to explain why business process outsourcing will result in a

better future in a broad sense - not just for shareholders.

So what is the good news story? First you have to tell the bad news, and prepare the ground

for how you are going to save the day. Corporations may differ, but when it comes to

outsourcing to a developing country, the "better world" promise is nearly always identical.

Facts about Outsourcing

Some say that it is wrong to pay people in India less than the same job would justify in

somewhere like the US. However we need to compare not just salaries, but what those salary

levels will actually buy in different countries. An IT professional in India may be far better off

in terms of lifestyle, even though paid only a third of the US salary. It all depends on

exchange rates. The pressures will continue to grow, not just for cost saving, but also for

quality, service and speed.

* India produces more than 870,000 new IT graduates a year and produces more than a

million engineering graduates a year, plus 16 million others with engineering diplomas. India

is leading the way in new areas of pharmaceuticals, biotech, electrical and mechanical

engineering. China also.

* One in 5 UK workers at risk from outsourcing have difficulties reading and writing. The UK

struggles to turn out just 8,000 IT graduates a year.

* Most outsourcing is by large companies, yet small companies provide most jobs in America

and Europe, and most of the economic growth. Big companies create headlines but the

greatest impact is elsewhere and almost invisible. The UK has 3.3 million companies. If each

one takes on just one more person on average, the result would be more than 3 million new

jobs, and that is what has happened in the last few years, with unemployment at very low

levels despite several million people added to the labour force. Yet 6,000 redundancies at a

factory is mistakenly seen as a national crisis.

* Each outsourced job in India can generate work for more than 20 other people as the money

flows around the national economy, usually at a far faster rate than in countries like the US.

* When a product is manufactured in China instead of the US or Europe, only a small part of

the total retail price lands up in that country. Most is taken as before by the retailer,

wholesaler, distribution system, research, design and development teams and company

owners as profit. So the impact is less than you might expect.

* Research shows that some of the new economic activity generated in developing

countries by oursourcing will generate new demand for goods and services in the country

where the jobs have moved from (eg America). McKinsey Global Institute estimates that for

every dollar US corporations spend on outsourcing to India, 33c gets 33c and the US

economy benefits by $1.14. This is based on several assumptions: that 69% of displaced

service workers will find new jobs within a year, and will end up earning 96% of their previous

wages - backed up by 1979-1999 data. However older workers may be out of work far longe,

especially if their education is poor.

* Outsourcing saves money for corporations which means lower costs for consumers, and

higher dividends for pensioners who own 75% of US and UK wealth - that means more money

to spend on other things such as local services (meals out, beauty treatments, gardening,

decorating etc) and that produces new jobs.

* Outsourcing has meant for example that you can buy a DVD player for less than $100. It is

one reason why retail costs of products has halved in many sectors over the last 20 years,

allowing for inflation.

* Future economic growth depends on new generations of creative, dynamic entrepreneurs,

with good access to venture capital, who will drive national economies through transition.

Making a stronger case for high performance

Too many business leaders talk about high performance as a general aim without making a

powerful enough case for it. They assume that everyone will automatically sign up to deliver

high performance because by definition it is a GOOD THING. But the reality is that for

individual team members, demands for high(er) performance are often a BAD THING for team

members who suffer longer hours, land up working even harder, chasing even more stressful

targets. That's why we have to be convincing and passionate about the reasons why high

performance is so important.

In many industries the answer is obvious: safety. For example, air crews hardly need lecturing

on the consequences of poor plane maintenance. But many other kinds of business struggle

to make as convincing a case.

"We want to reduce errors in the packages we send out because it is so annoying to be on the

other end, and it takes us all ages to sort out."

"When the software crashes, it's a complete waste of time and very frustrating."

Sure, it matters, but not as much as a plane crashing, hardly a matter of life and death, but it

must be a matter of life in some significant way if we are to engage passion.

Failing that, all we are left with is a GOOD NEWS / BAD NEWS story like the outsourcing

example where the only reason we can give to get people's attention on performance is that

without it, the entire corporation is at risk.

Off shoring - the transfer of high wage U.S. jobs to lower cost overseas locations especially in

Banking Industry is enabled by improved communications technologies and driven by the desire of

corporations to establish a business presence in potentially lucrative foreign markets as well as to

take advantage of the lower costs of production and skilled labor in those markets. Forrester

Research has projected that as many as 3.3 million white-collar jobs of all kinds and over $136 billion

in wages will be moved from the United States to lower cost, offshore locations by 2015. Although the

initial emphasis has been on routine service and technical support positions, the trend is expanding to

include more complex engineering and design services. It is abundantly clear that many of the jobs

being sent offshore were formerly held by U.S. engineers, computer scientists and other information

technology professionals.

The off shoring trend is particularly unsettling for American high-tech workers. The economy lost 3

million manufacturing jobs in the past decade. American high-tech firms shed 560,000 jobs between

2001 and 2003, and expect to lose another 234,000 in 2004. The Commerce Department reports that

the number of U.S. IT workers employed in all industries has declined by 8 percent since 2000.

Although initially concentrated in the manufacturing sector and in low-skilled jobs, the Commerce

Department says that "recent job losses have been widespread across most IT-goods and services

producing industries, and across all IT skill levels." Some jobs are expected to return with a stronger

economy, but the majority is probably gone for good. Offshore outsourcing will further compound that

shrinkage.

The strong push for off shoring of high-tech jobs also comes at a bad time for U.S. electrical

engineers, computer scientists, and information technology professionals. Unemployment among U.S.

electrical engineers, computer scientists, and information technology professionals has been

increasing over the past three years, and reached historically high levels in 2003. The unemployment

picture is further clouded by uncertainty about the numbers of high-tech workers who are currently

under-employed, or who have left engineering or information technology for jobs in other fields

Introduction:

As we start to learn about outsourcing, its impact and the way it is perceived by society and the

Information Technology industry, we come across some issues that seem to define outsourcing.

Some of the issues are positive about outsourcing and some are negative. One negative issue has

been identified as the problem statement for this study. The outsourcing industry in United States has

been a target of political ideologues and a fair amount of fear. During the course of this study we will

try to explain the social and political environment that affects outsourcing. Also, many American

companies have suffered losses in outsourcing because the infrastructure in the host nation is not up

to the standard. We will attempt to address that issue too.

History of Outsourcing

Looking at the history of human development, the history of outsourcing dates back to the industrial

development that began in the late 17th century. For instance, the making of America's covered

wagon covers and clipper ships' sails was a job outsourced to workers in Scotland, with raw material

imported from India. England's textile industry became so efficient in the 1830s that eventually Indian

manufacturers could not compete, and that work was outsourced to England. (Kelly, 2003, p.3) The

ancient Chinese empire and the Japanese were also adept at outsourcing to their conquered nations.

Looking at recent times, in the USA many computer companies used to outsource their payroll

processing in the 1970s and 1980s. Learning that outsourcing existed since the early days of our

civilization, one may wonder why no one talked about it, let us say, 10-15 years back? The reason

outsourcing stayed out of the news is because it used to happen on a small scale and was

concentrated in some specific regions, like the USA, Europe. But now outsourcing is a $400 billion a

year industry and the world cannot afford to ignore it. Globalization, explosive growth of Internet, and

the development of information society in every region of the world has made outsourcing an integral

part of the world economy.

In our study we are focused on Information Technology (IT) outsourcing. IT outsourcing gained

momentum after the Internet started bringing together every corner of the world, and globalization

brought down national barriers. Nowadays American companies such as Intel and Sun Microsystems

have larger research and development outside the United States than within the nation, Citibank has

card processing outsourced to India, and customer support at Dell comes from the Philippines.

Some look at outsourcing as a way in which developing nations can have access to the new

technology enjoyed by the developed nations and a way towards economic and social empowerment.

Relevant Research on Outsourcing

The most relevant research conducted is that done by LOMA, which explores the pros and cons of

outsourcing and offshoring. The focus of the research report is on information technology (IT)

outsourcing and offshoring to IT service companies in the Unites States and India. Sources for the

report include SEC filings, Internet sites, press reports, and government research. The topics in the

report include: a) Explanation of Outsourcing, b) Explanation of Offshoring, c) Process of Selecting

Providers, d) Reasons Why Outsourcing and Offshoring Are Rising, e) Evidence of Impact of

Outsourcing and Offshoring on Jobs.

However, it must be stated here that we found a lack of theoretical research on outsourcing. The

knowledge base of the industry does not focus on theoretical research but on financial data and global

economic and political trends. What we have observed is that the IT industry is looking at outsourcing

as an economic phenomenon and is not focusing on research the way it has for the field of software,

microprocessors, the Internet etc.

Why is outsourcing an important issue? Referring to our problem statement, we would like to stress

that the problem is significant not only because of its impact on IT outsourcing industry but also

because of its impact on the global economy as whole. We know that outsourcing is a $400 billion a

year industry and IT outsourcing is a vital part of the industry. A slump in IT outsourcing would mean a

loss for the global economy. Since the problems facing IT outsourcing (such as political pressure in

the USA and lack of infrastructure in the host developing countries) can seriously slow down the

growth of IT outsourcing, the problem facing this industry is significant. In conclusion, we would like to

state that nothing should be judged in a void. If we judge outsourcing by itself we would not be able to

say whether it is good for society or not, but if we view outsourcing from the perspective of the global

economy, increasing globalization, rising cost of production in USA, and lower costs in developing

countries, we can see that outsourcing has a positive side too. Although fewer than 20% of the total

American software companies outsource their jobs, in general offshore outsourcing ("offshoring") is

seen as something bad for America. We hope that with this study we would be able to present a

balanced picture of outsourcing.

Inside The Outsourcing Debate: How DuPont Benefited from Outsourcing to China:

When we began looking at the debate surrounding outsourcing, we came across DuPont, which has

outsourced its project of creating online database of fabrics to China. The report published in

Outsourcing Asia's website said that by outsourcing to China the company was able to create a 24/7

operation and complete the project before schedule. The report also pointed out why the company

had selected China as its destination and also talks about China's future as outsourcing destination.

(Rosenthal, 2005, p.6)

How US Government Can Benefit From Outsourcing

Looking at the example of DuPont, where outsourcing helped the company to complete a project in

time and also saved costs, we decided to look at how outsourcing might help the government. We

came across a report on the US government's IT challenge and how outsourcing can be of help in

Outsourcing Asia's website. The report said that, in the year 2005, 50 percent of the federal

government's 70,000 IT workers would become eligible for retirement, according to a 1999 study.

Also, the Government is IT legacy systems have also aged. So even if young people join the work

force they are not trained in the old system. They have to be trained, which means increase in cost

and expenses for Government. This gap has opened doors to the suppliers to offer outsourcing as a

solution to the problem. (Harney, 2005, p.2) The report mentioned that many Unions and Government

workers are against outsourcing because they fear that it will raise unemployment in USA. Although

there is a general fear of outsourcing among the public, we believe that if we are able to create a

mutually beneficial outsourcing relationship between the two parties and show the benefits to the

people, they will begin to feel positive about it.

Creating a Mutually Beneficial Outsourcing Relationship:

The report titled "Creating a Win-Win Culture" in Outsourcing Journal talks about QinetiQ which was

reaching the end of an existing outsourcing contract and realized the need to have a single source

solution to provide a wide range of services and also reduce its total cost for IT services. In the year

2003, the company signed a contract with Accenture to provide broad range of applications; hardware

and data center services, as well as purchasing and program management. To achieve early savings,

the two companies bought into a structure and effective governance along with establishing good

relationship at all levels at both the organizations. They were able to exceed the savings target in the

first year of their partnership with the help of open communication, continuous innovation and win-win

based solutions. Looking at the example of QinetiQ and Accenture we can say that good outsourcing

relationships can create a win-win culture, which can benefit both sides. More and more companies

are trying to copy the success of these two companies. (Garner, 2005, pp.4)

Having discussed about the positive side of outsourcing, the benefits it can offer to the business and

the Government, we now turn our discussion to the negative side of outsourcing namely declining

satisfaction among the outsourcing clients, security risks, social effects and public opposition.

Declining satisfaction among outsourcing clients Report on declining satisfaction among outsourcing

clients published on ZDnet talks about Diamond Cluster International's study, which found out that the

number of buyers satisfied from their offshoring provider has dropped from 79% to 62%. Also the

number of buyers terminating their offshoring contracts prematurely has doubled and reached 51%.

(Frauenheim, 2005, p.2)

Security Risks in Outsourcing:

This declining rate of satisfaction will not be helped by recent reports on security breaches at the call

centers in India. It was reported on the BBC by Zubair Ahmed that some employees of Indian call

center Emphasis in Pune transferred large sums of money to the fake account they created from the

accounts of American customers of Citibank, whose call operations were handled by the company.

This incident has brought into focus the lack of integrated security management system in India's call

centers. The industry is still in the growing stage, and not much attention is paid to ensure that proper

security procedures are followed. It is only after this incident that the companies have started doing

background checks on the employees and have made the background checks a norm in their hiring

process. This incident raises many questions regarding the safety and security of data when

processes are outsourced; also the capacity of Indian companies to handle data securely is in

question. (Ahmed, 2005, p.2)

Social Effects of Outsourcing

While data security in outsourcing is being questioned, there is a question about the social effects of

outsourcing too. This issue has largely being sidelined because the industry is mostly concerned with

the more visible effects of outsourcing like the cost saving and profits, rather than look for the slow but

steady social change outsourcing is causing. Kaushik Basu talks about this issue in his article, "The

Politics of Business Outsourcing," published on Project Syndicate's website. In his article he says that

job loss due to outsourcing may lead to protectionism and nativism. In the long run this can lead to

racism and other discriminatory practices. So it is very important to help the laid off workers so that

they do not develop these kind of feeling toward the country where his job went. (Basu, 2004, p.9)

Unions Opposing Outsourcing IT

Unions in America have looked at one side of the social effects of outsourcing - job loss and the effect

it has on the family and society. They are protesting against outsourcing and pushing the Government

to pass laws to ban outsourcing. In his report "Unions step up anti-outsourcing efforts," Juan Carlos

Perez says that Information Technology Unions are fighting to keep American jobs in America.

Leading this struggle is the International Federation of Technical and Professional Engineers (IFPTE),

which is trying to convince the United States Congress to pass laws that, will protect jobs from being

outsourced. The Union is also lobbying hard to get the working visa, especially H1B regulations

tightened so that whatever jobs stay in America goes to Americans. (Perez, 2005, p.4) Although it

concerns us that the Unions are painting outsourcing as the sole reason for job losses in the IT

industry, while they turn a blind eye to other reasons like stagnating industry, high costs and

increasing competition from foreign-based companies. It would be better for the industry and also for

the IT professionals if they start looking at the whole picture instead of targeting outsourcing as the

sole evil.

Depleting IT Talent Pool in USA:

To understand why outsourcing is happening we must realize that the USA has a fast depleting talent

pool in technical fields like Computer Science and Physics. So the companies are forced to seek

talent outside the country or to send the job to country where there is a large talent pool. India and

China are the best examples for this. India has a large population of engineering graduates who have

refined technical skills and are able to do the job for less. Also China produces largest number of

Computer engineers every year. So to compete against them united States should try to encourage its

students to enter technical fields and should also introduce courses in schools and universities to

increase technical skills. The report "Inside the Debate over Outsourcing Information Technology

Service Jobs Overseas," published by Manufacturing News, talks about the issue of talent shortage in

America. The reports also discusses about the rising number of job protection groups, some of whom

have websites; although these groups are trying to bring into focus the job loss and economic

hardships caused to the American workers by outsourcing, some of their sites have included racist

and biased remarks. And instead of using reasons they are resorting to insulting the foreigners who

are talking their job overseas. (Manufacturing News, 2005, p.6)

Having discussed in length about the issues in outsourcing like security concerns, questions on job

loss, depleting talent pool in America, and others, we now move our discussion to the outsourcing

destinations and the IT infrastructure in those destinations. Outsourcing Destinations India and China

have emerged as the leading destination IT job outsourcing. For out study we did an analysis of China

as an outsourcing destination.

The report "Country Analysis: China" talks about China as an outsourcing destination. The highlights

of the report have been summarized as follows: The software outsourcing market in China is a

US$1.5 billion market with annual growth rate of about 35%. The present position of China is where

India used to be 12 years ago. The growth in this sector is fuelled by the large supply of low-cost and

qualified labor and a large internal market. Although the Chinese market is promising it is suffering

from some serious problems like the lack of English language proficiency among the programmers

and managers, the Chinese companies do not have established quality control procedure like their

Indian counterparts. Also the large problem of software piracy in China is not helping it to become a

credible destination for software development. The Chinese government is launching programs to

encourage and develop the software industry. But it does not have a good international image

because of its un-democratic style of governance and many European companies and US companies

are hesitant of doing business in China because of this. Although China has a large supply of IT

professionals, those qualified in software engineering and software are very limited because the

Chinese universities still emphasize the traditional engineering fields like mechanical engineering and

electrical engineering. Also, China has made great improvements in the telecommunication

infrastructure but the developments are concentrated in the big cities and near the costal regions. The

heartland and the rural areas are still far behind. This limits the Chinese market for software sales and

development. We can see that China is a promising destination for IT outsourcing, but then it has

some problems too. The country is trying to take the position India has in the outsourcing market,

which it may be able to if we look at the IT infrastructure and other surrounding issues affecting IT

development in the South Asian market.

A report titled "Struggling with the Digital Divide, Internet Infrastructure, Policies and Regulations,"

published in South Asia net, talks about the problems facing the South Asian IT industry. The

highlights of the report can be summarized as follows: The Internet made way to the South Asian

region in the late 1980s through bulletin boards, government and non-government initiatives. In India,

in the year 1995 government-owned VSNL started offering Internet access to the public. Private

companies entered the market in 1998. In Nepal, the Internet was introduced in 1993 and in 1996 the

people were given access to the World Wide Web. In the beginning only the big cities in the region

had access to the Internet, but now Internet usage has spread to the rural areas too. For example: In

India many villages' government agencies have set up their own websites and offer many of their

services online. Although the Internet is spreading in South Asia, the lack of infrastructure, antiquated

legislations, language barriers and the high cost of Internet access are hampering growth. We can

see that the South Asian IT infrastructure is facing problems, but the industry is trying to overcome it

and keep its position as a favored outsourcing destination. (Rao, Bhandari, Iqbal, Sinha & Siraj, 1999,

p.7)

Offshoring High wage Jobs from Us to Low Cots Locations :

The off shoring of high wage jobs from the United States to lower cost overseas locations is currently

contributing to unprecedented levels of unemployment among American electrical, electronics and

computer engineers. Off shoring also poses a very serious, long-term challenge to the nation's

leadership in technology and innovation, its economic prosperity, and its military and homeland

security.Prudent steps must be taken to ensure that offshoring, if it does occur, is implemented in

ways that will benefit the United States and all its citizens, including high tech workers. To this end,

IEEE-USA recommends that:

The Federal Government must collect and publish reliable statistics on the kinds and numbers

of manufacturing and service jobs that are being moved offshore.

Government procurement rules should favor work done in the United States and should

restrict the offshoring of work in any instance where there is not a clear long-term economic

benefit to the nation or where the work supports technologies that are critical to our national

economic or military security.

New U.S. workforce assistance programs should be created to help displaced high-tech

workers regain productive employment and ensure that employed workers can acquire the

knowledge and skills they need to remain competitive.

The H-1B and L-1 visa programs should be reformed and new trade agreements should

incorporate such reforms. These temporary admissions programs for skilled workers are

often used to import lower cost labor and can result in displacement of U.S. professionals,

exploitation of foreign workers and accelerated offshoring of engineering and other high

tech jobs.

A coordinated national strategy must be developed to sustain U.S. technological leadership

and promote jobs creation in response to the concerted strategies being used by other

countries to capture U.S. industries, jobs and markets.

Federal investments and tax credits for research and development should be limited to work

performed in the U.S. R&D that must, by its nature and content, be carried out offshore, is

not covered by our recommendation.

This statement was developed by the IEEE-USA's Career and Workforce Policy Committee and

represents the considered judgment of a group of U.S. IEEE members with expertise in the subject

field. IEEE-USA is an organizational unit of The Institute of Electrical and Electronics Engineers, Inc.,

created in 1973 to advance the public good, while promoting the careers and public-policy interests of

the more than 225,000 electrical electronics, computer and software engineers who are U.S.

members of the IEEE. The IEEE is the world's largest technical professional society.

The Consequences or Impact of off shoring on Banking Industry and Others :

Whether the United States will benefit from the off shoring of jobs will ultimately depend on how the

process is implemented. As in all competitions, there will be winners and losers. Potentially adverse

consequences include: loss of employment opportunities and income by technical professionals; loss

of payroll and income taxes by national, state and local governments; growing trade deficits in goods

and services; transfers of investment capital and intellectual property to overseas locations; and

increasing dependence on foreign sources for consumer products and defense critical weapons

systems. IEEE-USA is particularly concerned that offshoring of engineering, computer science and

other high tech jobs could eventually weaken America's leadership in technology and innovation, a

threat that has serious implications for our national security as well as our economic competitiveness.

Fewer job opportunities and the downward pressures on wages that will occur as more and more

scientific and engineering jobs are shifted to lower-cost, overseas locations are also likely to

discourage many of America's best and brightest young people from pursuing careers in science and

engineering. Offshore outsourcing can also result in intellectual property and sensitive personal data

exports, including medical and credit information. And because U.S. laws that protect information and

safeguard privacy do not have extraterritorial application, the U.S. government, corporations and

citizens will become increasingly dependent on foreign laws to protect their interests. The risk posed

to these interests by individuals and organizations who would take advantage of weak laws, loopholes

and limited access to enforcement is not insignificant.Worker Shortage

IT faculties in India are already in short supply for IT workers. The All India Council for Technical

Education (AICTE), the main body for accrediting post-secondary engineering schools, finds a faculty-

student ratio of 1/45 in IT courses at AICTE-approved institutions. AICTE recommends a ratio of 1/15.

This faculty shortage will reach critical proportions as MIT's plans to triple the number of IT

engineering graduates are implemented.The quality of computer science education will suffer as a

result of faculty shortages. Indian undergraduate degree programs are only three years long,

compared to four years in North America. Wage scales for IT professionals are increasing as firms

seek to minimize turnover. The Indian software giant Infosys reportedly raised salaries by 30 percent

in 2003 and 16 percent in 2004. Other firms are providing employee stock ownership plans and

opportunities for international travel in efforts to reward staff and keep them from leaving.

Other Countries

India's IT workforce shortage is welcome news in Pakistan, where turnover is less than 10 percent

and the average employee wage and benefit package at IT firms is $400. Of that, $350 is for

wages.The inflationary effects of a tight labor market can be illustrated by the history of the

international call center industry in the Philippines.The labor market for call center employees in the

Manila region is the tightest of any developing country's IT labor market that we know of. The tight

labor market has seen our total service costs rise to $12 to $16 per production hour for simple voice

services to the U.S. without telecommunications redundancy, up from $10 to $12 in the Philippines in

2002.Agent quality in the Philippines is excellent for general customer-service work, but at those

prices we can recruit and retain highly trained technical or medical personnel elsewhere in South

Asia. Or we can go to South Asian centers with onsite American trainers and managers. For $18 an

hour we can go to Canada and for $22 an hour we can stay in the U.S. When the Philippines

experienced a modest call center boom in 2002, it did not appear at that time that the boom was

sustainable because when available labor supplies were fully utilized, the labor market would tighten

quickly and wages would rise correspondingly. This dynamic is common in small labor markets.The

former British colony of Sri Lanka has many of the advantages of India and Pakistan in terms of

English language skills and an emphasis on education. The population of Sri Lanka has a relatively

high quality of life but a per capita income of only $930. In comparison, India's per capita income in

2003 was $530. Sri Lanka

The civil war that began in Sri Lanka in 1984 has been winding down and the business climate is

improving. With a little more pressure exercised on the Colombo government to compromise with the

Tamil rebels, long-term peace and stability will be within reach.

A mix of domestic and international IT firms have been cautiously setting up operations in the

Colombo area. Rapid tightening of the labor market for customer service personnel will happen in Sri

Lanka if the IT industry expands too quickly there. Escape velocity and a tightened labor market could

be reached in six to eight months if India implements taxes on U.S. clients of domestic or foreign-

owned outsourcing facilities in India.

The average size of new merchant call centers going up in Colombo in 2004 is only around 60 seats

to start, expandable out to about 150 to 200 seats. One South Indian firm is setting up operations in

Colombo in order to provide redundancy for inbound mission-critical work from its international call

center in Tamil Nadu. It is bringing over technicians and support personnel from India to compensate

for a shortage of specialized call center technicians in Sri Lanka.

Public Policy Recommendations:

Providing Good Data for Policy Analysis: The U.S. government does not presently collect

statistical information about the offshoring of jobs or its impact on employment, technology and capital

investment in the United States. The lack of objective data forces policy-makers to rely on speculative

projections, and diverts attention from the real task of solving the problems that offshore out- sourcing

creates.

Government Procurement: Federal, state and local governments are a significant consumer of high

tech goods and services. Government spending increases aggregate demand and helps create jobs.

If government contracts are directed overseas through offshore outsourcing, then the benefits of that

spending for the U.S. economy may be significantly diminished because its multiplier effects will

benefit the countries where the outsourced work is performed.

The relationship between federal investments in research and development and technological

innovation is also critically important. The National Academy of Sciences report, funding a Revolution:

Government Support for Computing Research, provides dramatic evidence of the many benefits of

federal support for R&D at individual companies and educational institutions, as well as for their

employees and the communities in which they live. The argument that global sourcing of government

contracts can result in cost-savings that benefit U.S. taxpayers is also attractive politically when

federal and state budget deficits are growing. In many cases, this argument is based on short-term

assessments of costs and benefits, rather than on detailed analyses of longer-term financial impacts

on employment, social services, and the domestic tax base.When it can be demonstrated that long-

term financial benefits are likely to result, the offshoring of government contracts may be warranted.

When long-term benefits are not proven, when the contract involves technologies that are critical to

U.S. economic or national security, or when restrictions would serve important social goals, then

some limits on off shoring of government procurement contracts is probably warranted.

Conclusion: 

By Outsourcing the IT position specially in Banking sector has been both Beneficial for the Lower cost

country and US as the lower cost countries learn a lot from the Expertise of the skilled IT

professionals of the advanced and developed countries . As enterprising foreign workers come to the

United States, are trained by some of the best companies in the world and develop valuable

experience and business contacts in their fields. Many return to their own countries to establish or

work for new businesses that compete head to head with U.S. businesses. Former H-1B and L-1

employees have helped improve the global competitiveness of India's IT services industry, for

example. And, as reported by the Center for Industrial Competitiveness at the University of

Massachusetts, H-1B workers are also being hired to help foreign-owned companies negotiate and

manage contracts within the United States

Tags: IT Jobs , Tech Jobs , Outsourcing , Hiring

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BPO Role in India�s Economic Growth

has been tremendous, especially in the last few years, when the demand for outsourcing work to

India has been significant among western companies.

The role played by BPOs in boosting India�s economy shows that the IT and ITeS sector have

been contributing largely to the economic growth of India. The growth in the contribution of BPOs

to Gross Domestic Product has shown a steady rise from 1.2% to 5.4%. It is hence evident that

the BPO industry is making an impact on the Indian economy.

BPOs are aiming at contributing towards bringing in more earnings to the country and IP

creation. Currently, BPOs in India are focused on the domestic segments and offshoring. The

benefit to the local economy is subject to judicious exploitation of resources existing in these

areas. The following are some useful statistics with regard to the growth of the IT-BPO sector

during the past 10 years:

1997-98: US$ 4.8 billion

2006-07: US$ 47.8 billion

Current rate of growth is 28%

Employment to be generated -1.6 million

BPO Role in India�s economic growth is set towards making a significant impact in the time to

come as well. The driving forces that account for the increase in foreign investments through the

BPOs in India are:

Emphasis on quality services

Skilled sets and workers

Cost effectiveness

Quality products

English speaking manpower

These features of the Indian BPO industry attract long-term contracts and as a result, there are high earnings which in turn result in major contribution to economic growth. As a matter of fact, the Indian BPO industry is leading in the market and is improving in the area of training professionals in learning foreign languages and increasing the number of skilled workers. This will give India the ability to sustain its global leadership and probably generate export revenues of USD 10 billion by 2010.

The setting up of more BPOs is also bringing in more job opportunities for the Indian youth. BPO role in India's economic growth will even facilitate great maneuvering in the country�s balance of payments.

BPO role in India's economic growthis definitely at the growth stage but is all set for a major contribution to the Indian economy,

especially if the government supports the sector in terms of financial growth, openness to trade, rural-urban migration, and education.

THERE IS a buzz in the air about the Indian economy. The Finance Minister tells the international media that India is on the verge of explosive growth. One of the leading business magazines in the world, BusinessWeek, speaks in the same breath of India rising and the U.S. possibly declining. . It even seems as if India is beginning to displace China as the "most favoured economy" of the global business community.

Some of this new excitement about the Indian economy is linked to the strong recovery in the current fiscal. To that extent the euphoria is not justified since this is a recovery fuelled by a reasonably good monsoon. The buzz is about more than how the economy is doing in 2003-04. The magic set of initials is BPO, or business process outsourcing. Software that is the flavour of the times. The excitement instead is about the motley set of activities from low-end customer support services to research and development in computer chips that are now increasingly based in India. Where the buzz earlier was about China becoming the manufacturing base of the global firms, it is now about India becoming the "service capital of the world". Indeed, Nandan Nilenkani, the Infosys chief, is reported in BusinessWeek as speculating that just as China cut costs for global manufacturing, India will make similar savings for global services.

How big is this BPO affair really? Can the re-location of numerous BPO services to India really do what a relocation of low-end manufacturing has done for China — become a leading source of economic growth and of employment to millions of young people.

Until just a few years ago, the services outsourced to India were mainly back-office functions. U.S.-based companies would get their pay-roll activities and airlines would have their ticketing documentation carried out in India. Outsourcing from these non-core activities has moved on to the core areas as well. We now have, though still on a very small scale, GE getting some of its research and development on aircraft engines and Intel some of its chip design research done in India. What has made all this possible is the development of high-speed and large-capacity communication networks.

Common to all these activities is the critical role of information technology (IT), which is why IT-enabled services (ITES) covers a larger area and is a better description than BPO of the new era of outsourcing. The key driver is the search for cost savings. The educated young Indian can deliver low-end services like basic customer support and increasingly carry out high-end research work at a fraction of the cost in the West — with little or no compromise in quality. "There is just no place left to squeeze," is the cruel observation of a BPO specialist quoted in the BusinessWeek article on India. The squeeze is on high-tech workers in the U.S. and the beneficiaries are the educated Indians working in Gurgaon, Bangalore, Hyderabad and Chennai. NASSCOM estimates that companies in the West can save up to 60 per cent in the costs of the services they outsource to India.

How far will out-sourcing go and what impact will it have on India's economy? There are three sets of questions to be answered in this connection. The answers require hard facts but the only source of information in India is NASSCOM and, outside India, the many private research/consultancy agencies. All have a case to make out in favour of ITES/BPO and that makes an informed assessment difficult.

The first question is about the size of the ITES/BPO business in the years ahead. There is such a wide range of estimates put out by consultancies and private research agencies that credibility is at a premium. An estimate prepared by IDC that NASSCOM cites sees global ITES business rising from $570 billion in 2002 to $1,200 billion in 2006. The recent E-Commerce and Development Report 2003 cites a Goldman Sachs figure of $570 billion in 2005 for global BPO contracts and a Gartner estimate of $300 billion of ITES revenue in 2004. Another research agency, Forester, says that because of unreliability of suppliers, the global BPO business will rise to only $145 billion by 2008. These are global estimates of contracts that are outsourced both at home and across borders. What matters for India is how much of this business will be on offer in the global market. Gartner Asia has suggested that global BPO business that would be available for offshore contracts by 2005 would be only $28 billion.

This is a new and evolving business so a certain amount of "guesstimation" is to be expected, but the huge variation in numbers says that it may be too early to come to any definite conclusions. And while the papers are filled with news of jobs lost in the West and employment gained in India, the numbers that have been quoted are (as yet) small. NASSCOM estimates (again) are of 160,000 people working in all ITES sectors. In the U.S. and the U.K. there is as yet no discernible increase in unemployment among ITES and high-tech workers that can be attributed directly to outsourcing to India and other developing countries. Jobs are being lost, but the numbers (as yet) are small. A recent report in the Financial Times notes that of the 80,000 call centre jobs in Scotland, only 8,000 are for now slated for closure. There are projections, of course, of huge job losses. The most extreme is the one made by Forrester, which claimed that the U.S. would lose 3.3 million jobs in IT by 2015 of which 2.3 million would go to India.

The second question is whether India will remain the preferred source of offshore contracts in ITES/BPO. There is again no hard data about where India stands today. The most recent Gartner estimate is of India obtaining a 49 per cent share of offshore business in 2005. But the two main issues of concern to Indian outsourcing business are the ability to maintain quality and the resistance among IT workers in the U.S. and the U.K. to outsourcing, especially to India. The growing backlash against BPO mirrors the public protests against the loss of jobs in manufacturing in the 1970s and 1980s — with one difference. Workers in IT and high-tech are numerically fewer but they are more powerful and have a greater visibility than the organised labour of the 1980s. Whatever the management consultants may say about the larger benefits of outsourcing to the U.S. and the U.K. economies, rising unemployment among IT workers will lead to political and social lobbying that will compel corporates to go slow on outsourcing. The sword of globalisation

will be fought bitterly by the IT community in the U.S. Irrespective of the logic of globalisation, India cannot hope to benefit freely from the drive to relocate services.

The third question is about the impact ITES/BPO can have on India — even if it were to enjoy unfettered growth. First software, then ITES. There is no question that India has made a mark in these particular areas of IT. They have opened up opportunities that did not exist even a decade ago for the urban educated. They have facilitated the emergence of a new class of entrepreneurs who have put the "old economy" industrialists in the shade. And they have contributed considerably to India's export growth. Some of the work may be high technology only in name (for example, medical transcription) and some of it may be fairly demeaning (for example, the acquisition of new persona as demanded by some call centre operations). Yet, the boom that has lasted a decade and promises to continue has changed the face of urban India — pockets of urban India to be more precise. However, all the euphoria that very easily becomes hype cannot change one thing. IT services cannot do for India what manufacturing (and before that agriculture) did for China. Today, there are 500 million Indians in the work force while NASSCOM estimates are of 160,000 men and women in the ITES sector. Even if ITES business grows four-fold over the next couple of years — as suggested by the recent Gartner estimate — and there is a corresponding growth in ITES workers that still means only 0.1 per cent of the work force will be in the boom business. Of course, a vibrant outsourcing business will also have spin-offs in manufacturing and services, which will have a manifold impact on output and employment. But the scale of India's challenges require most of all a transformation in agriculture and industry. The tragedy will be if India's policymakers fall victim to the hype.

All visitors to China come away impressed with the frenzy of activity that seems to characterise the cities and towns, especially on the east coast. It is difficult for a visitor to India to say the same thing. If he or she were to visit only the IT parks and the campuses of the leading IT companies, the impression would be of "India shining". But outside the enclaves the story is different. If we embrace the illusion of turning India into the service capital of the world, then we will be left with just that — enclaves of vibrant activity and prosperity amidst a mass of people still struggling with their daily life.