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International Backlash

By Marc Ferranti, IDG News Service
April 28, 2003 12:00 PM ET

Computerworld - The outsourcing of IT services and back-end business processes such as customer service to India, the Philippines and other low-cost countries is seen as a big cost-saver in corporate boardrooms in the U.S. and Europe. But laid-off workers see it differently: Offshore outsourcing is moving jobs outside of their countries, and they are pushing policy-makers to put on the brakes.
Government officials in the U.S. and several European countries are awakening to the plight of laid-off technology workers and are considering proposals that would slow the growth of outsourcing. Even if current proposed sanctions against offshore outsourcing don't end up being passed into law, however, the resulting controversy may force changes in the way outsourcing is done.
At its heart, the controversy in all countries pits business efforts to cut costs against the interests of workers who are trying to save jobs.
In France, a group called MUNCI (Mouvement pour une Union Nationale des Consultants en Informatique, or Movement for a National Union of IT Consultants) in Issy-les-Moulineaux is lobbying for restrictions on offshore outsourcing of IT work, even though it recognizes that this represents only a tiny proportion of the value of IT contracts in France today. The group accuses the French government of favoring and even funding the "delocalization," or offshore outsourcing, of software development work and says the least it could do is to buy locally itself. One French-Indian interministerial agreement, for example, is aimed at promoting the export of products and services from India to France and investment by French IT companies in India.
When the economy was booming, those who lost their jobs could find new ones quickly, so there wasn't such a big outcry against offshore outsourcing, according to Ravindra Datar, principal analyst for IT services at Mumbai, India-based Gartner India Research and Advisory Services Pvt., a wholly owned subsidiary of Stamford, Conn.-based Gartner Inc. Previously, Datar notes, displaced workers were mainly those with technical skills. Now, however, business process outsourcing is displacing larger numbers of lower-skilled employees, who find it much more difficult to find new jobs than highly skilled technical workers. "The numbers of people displaced in a technical contract is usually very small as compared to a BPO [business process outsourcing] contract," he says.

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There is also concern in the U.K. about foreign IT workers displacing locals. The Professional Contractors Group (PCG) there is concerned that a work permit scheme, run by a government agency called Work Permits, is being misused both by U.K. companies and offshore companies offering services in the U.K. Both can offer to bring in workers who are paid salaries far lower than prevailing salaries in the U.K. The work permit scheme was designed to meet a shortfall of people with certain IT skills, but now, the permits are being misused to bring in people with skills that aren't in short supply, according to the PCG.
"We aren't against the work permit scheme in principal -- we recognize that it's an international industry and when there is a skill shortage, then we need people," says Gareth Williams, spokesman for the Uxbridge, England-based PCG. "We support the government policy on that. But the problem is that the skills shortages of 1999 and 2000 have gone, and market conditions have completely changed, and the work permit scheme has not responded".
Germany's Green Card work permit program for foreign IT workers, introduced in August 2000, will expire July 31. In the works is a new immigration law that is designed to make it easier for foreigners, especially skilled people like IT experts, to live and work in the country indefinitely, according to a spokeswoman for the country's Interior Ministry. The new immigration law still has to be passed by the German parliament. Although technology companies in southern Germany, where Siemens AG and SAP AG are located, want rules for migrant IT workers to be relaxed further than the Green Card allowed, right-wing to far-right-wing legislators in southern Germany are worried about opening up the country to foreigners.
India is in the eye of the storm that is brewing because of its high profile as a software services and BPO outsourcing location. A number of U.S. and European companies are outsourcing software development and BPO work to Indian companies and, in some instances, have set up their own software development and business process outsourcing subsidiaries in India. About 185 of the Fortune 500 companies have outsourced some part of their software requirement to India, according to the National Association of Software and Services Companies in New Delhi. A large number of Indian software engineers also migrate each year to the U.S. and Europe or are posted abroad by Indian software companies. All told, about 40% of India's software and services export revenues of $9.88 billion in the 12-month period that ended March 31 came from services delivered at the customers' sites.
In the U.S., the plight of IT and other workers displaced by offshore outsourcing has touched a chord among policy-makers and in government. In New Jersey, Sen. Shirley Turner introduced a bill in the state legislature in March 2002 that would require that workers on state contracts be U.S. citizens or legal aliens -- unless U.S. citizens or legal aliens with the skills necessary for a particular job can't be found. "I'm not against exporting jobs to other countries, but first we need to focus on making sure our own people have work," Turner says. Several other states in the U.S are considering similar legislation, according to Turner.
"Outsourcing contracts from various states and the federal government in the U.S. account for less than 1% of the total software and BPO exports from India," says Kiran Karnik, president of National Association of Software and Service Companies. However, India's minister for communications and information technology, Arun Shourie, warns that legislation such as the proposal in New Jersey could be the beginning of a protectionist phase for IT services exports to the U.S. and Europe. Last month, the head of the Dutch subsidiary of a Mumbai-based software company, i-flex Solutions Ltd., was arrested in London at the request of the Netherlands government because the company had allegedly violated visa regulations in the Netherlands. "We may see more nontariff barriers to [IT] services exports, because of the large unemployment in Europe and the U.S.," says Shourie. "We have to work with the companies in the U.S. and Europe whose interest it is to outsource to India."
Not surprisingly, U.S. and European workers who have been laid off because their jobs have been moved offshore view an "open-gates" policy as disastrous, since companies and people from low-cost locations can then compete for their jobs. But some also see it as stoppable.
"It always amazes me how people say outsourcing is irreversible and inevitable," says Marcus Courtney, president and organizer of the Seattle-based Washington Alliance of Technology Workers. "The global economy is not like the weather. We do have control over it. The free traders like to use words like "unstoppable" because that is the language of disempowerment for people to assert their democratic freedoms. Increasing offshoring of tech jobs means few jobs created in the U.S., increased job insecurity, lower wages and benefits."

Read more about IT Outsourcing in Computerworld's IT Outsourcing Topic Center.

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