I am going to ask Tom to cover this issue of cross border job shifting and a couple of examples of this is the software industry’s rapid shift to moving a lot of jobs to places like India and the issues that are created on both sides of that equation as we move jobs out of one country and as we rapidly grow in another country. This is not a choice that we have but it is important on how we go about it on both ends of that transition.
If you turn to the chart that begins “off-shoring” then I have next: global sourcing with a question mark. What we’re talking about here is universally known as off shoring throughout business communities. There are people in IBM who are saying that off shoring is in fact a US-centric term. If you’re sitting in Bangalore India, work going to India is hardly going offshore. In any event, the external world uses the term but you may hear it called some different things as the subject evolves. I know that a lot of you as HR partners that have been supporting your customers have been involved in the 1990s with a lot of manufacturing that we moved offshore.
As we saw commoditization of a lot of our products, as we saw trade barriers come down through things like NAFTA, we moved from the US to other countries a whole lot of manufacturing and from generally high-cost labor areas to lower cost labor areas. In 1990 that focus was primarily in manufacturing. In looking at the current decade, the decade that has no easy name for it, like the 90s did but from now until the year 2010 and beyond; looking at an emerging trend now to move services offshore, in addition to manufacturing operations, some functions that would be included in those services would be engineering, software development, certainly chip development as well. Services like accounting and financial services. There are companies that realize that there are lots of skills in places like India to do accounting for a fraction of the costs in the US. Call centers; once we realize that we could have calls handled at a central location in the US and a central location in Europe. The next question is why should only be content by continent by continent, why not go further there? IT-supported services similarly. Why do you have to talk to someone in your own country? Call centers have such an interesting market - focus groups research going on and the like as to why US customers prefer in terms of accent and what they don’t like and what countries are good places to put call centers and which ones are not.
But in any event, we are certainly looking at the globalization of call centers in various parts of the business throughout industry basically. I’ve got some numbers: Forrester research says that by year 2015, we are going to see over 3 million US jobs move offshore. So this is certainly something that is worth catching our attention. Now if you flip to the next page, in terms of our own industry and how IBM competitors are moving jobs offshore and how different numbers in different countries, numbers of jobs that will be moving offshore. From a business week article that appeared about a month ago and you’ll see that in our industry, our competitors are doing this. In addition to the companies listed on the chart, I2 and NEC are moving some stuff offshore.
Microsoft actually had a road show that one of their senior vice presidents told their managers go ahead and pick a project and move it offshore today. I’ll tell you in a minute where you can actually access on the web that Microsoft presentation. HP, another big competitor, obviously, told the press and analysts that one of the ways it hoped to gain competitive advantage over rivals like IBM was to move stuff offshore. So as HR folks one of our challenges that we that we deal with everyday, the kind that balances what the business needs to do versus the impact on people. This is one of these areas where the challenge really hits us squarely between the eyes. You don’t want to sit back and say don’t do it because it’s going to be problems, our competitors are doing it and we have to do it. On the other hand, it does raise significant employee relations concerns that we have to help our folks that we support manage.
If you go to the next chart: off shoring and challenges, these are really some of the things that make this a difficult issue for us to have to deal with. In the 90s, manufacturing went offshore, in the US and much of the world, the economy was pretty robust during that period of time. We’re currently in an economy that is anemic as one term describes it. The economy certainly is less robust than it was a decade ago and to move jobs in that environment is going to create more challenges for the re-absorption of the people who are displaced.
US workers or workers in a country where the work is being relocated from, will, in many cases, be asked to train their replacements. If we’re moving work to China, the Chinese management team and maybe some Chinese workers will have to come to affect the transfer of technologies to do that. That’s going to raise a lot of tensions as you’re training someone to do a job that you know is no longer going to be yours at the end of a fixed period of time.
From the emerging country, the country that is receiving the work has all kinds of growing pains. Those of you who have been involved in green field or start-up operations, know the challenges of trying to build: trying to hire people, of trying to deal with the people who they didn’t hire exactly correctly and trying to basically put in a management system and to get a good grip on how to run a business where we don’t have a history of having done that. We have all those issues to deal with. When I look at all the jobs that are going offshore, depending on where they all end up going, we may just have a real labor scarcity as well.
We saw this in Ireland, it became a mecca for call centers and after a little while it became pretty hard to keep people because we can just go to someone else for 50 cents or a dollar more as a call center operator for some other company so we’re likely to see some of those things. Government reaction, it is hard for me to imagine any country just sitting back and letting jobs go offshore without raising some level of concern and investigation and I think we’re going to see that in the countries where the jobs are moving from.
And finally, the industrial relations reactions.. We’re already seeing some of this. Washtech is a part of the CWA, the same way that CWA, the Communications Workers of America, has the Alliance@IBM as the IBM local union affiliate and Washtech, which is set up out on the west coast, in Washington state, and trying to organize employees at Microsoft and at Amazaon.com. To log on that website there is a whole lot of stuff as to why this off shoring stuff is terrible for employees; why employees need the union to fight it. That is where you can get the Microsoft pitch as well in it’s entirety, that the senior union vice president took out, and you can see some of the fairly appealing arguments that they’re making to like organizing to help fight this, some dignity issues, you know, those of us who track union campaigns realize that unions rarely have to get more money.
Issues like dignity and justice and fairness, those sort of gut sort of issues tend to raise or strike an emotional cord after which the money issues, pay and benefits issues can come in but the dignity of being told that not that your job is going away but that’s it’s moving and you’re going to be put out of work as a result of that.
It’s hard to fight globalization. The government, I believe you’re going to find is fairly limited to what they can do and unionizing becomes an attractive option for a lot of reasons, there are indications that union organizing will become more aggressive over the coming months. The AFL-CIO is going to be seeing some changes in terms of its own management structure. One of its emerging leaders is a guy named Wilhelm, from the Hotel and Restaurant employees union. He was quoted on Sunday in the NY Times, saying that if we don’t devote the largest possible amount of money to organizing and to political action that relates to organizing, we will go out of business. I don’t think he is overstating it because union membership is at an all-time low since the 1950s in the US, and if you look at the age of unionized workers versus non-union workers. They will literally go out of business if they don’t do something. So what we are looking at remains to be seen, but we are certainly going to see some more vigorous attempts by the AFL-CIO in the United States when trying to organize employees, so I’m calling on all of you as your businesses face these challenges in looking at work moving offshore.