International software development is generally defined as the software work undertaken at geographically separated locations across national boundaries in a coordinated manner. As a distinctive strategy to save on the costs by relocating some of the software developing units in other countries/ regions, outsourcing has gained momentum during the last two decade or so. Globalisation has made it possible for companies to easily gain access to markets and resources around the world.
With countries like India and China adopting liberal policies in order to attract investments from abroad, it has become quite convenient for multinational companies to tap the pool of resources at very low costs as compared to the costs in US, Germany, UK, France etc. While analysing the growth of outsourcing during the last 10-15 years, Farrell (2006), the Director of McKinsey Global Institute, states that the vast majority of the offshore service jobs have gone to a limited few locations in India, Eastern Europe, and Russia. Outsourcing: Intensely debated and discussed on many forums
The issue comes into sharp focus during the recent presidential elections in US when both the rival groups led by Barack Obama and John McCain started assuring the people about saving their jobs and putting a ban on outsourcing to cheaper destinations. It’s been quite a while since the elections are over and President Obama took over, but the pressure from influential lobbies did not allow new administration to pursue any far reaching policies in this regard. Economic slowdown around the globe, with its severest impact on the developed nations, also became a deciding factor in favour of continuing the prevailing outsourcing policies.
These are the indicators towards the inevitability of outsourcing in present day world order. The market dynamics, which makes it mandatory for the companies to go for quality and value addition at least possible costs, has been the key driver favouring the phenomenon of outsourcing. Information technology has been the backbone supporting the processes or functions, with the help of next generation outsourcing, aimed at providing the companies with robust cost containment and more revenue-generating tools.
NASSCOM, a reputed trade body and the chamber of commerce of the IT-BPO industries in India, indicates in one of its recent reports that worldwide the BPO spending in 2008 grew by 12 percent, which happened to be the highest amongst all the segment (NASSCOM, 2009). In one of its recent reports the Economist (2010) indicates that technology has been the main culprit behind job losses in US, as automation and outsourcing have claimed a whole class of jobs. This includes routine but vital tasks in the category of labour intensive as well as highly paid manufacturing and number crunching jobs.
The report points out that, ‘the US economy now needs workers to do what cannot be by machines or call centres in Bangalore’ (The Economist, 2010). But the irony is, despite having fullest knowledge about the job losses and increasing restlessness amongst the youth in the country, the US administration in not in a position to take any concrete action to halt the flight of jobs to outsourced destinations. Software development is one of the key areas where outsourcing has acquired newer dimensions.
Outsourcing the software development task to countries like India and China has benefitted the economies of these countries to such an extent that outsourcing and providing IT enabled services has become an industry in itself. The Economist (2008) enlists three main advantages of outsourcing; i. Realisation of greater economies of scale by a third party in a position to pool the activities of a number of companies ii. A specialist outsourcing firm can keep itself abreast of the latest developments in the related fields
iii. It becomes easier for companies to get works done, which are one time in nature, and for which it becomes difficult for the company to justify recruitment of specialist workforce. This trend has certainly benefitted the concerned companies and the economies of the offshore locations. But, there are quite a few instances, which have raised questions marks about the efficacy of outsourcing decisions. Conflicting situations on account of difference in working conditions, social and cultural perceptions, job losses etc.
have highlighted the negative sides of outsourcing. Some of the issues which have come to light as a result of outsourcing are; i. Difference in cultural values and beliefs often leads to communication gap amongst the parties concerned. For example, an Islamic nation would like to have a day off on Friday’s or the workers might also like to have couple of hrs away from work to offer the prayers. But, for a company in US or Germany, this is not a priority and they’d like to see that work be done even during these hours.
Similarly, the period around Christmas happens to be a solemn occasion and holiday period for Western companies, but not so much in countries like China and India. Though in general, the companies are supposed to take into account these factors, but at times, such things lead to differences of opinion. ii. Harland et al (2005) contend that international outsourcing of finding software solutions involving some policing and security operations to a country having different culture and approach to social issues could cause conflict with citizens’ traditions and beliefs.
This in turn would mean that in view of financial and economic concerns, the host country too often continues to ignore the cultural excesses. But, in case of any dispute arising out of such excesses, the issue gets highlighted in the media, which brings bad publicity for the multinational corporation as well as the host country. iii. When companies entrust the important details about their clients to BPOs in some other countries, that decision runs the risk of exposing those clients to people in other countries.
This could result in trampling on the privacy of the customers. A study cited in the Washington Post has pointed out that BPO employees who are laid off or leave their jobs for better opportunities, quite often secretly take along proprietary data as well (Krebs, 2009). The report indicates that about 60 percent of those leaving the job steal the important data of the company and its clients. The data being taken included e-mail lists, non-financial business information, customer contact lists, employee records, and financial information. iv.
There have been instances, when credit card details of a customer were misused by the BPO workers. A report by KPMG on ‘data security and privacy in the Indian industry’ indicates that the top management in a number of BPO companies are finding it challenging to ‘drive the importance of security and privacy of information down to every level of the organization’ (KPMG, 2009). Such concerns often lead to question marks on the decisions of multinational corporations’ to outsource the data and records of their customers to untrustworthy people.
This presents ethical challenge for the Indian IT industry as well, as the IT industry has to allay the concerns of their clients on two counts. First, by providing technologically advanced and updated services, and second by ensuring that the all important data is in safe hands. v. Outsourcing to emerging economies is also believed to be resulting in international exploitation (Harland et al, 2005). In order to attract business from abroad, some economies resort to softer legislations which taking due precaution about the human rights, child labour concerns, dumping of toxic waste etc.
When a company wishes to have the software development task to be completed within a very short period of time, or when the task requires daily interaction between the parent company and the outsourced destination, then the workers in outsourced destinations are supposed to work round the clock, in order to meet the deadline. From the perspective of business and profitability, such arrangement work fine till the time such issues are highlighted in the mainstream media and become source of political embarrassment for the concerned economies.
vi. Outsourcing software development to critical functions like systems used in nations’ security runs the risk of compromising nations’ security. The manner in which 14 year old hackers often break into the highly guarded computer systems of agencies like NASA etc. indicates towards the vulnerability of handing over the development of such software development into the hands of people who are remotely connected to the nation’s integrity, social and cultural values.
Theoretically it might be possible that the software developer company leaves some software code in the programme and starts receiving updates about the security apparatus of the country, once the system starts working on closely guarded secrets. This will result in compromising the security of the country. vii. As per a study conducted by Organisation for Economic Co-operation and Development (OECD), one out of ten well-educated Britons is opting to move abroad (CIPD, 2008). This study indicates how the outsourcing phenomenon has altered the equilibrium.
There was a time, when educated youth from developing economies used to make a beeline for seeking an opportunity to serve in US, UK or Germany, but now the jobs are shifting to their countries. It has also come to light that the trend of people going out for jobs is prevalent in Germany as well, but to a lesser extent. The study shows that 1. 1 million well-educated Britons are moving out for better job opportunities to other countries as compared to 860,000 from Germany. This sort of reverse brain drain indicates among other things that there are regions which are more attractive from the HR perspective.
If the tense industrial relations persists for longer time period, this might result in political upheavals in countries outsourcing the jobs. viii. Entrusting the task of software development to outside locations certainly enables a company to focus more on the core competency and reduce costs, thus helping the company in showcasing a healthy balance sheet and increased flexibility to reconfigure the resources. But at the same time, such decisions often lead to conflicts with the trade unions as a number of jobs get exported to outsourced destinations.
In order to look for low cost alternatives, a number of companies resort to steps like retrenchment, job cutting etc. which has adversely affected the working middle class society. Straining of industrial relations in turn reflect poorly on the welfare initiatives undertaken by the company or in upbringing the brand equity of the concerned company. ix. While outsourcing the software development requirements to destinations outside the country, the company has to make huge efforts in developing an understanding with the BPO Company in order to work out a design appropriate for the requirements. Conclusion
Outsourcing has indeed become a popular trend during the last decade. While on the one hand this helped in increasing the ability of multinational corporations to meet the changing marketing requirements, and focus more on core competencies, at the same time, it has resulted in creating number problematic situations like altering the political equations at home, job losses and confrontation with trade unions. No doubt the companies come in a position to leverage the economies of scale, but at the same time such decisions result in exploitation of human rights in the countries of outsourcing destination.
When the workers in a Business Process Outsourcing (BPO) unit in India or Philippines are entrusted with a task to be completed as per the deadline from the company in US or UK, then the workers are pressed into service for very long hours. During such period, the welfare measures of the workers take a back seat and only thing concentrated upon is the completion of the task and financial aspects. Violations of human rights, cultural and social sensitivities are seldom taken into account while the BPOs attempt to meet the deadlines.
Security of the data and the privacy of clients also come in the danger of being compromised by the decision of outsourcing the software development and other such routine jobs. The debate is still going on and as of now the trend of outsourcing is nowhere near reversal. Part of the reason for this unabated growth in outsourcing is the ongoing recession in most of the developed part of the world. Once the economies bounce back and regain the momentum of growth rate, then only the debate will restart.
References: 1. CIPD (2008). Chartered Institute of Personnel and Development, UK. Britain’s brain drain. Available online at http://www. cipd. co. uk/default. cipd (March 1, 2008) 2. Farrell, Diana (2006). ‘Smarter Offshoring’. Harvard Business Review. Jun 01, 2006. 3. Harland, Christine; Louise Knight; Richard Lamming; and Helen Walker (2005). ‘Outsourcing: assessing the risks and benefits for organisations, sectors and nations’. International Journal of Operations & Production Management.
Vol. 25 No. 9. pp. 831-850. Emerald Group Publishing. 4. KPMG (2009). ‘State of Data Security and Privacy in the Indian Industry’. DSCI- KPMG Survey 2009. Available online at http://www. dsci. in/images/stories/data_security_survey_2009_report_final_30th_dec_2009. pdf (May 27, 2010) 5. Krebs, Brian (2009). ‘Data Theft Common by Departing Employees’. The Wasington Post, February 26, 2009. Available online at http://www. washingtonpost. com/wp-dyn/content/article/2009/02/26/AR2009022601821.
html (May 27, 2010) 6. The Economist (2008). Idea-Outsourcing. The Economist, Sep 29th 2008. 7. The Economist (2010). ‘The middle-class task- force – As jobs fade away’. May 6th 2010, Washington, DC. Available online at http://www. economist. com/world/united-states/displaystory. cfm? story_id=16060939 (May 27, 2010) 8. NASSCOM (2009). ‘The IT-BPO Sectors in India’. Global Industry Trends available online at http://www. nasscom. in/Nasscom/templates/NormalPage. aspx? id=56966 (May 27, 2010)
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