Broadband to speed trend of sending service jobs offshore

It began as a trickle last year. There was the odd announcement detailing cutbacks and job losses at companies like CSR and SPC before steelmaker BlueScope announced massive losses, the closure of a major section of its Port Kembla facility and 1000 retrenchments.

It began as a trickle last year. There was the odd announcement detailing cutbacks and job losses at companies like CSR and SPC before steelmaker BlueScope announced massive losses, the closure of a major section of its Port Kembla facility and 1000 retrenchments.

Less than six weeks into the new year and the drip, while not quite a deluge, certainly has become far more serious.

A host of corporations, all facing tough trading conditions, has been lining up to deliver the bad news. Manufacturers, led by each of the three auto-makers, have been labouring under the yoke of a record Australian dollar that has made them uncompetitive. The price of imported cars has dropped while export markets have dried up.

As the political furore over emergency packages gathered heat, the smooth-talking head of GM Holden confided that governments around the world "support" their automobile industries. Without it, the message seemed, there would be no Australian auto industry.

Other industries, however, don't seem to engender the same kind of political support.

Aluminium maker Alcoa Australia this week confessed that it may have to close one of its two Victorian plants, at Point Henry, threatening the livelihoods of 600 workers. Again the company cited the strength of the currency along with the distressed state of the global aluminium market. The company is unable to compete.

In between, there has been a steady stream of dire warnings and pink slips from our financial institutions, capped off by a confession from Macquarie Group this week it had shed 1000 jobs in the past year with more to come.

While circumstances unique to each company often play a role in these decisions, it is clear that several forces have begun to take effect that will permanently reshape our economy and our roles within it.

The demise of our manufacturing industry is a familiar tale of steady decline, one that has been well-documented since the 1960s and a trend that now appears to be accelerating.

But it remains one of the nation's biggest employers of skilled and unskilled labour and each factory closure comes attached with an enormous degree of individual pain that has the potential to spill over into the political arena, something rarely mentioned in the economics textbooks.

It gradually is becoming clear just how painful the "economic adjustment" now under way within our economy could become. For while a stronger currency bequeaths greater wealth upon us all, through increased spending power, it's no real help if you're unemployed.

Up until around 2007, our economy was evolving in a fairly predictable and traditional manner. From Federation in 1901, rural employment gave way to a rise in manufacturing. And from the 1970s, as protection levels were reduced, manufacturing was overtaken by service industries.

In the mid-1990s, manufacturing was still the dominant contributor to the economy, accounting for 15 per cent of gross domestic product. But in the decade up until 2007, it declined to 12 per cent and it has been shrinking ever since as around 100,000 jobs have evaporated in the past three years.

Nevertheless, according to the latest statistics, just under 1 million Australians still are employed in the sector with the vast bulk in NSW and Victoria.

Those declines were largely offset by the growth in the services sector, which in the decade to 2007 grew from 10 per cent of our economy to 14.5 per cent.

A large proportion of those new service jobs sprang up in the business and property areas, more skilled and better paid. Australia was showing all the signs of a country that was growing up and an economy that was maturing.

The American experience was far different. Between 2001 and 2010, 42,000 factories closed and 5.5 million manufacturing jobs (about one-third of the total) disappeared. But the high-end jobs were not created to anywhere near the same extent.

There's no prizes for guessing where most of those jobs went. China, with its heavily manipulated and artificially depressed currency, now makes more cars than the US and Japan combined.

Those trends now are accelerating as Australia's transition to global quarry gathers pace. And it is no longer simply affecting our manufacturing. Increasingly, more complex service jobs are being sent offshore. That trend will gather pace within the next decade, driven by two fundamental forces.

The first is the changing nature of the developing economies themselves. As the middle class in China and India and other Asian nations swells, the number of highly trained graduates will grow exponentially. The offspring of factory workers, they will be no longer be content to work on car assembly lines and in clothing factories.

They will be providing information technology and business skills. And they will be available to sell those skills on an international market, thanks to the emergence of a second fundamental force - high-speed broadband.

Until now, India and the Philippines have been the major beneficiaries of the Australian trend to import business services, mostly through lowly-paid call centre work.

But once the National Broadband Network is constructed, the capacity for Australian business to import a vast array of skilled services from emerging Asian economies will be limited only by the imagination.

Already, this has begun to emerge.

Macquarie Group's chief financial officer, Greg Ward, this week outlined a trend that is bound to be replicated by others in the banking world.

In 2008, Macquarie had about 100 people working in "low-cost jurisdictions", offering support services in areas such as technology, human resources, finance and business services. Those numbers have swelled to 1000.

While some may argue Macquarie is an atypical example, given it has been under siege ever since the financial crisis first gripped global banking four years ago, it merely has been forced to look harder for greater savings. The others will follow.

Westpac's recent announcement that it would lay off 560 employees hinted that a large number of more highly-skilled jobs will be sent offshore. One pessimistic report last month suggested that up to 7000 workers in the financial services sector could find themselves out of a job within the next few years.

While the enormous capital influx into our resources sector has provided us with windfall gains and lifted our living standards, it also has the power to unleash powerful forces upon Australian society in the next few years.

Given it is a highly mechanised industry, not all those being laid off in manufacturing and services will be absorbed into this lucrative new growth sector. And therein lies a challenge for our politicians.

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