Pros and cons in offshoring jobs

The high Australian dollar and low tariffs strengthen the case for sending jobs overseas, but Greg J Bamber writes there are compelling reasons for banks, manufacturers and others to reverse this trend.

Reports of more offshoring of jobs from Australia to other countries are, seemingly, a daily occurrence. Such reports include, for example, the manufacturing of cars and their components and aspects of the service sector, including information technology, telecommunications and banking.

A recent forecast predicts that some 7000 banking jobs may be lost in Australia in the next two years. It has been reported that Telstra, Qantas, Westpac, NAB and ANZ are considering moving certain operations to Malaysia, India, the Philippines or elsewhere.

Why do firms jobs offshore jobs?

Although such decisions may be variously explained in terms of enterprises trying to focus on their core business and to increase efficiency, the prime motive is usually to cut costs. Pay levels are higher in Australia than in the outsourcing destinations. (For example: a credit risk officer in the Philippines is paid the equivalent of about $A6000 per year, while a similar job in Australia is paid about $60,000 per year.) This cost differential provides a powerful rationale to offshore work from Australia. Further, with developments in IT, it is possible for enterprises to outsource work offshore, without incurring extra costs in terms of transactions and communications.

The economic rationale for offshoring appears even stronger when Australia has low tariffs and the Australian dollar is relatively high compared with other currencies, as at present. Currently, the US dollar is relatively low and unemployment there is high. This has precipitated interesting moves in the US to bring certain jobs back to the US that had been offshored earlier when the US dollar was valued more highly and unemployment was lower. US President Barack Obama has said that the companies which provide jobs in the US would get bigger tax breaks, but those outsourcing work would have to pay more.

In the US, another pressure for reversing the offshoring trend is that offshoring has generated negative publicity for such prominent brands as Nike and Apple. It has emerged that in the context of appalling "sweat-shop” working conditions, some those conducting work for them offshore have protested in terms of "wild-cat” collective industrial disputes and individuals have committed suicide. Such negative publicity has induced a backlash by consumers and talk of consumer boycotts of such brands.

Should we reverse the offshoring trend?

There are other rationales for reversing the offshoring trend. First, offshoring tends to decrease employment in this country as jobs are exported. This is not in the interests of the Australian community. If the consequences of offshoring include less tax being paid here and increasing unemployment, there may be fewer goods and services purchased by consumers here. This will impact on profits of enterprises here, including those that have initiated the offshoring.

Second, offshored customer-service staff in overseas call centres tend to annoy customers. Many of us had the frustrating experience of trying to get service via phone help-lines from staff based in overseas call centres, who have difficulty understanding us and vice versa. At least one of Telstra’s competitors proudly boasts that its customer-service staff are all based in Australia. This is one of its key selling points.

Third, it may be more difficult for Australian enterprises to manage and motivate staff who are based in remote offshore locations. It may be even harder for Australian employers to win a high degree of employee engagement from offshore staff in locations that are remote from the senior managers. Staff who are not so engaged are less likely to put in discretionary effort, to provide great service to customers and constructive feedback to their managers.

Fourth, intermediaries who promote and arrange offshoring tend to exaggerate the benefits of offshoring and gloss over the costs and possible disadvantages and unintended consequences that may arise.

Offshoring and the financial sector

Bankers are asking for an end to 'bank bashing'. However, the big banks seem to invite bank bashing by the media, politicians, their customers, workers and their unions.

On the one hand, to cut their costs the big banks are offshoring more jobs, retrenching more workers and increasingly reluctant to pass on cuts in Reserve Bank interest rates to their home loan customers. In some cases, they have passed on less than the full cut; in other cases they have passed on the cut only after much pressure from politicians and the media.

On the other hand, the government (and taxpayers) protected the banks with a free deposit insurance guarantee after the global financial crisis and the big banks have become hugely profitable, making record high billions of dollars of profits (of between $4 billion and $6 billion per year). Such big enterprises pay their chief executives at extremely very high levels – including huge bonuses. These remuneration packages are proportionately much higher in comparison with their operational staff than they were in the past in Australia.

Such behaviour does not appear to be an enlightened form of corporate social responsibility. In this context, no doubt there will not be a quick end to "bank bashing” and to offshoring. Those who initiate offshoring, however, should carefully consider the pros and cons of offshoring before proceeding with such proposals.

Greg J. Bamber is a professor, Department of Management at Monash University. This article first appeared on The Conversation. Republished with permission.

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