The future of outsourcing

Outsourcing has an image problem – to many people, including managers and workers, it's seen as a way to cut jobs. But that perception may not be entirely true. As more businesses start to think more strategically, the role of outsourcers is changing. 

At a Sydney conference last week a panel on the future of outsourcing hosted by the Indian Institute of Technologies alumni in Australia Association (IITAA) looked at outsourcing trends and where opportunities for Australian business lie.

The panel was split between university academics and private sector participants including a client in Westpac; Mahindra, IBM and Infosys representing outsourcing companies along with a partner from Ernst and Young who hosted the event.

All the participants agreed on outsourcing's image problem. The effect of this image is best seen in the US where there is a Bring Jobs Back To America bill currently before Congress.

Much of the resistance against the North American Free Trade Agreement (NAFTA) was based around the fear of manufacturing jobs going to Mexico, as memorably described by Ross Perot in his 1992 Presidential campaign as “the great sucking sound”.

With the current wave of manufacturing closures in Australia we're hearing the same great sucking sound, although not just in our factories. Panellist Ross McKenzie, Executive Director of Global Service Delivery at Westpac, made the point that the services sector is now suffering in same way the manufacturing industries did in the 1980s. 

It started with low skilled service jobs like call centres but now higher value work – such as paralegal, medical transcription and of course IT services – have followed suit. The belief that white collar jobs couldn't be taken over by cheaper foreign labour has been proved wrong.

It isn't just those working in the call centres or IT departments of telcos and big banks that are being affected, those small businesses in support industries like secretarial services or design are finding their clients are moving offshore too.

In most cases the outsourcing wave has been cost based, although this is changing as a number of panellists pointed out that while outsourcing has until recently been sold on cutting corporate costs, outsourcing companies and nations are moving up the value chain and becoming more strategic.

Making the most of 'inshoring'

Eng Chew, former CIO of Optus and sitting on the panel in his current role as Professor of Business and IT Strategy at the University of Technology, Sydney observed that outsourcing transactional businesses, like call centres and cheque processing, can be based on cost, but relationship based business functions need higher level skills and are prime candidates for “inshoring”.

Inshoring is where job functions previously given to offshore outsourcers move work back to the home countries rather than keeping them in emerging economies. Inshoring is gaining pace in the United States in response to a weaker US dollar, rising costs in Asian nations and falling wages in the US.

Those rising costs in the Indian service sector and Chinese manufacturing are being felt in other countries as well, a representative of the Philippines' Sydney Consulate-General spoke on how their outsourcing sector is adapting as their advantage in English speaking call centre workers eroded as other countries improve their skills.

That inshoring sees opportunities for Australian business and this is where Professor Chew and fellow panellist Professor Oscar Hauptman of the University of Western Sydney (UWS) both see opportunities for Australia to become a centre of selling high level services.

Selling high level services

For this to succeed, Australian governments and businesses are going to have to work on skilling up the nation's workforce with the skills required in the 21st Century knowledge economy.

Professor Hauptman pointed out how Australia is missing opportunities with the dismal enrollment levels for agricultural science, a field which should be this country's natural advantage.

While the future for outsourcing is clear in that it isn't going away, there are mixed messages for Australian business; on one hand there are benefits in improving flexibility and efficiency while there are clear risks in not having the skilled workforces to seize opportunities which are there for the taking.

The strength of Australia's economy over the next few decades will depend upon how governments, businesses and individual workers deal go about gaining the skills and strategic vision to succeed in a much tougher, competitive and globalised world.