Lower wages and more flexibility means that many UK companies are choosing to
outsource aspects of their business to the sub continent
Academics and HR practitioners have long bemoaned the damaging impact of the
global economy on the international labour market.
Initiatives have been launched aimed at creating a level playing field in
employment conditions and reducing ‘social dumping’, whereby multinationals
relocate their labour requirements because of poorer, and therefore cheaper,
employment practices.
The International Labour Organisation is spearheading these, and the EU is
using its generalised system of preferences (a system of tariff reductions) to
promote basic labour standards across the globe.
But less work has been undertaken on outsourcing, as opposed to direct
employment, in foreign countries. Outsourcing within the UK has been
fashionable for decades, allowing a corporation to increase efficiency,
sometimes cut costs and refocus its business back to core competencies.
Everything that is non-core can be outsourced, from cleaning to call centres,
from security to storage.
But globalisation of business has brought a new dimension. In September,
Abbey National signed an outsourcing deal with an Indian supplier to deliver
large-scale IT projects. Prudential, the insurance company, proposed to cut 850
jobs on a transfer of call centre work to India, and is expected to save £16m
per year.
Outsourcing to India and the Far East is high on the agenda of major
corporations.
Companies that have reportedly used offshore outsourcing as a business tool
include BP, Motorola, Compaq, Ford, Skandia and Unum.
Of course, outsourcing has also taken place to areas other than the Indian
sub-continent and the Far East, such as Ireland, Canada and The Netherlands.
Tax breaks for companies delivering support operations there have been
attractive.
But the Indian sub-continent is a paradigm. It has an IT-literate workforce,
language capability, employees amenable to the rigours of quality assurance and
high productivity – often a longer working day than in Europe. Furthermore, it
has been estimated that 200,000 engineers graduated from Indian universities in
2002, and this figure is rising.
Two major factors are cost and flexibility. The workforce is lower paid than
in Europe, and taking advantage of the time zone difference means that an
international corporation can, in practice, operate over a 24-hour day.
Pakistan and the Philippines are also strong competitors, attracting
customers who are prepared to balance lower costs against geo-political
uncertainties.
But what of the UK employees whose jobs are outsourced in this way? Roger
Lyons, general secretary of the union Amicus, described the Abbey National job
losses as "a despicable act".
If the outsourcing took place within the European Union, laws generated by
Brussels in the form of the Acquired Rights Directive (in Britain, known as the
Transfer of Undertakings (Protection of Employment) Regulations 1981 or TUPE)
protect many employees on outsourcing by obliging the new service provider to
continue the employment of the employees concerned, with no job losses. But
this protection (apart from information and consultation before the transfer)
does not apply once employees’ jobs are outsourced outside the EU, for example,
to India.
Although redundancy payments would be due, sometimes these amount to no more
than the statutory minimum (in the case of shorter serving workers, often a few
weeks pay only) and the chances of redeployment (unless you are a senior team
player given the job of managing the interface between service provider and
your company) are slim.
The introduction of new technology has always posed a risk for workers’
security of employment. Global outsourcing of information technology and
customer service functions raises the stakes.
With Indian sub-continent and Far Eastern countries chasing more business
hard, job losses are bound to continue as UK companies are charmed by the
economic advantages.
By John McMullen, Head of employment law, Pinsent Curtis Biddle
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