Wednesday, June 15, 2005


Offshoring : Where the buck stops there.

Alan Kohler, the Age’s preeminent business columnist reveals a dirty little secret that is not mentioned in polite society. It concerns the Banks, and the fact that their decades long dream run of profits is now coming to an end. The Banks you see are being squeezed. They are facing big competition from brokers and mortgage companies as they fall over themselves to throw money at you. And the cost of borrowing all that money that throw at you has gone up because no-one in Australia saves money anymore (we’re all in debt you see), so they have to borrow this money overseas at higher interest rates.

The end result is that the Bank’s profit margins are being squeezed. Shareholders being shareholders don’t like this, so they demand action. End result? Cost cutting. The Razor Gang. Slash and Burn.

As Kohler points out the dirty little secret, not mentioned in polite society, is offshore outsourcing (offshoring), which fundamentally means sacking call-centre staff, operational staff, IT staff here in Australia, and setting up a center in India or the Phillipines or some low wage country.

Australian banks are well behind their American and European counterparts in outsourcing call centres and processing functions to low-cost countries. Hundreds of thousands of Indians are now employed answering bank customers' inquiries and processing data.

In fact the Indian outsourcing market is becoming saturated; the next outsourcing boom is happening in the Philippines, and that is where the Australian bank customers will soon be ringing for their inquiries (without knowing it).

The challenge for all of the banks will be to bring this off without causing a riot back home. The community is still getting over the wave of branch closures and lay-offs during the '90s; there will soon be another wave of redundancies as call centres and processing centres are closed and the work outsourced to the Philippines.

So brace yourselves folks for the big stoush as Aussie battlers and aspirationals fall victim to the more competitive Phillipino battler. Brace yourselves also for the sleek pared back arguments from the economic rationalists, that this is in fact a good thing. That it creates opportunity back here at home because it creates profit, and so the lucky recipients of that profit can invest it back into creating new jobs.

Or maybe not. Since we bricks and mortar obsessed Aussies are just as likely to invest it back into houses, thus restarting the debt boom that triggered all this in the first place.

Call me old fashioned, but it strikes me that if you want to have an economy that functions, where people pay taxes, and have a little bit left over at the end of the week to take the kids to the cinema, or buy them toys, then you need to make sure that there are jobs for them in Australia, and that they’re not on the dole. There must come a time where so many jobs are offshored, that it starts hurting the economy. Tell me that the current massive US trade deficit is not partly a result of its Manufacturing being outsourced to China.

It is the American multinationals like Wal-Mart doing the outsourcing of course. Their shareholders are mighty happy. It’s just the American workers who’re left scratching their head.

As we prepare to take sides in this one, it might be wise to bone up on the pros and cons handily prepared by the Government at taxpayer expense so we can amuse ourselves with debate while it all happens anyway behind the scenes.

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