DECISION STATS

Sometimes too much of a good thing can be a bad thing .Here are some reasons why outsourcing is bad for India.

1) Micro Economic Benefit is Overstated for working class people– An average Indian worker in outsourcing would earn INR 20-30000 per month for working 5 days week and 8 hour shifts ( assumed). Thus his wage is no more than 30000/22*8*45=  That means  2.5 to 3.7 dollars per hour. Most people fresh from college in their first job in KPO and BPO start at 15,000 rupees . That means around 1.8 dollars per hour.

2) Social Impact- The impact on social life can be seen by going to any Gurgaon pub or discotheque at around 12- 2pm where you would see raunchy scenes, as young people of the age of 20-25 relax, after working for 8 hours interacting with mostly Western people. The reality of how life is in the West is distorted by their perceptions of Hollywood. Its like thinking Indian society is like Bollywood movies. Families are torn between accepting the immediate cash that the young son or daughter brings, and the rising number of teenage pregnancies in ITES centers is a statistic that is ignored– as abortion is legal in India.Many Indian companies have fired CEOs for having office affairs yet these have been hidden from the press.Many a times young couples in same night shifts have experimented with live in relationships, as they feel that is “okay” without knowing the tremendous impact the breakdown of family life has on people.The working hours and stresses have also impacted the divorce rates in India which are now shooting up. Alas these inconvenient truths are neither tabulated by the same companies who are creating a database of all ITES workers to ensure they can track people from company to company.

3) Macro Economic Dependency – By diverting most of the young people of an economy to low end repetitive jobs, it is a brain drain or immigration without actual transport due to technology as these people would be otherwise be working to develop in India’s economy.The linking of globalized economies is not always a good thing as it it is sometimes leads to infecting economies globally with a small crisis multiplied due to dependencies.

4) Ownership- Most Indian outsourcers are owned by Private Equity funds, which coincidentally sit on the boards of some of their biggest clients.Western Private equity funds do a regulatory arbitrage of labor conditions and corporate governance , as Indians are relatively new to the concepts of work life balance, over time pay , or societal ethics. Lack of protection to whistle blowers has been evident in the murders of engineers ( involving politicians) in construction, so there are very little whistle blowing laws in India.Thus economically it is a transfer of money from American middle class workers in terms of job loss to middle class Indian workers at a 40 % wage to that paid earlier but the majority share goes back to American top end society who invests in these private equity funds.

5) Labor conditions-If the NYSE listed companies of Indian ITES are asked by regulators in the United States on how many extra hours have workers put in beyond 40 hours a week, and how much overtime money has been paid to them for that, the answer would suffice to tell you that Indians are intellectual chimney sweeps in terms of pay as well as health care benefits.Joining a union is illegal in most Indian companies.Work life balance is an alien concept as heady promotions lure people to work even harder.Culturally Indians find it difficult to say no to superiors and working extra hard is considered good than trying for balanced life.

6) Illegal Contracts – Renowned Indian KPO’s and BPOs hire and make people sign a employment bond especially for an overseas trip. The rationale is that so people do not quit immediately after coming from an on site client. Yet for a two or even a three week trip, people are forced to sign employment bonds of one to two years, with heavy financial penalties for leaving the job earlier. These would be illegal in the same country as which the Western client is situated yet these are enforced compulsorily. Some companies even force people to sign a bond saying they will not quit for the first two years, thus creating an unique bonded labor system for white collar workers. Some companies sign anti poaching contracts ,promising not to hire people from the other company.

7) Health Impact-  I have personally noted many promising people side lined due to bad backs in their late twenties and early thirties because of constant sitting in badly designed ergonomic chairs and working more than 8-9 hours in a day. Yet chronic organizational overwork of employees is noted as productivity increases without noting additional costs , as India lacks adequate medical infrastructure for all its people. I have seen BPO workers sip gin and water between doing double shifts ,and gorge on fatty road side dhabas to keep their energy levels up. Who pays for their health cost ? Mostly it is the family.

Not all outsourcing is bad.Exposure to cutting edge technology and research is one area where offshoring is really good. Not all of it is good either.

A balanced way in which all  companies are forced to adopt same labor conditions at all their vendors as they have for their employees ( maybe with different wages adjusted for purchasing power parity) is the way out.

An additional point is financially creative outsourcing- Many times companies shift headquarters to say a tax free location like Dubai, then offshore their work to India at 40 % cost and 120 % hours worked per worker, while keeping a small staff in the US.

These tax incentives to do these kinds of offshoring is plain and simple cheating.

Consulting companies may publish reports on how good offshoring is , but there is no such thing as a free lunch. There are hidden costs involved in this industry ,just like anything else, and it is for regulators and governments to ensure fairness and openness.

The Author has worked with some of India’s top offshoring companies. These are his personal perspectives.