Does India hold the future of the Dutch knowledge society? By Robin van Koert The government's annual budget painted a gloomy picture of the Dutch economy. Earlier on, the minister of Social Affairs, De Geus, hinted he is concerned about the labor market. 'In ten years time, two million people will be insufficiently qualified', he predicted. A knowledge economy is the future for the Netherlands. The question is whether he overlooked a development. Offshore outsourcing. Low skilled jobs may be disappearing, but their destination is not India. Baan, Getronics, Philips and Shell, to name a few, outsource software development and maintenance to India, which is work for skilled programmers. The banks ABN Amro and ING conduct administrative work in India, which are not low skilled jobs either. Until now only a few thousand jobs have left. However, the expectation is that tens of thousands of positions will follow in the coming years. In October, ABN Amro announced the departure of thousands of jobs. The majority of those will go to India. Mostly it is knowledge intensive work. Nevertheless, offshore outsourcing to India still mainly bears upon routine administrative and programming work. Entering and processing data, digitizing documents and maintaining software systems are some examples. Offshoring can also increase capacity. Jobs do not leave the Netherlands, but new ones are created in India. This entails employment for staff with middle to higher-level education. India has expanded its product range. For example, Indian enterprises also offer financial services. In addition, several companies provide professional services such as accounting, auditing, engineering, R&D, developing of new software, medical analysis and technical system engineering. Gradually India is conquering the market for higher skilled work. The popularity of business process outsourcing (BPO), offshoring entire business processes, is also increasing. In the Netherlands the enthusiasm for BPO is still limited. However, American and British companies are already taking full advantage of this relatively new service. Also in the United Kingdom a larger number of types of industry have opted for offshoring. Can we really stay behind? More than two hundred Dutch companies outsource work to India. Amongst these companies are transnationals like Philips and Shell, the airline KLM, software companies such as Baan and Exact, ICT service providers like CAP Gemini, Atos Origin and Logica CMG, as well as the banks ABN Amro and ING. In the United Kingdom, on the other hand, insurance companies, such as Norwich Union, are also sending administrative work to India. In the Netherlands, Aegon and ING are obvious candidates to follow that lead. This is a logical development. That is not all, however. Press agency Reuters is moving hundreds of jobs to Bangalore. Even Britain's largest supermarket, Tesco, is shifting employment to India. What does that mean for jobs with Dutch supermarkets during the current price battles? The temptation of outsourcing is significant. Nevertheless, offshoring is not only driven by low costs. The quality of the services provided is becoming increasingly important. An added aspect is that the back-office of the outsourcing company is the front office of the provider of the service. Thereby, to a large extent, explaining the extra attention to quality. Still, the minister of Social Affairs, De Geus, concentrates on the low skilled end of the labor market. As a result, the risk for higher trained staff appears to be underestimated. What about the future of the Netherlands as a knowledge economy? Paul Tjia, senior consultant with GPI Consultancy, estimates that in the coming years fifty thousand ICT jobs might leave for foreign countries. Thousands of administrative jobs are likely to follow. For the time being language is still perceived to be a barrier. However, within transnationals English is already the business language. For now, the headquarters will remain in the Netherlands, but a part of the knowledge economy will move to India. Nevertheless, threats can also be perceived as opportunities. Does that also apply to outsourcing highly skilled work? Tjia thinks it does. However, for that to be the case the Netherlands needs to look beyond saving costs. In the long run, everybody will outsource to India, China or another country. It hardly will lead to competitive advantages. That picture changes if offshoring to India results in new services and products. The potential of the Indian labor market as a source of knowledge and skills can strengthen the competitive edge of Dutch companies on the world market. Countries like India and China are future economic superpowers. Outsourcing can lead to acquiring better access to those new markets. Is the Dutch economy indeed heading towards a gloomy future? Perhaps. The labor market certainly will come under pressure. However, not only lower skilled personnel, but also employees with higher education and specialist knowledge. The Dutch knowledge economy is no longer a given. Work needs to be done. Vision, creativity and daring are also required. The departure of jobs to India and other destinations is an opportunity for the future of the Netherlands as a knowledge economy. Is the Indian labor market even a competitor? Perhaps it is not. It seems wiser to take advantage of the potential of skills, knowledge and highly trained staff in that country. The labour markets of India and the Netherlands could be seen as complementary. In that way, the Netherlands can develop itself as a knowledge economy in a way, which so far has been out of reach of its relatively small labor market with its high labor costs. Robin van Koert, 25 October 2004