White collars are also at risk By Robin van Koert It was the stuff of nice articles. Young people in India who were chatting with English and American customers about the weather in London and New York, or about the popular TV soaps. For a long time, call centers defined the image of business process outsourcing (BPO). Those phone calls are still taking place, but several other types of activities have followed. The growth seems endless, but also poses new challenges. Can BPO go from trendy to mainstream and also 'threaten' white-collar jobs? In 2004, worldwide BPO sales reached more than 85 million euros, an increase of almost eight percent compared to 2003. Call centers are the most important activity, followed by back-office work. For 2005, the American consultancy Gartner predicts a growth of about nine percent to 95 million euros. A report on offshoring by the reputable Dutch consultancy Berenschot shows that sixteen percent of the surveyed Dutch companies expect to offshore work in 2005, an increase in comparison with the ten percent of 2004. More and more white-collar jobs are considered for transfer to India, China, Eastern Europe and other offshoring destinations. In particular, India is more than a trendy destination. Does it mean the end carefree future? Not necessarily. Successful developments in the Indian BPO-industry, for example, lead to new challenges. A shortage of directly employable staff is already expected. The flow of university graduates is not diminishing, but new employees often have to undergo months long in-house training. The time involved depends on the complexity of the work. In addition, employees perceive their job in the BPO industry as just a stepping-stone to a better job in IT. An important consequence of the difference between demand and supply of experienced staff is the high attrition rate. Familiar contacts suddenly will have moved on. Established and newly founded companies compete with each other in the labor market. New companies attempt to attract personnel with attractive salaries and additional incentives. Employees are being promoted faster, sometimes without the necessary management experience. The result is lightweight middle management. Another consequence of the tight labor market for experienced BPO staff is that companies are facing difficulties to scale up their activities. "A shortage of experienced staff threatens to put the brakes on BPO growth in India", says Chandra Turaga, director of New Horizons Cybersoft in Hyderabad. "Of course, BPO- and other IT-companies can improve working conditions in order to lower the attrition rate", he adds. However, local dissatisfaction with working terms and conditions is not the only challenge. In the UK, where more and more companies are moving work to call centers in India, the trade unions are concerned. The same is the case in the Netherlands. The British accept the loss of jobs to low wage countries as inevitable, but demand guarantees concerning terms and conditions, including the workers' right to organize themselves. Maurice Limmen, national ICT coordinator for the Christian Trade Union in the Netherlands, agrees with the latter, but he awards employees in the Netherlands the highest priority. "In the end it does not matter to whom you lose your job", he says. Offshoring is a sensitive subject, since job losses and a limited protection of workers' rights in the receiving countries can contribute to a negative image. The textile industry is a well-known example. Although India and other Asian countries are looking good in a comparison with China, the Central and Eastern European countries definitely have a PR edge. Still, the labor market and the trade unions are not the only obstacles. The infrastructure in India does not have the same shiny image as the IT-world. During a seminar organized by the National Association of Software and Service Companies (NASSCOM), Mumbai Airport was said to be exemplary of all that is wrong with India's infrastructure. The traffic jams in Bangalore are legendary. Chief executives and clients often commute by plane from Chennai and Mumbai. Energy supply is another unpredictable factor. All of these are the result of success. The situation in other Asian offshoring destinations is often not much better. The rapid growth in India appears to be putting a brake on the follow-up to the initial success. Expanding the market for outsourcing entire business processes also throws up a challenge of a different nature: data security. The popular call centers handle relatively simple information. However, work outsourced by engineering companies, accountancies, biotech companies and medical service providers poses different demands. The sensitivity of the information increases with the complexity of the transferred work. Technical security is not the only issue, legal protection is important as well. The same problem has been relevant for some time for software development, but so far had been of secondary importance to BPO. Technological solutions are available. However, it is crucial that BPO employees are aware of the importance of confidentiality. Technology bridged the distance between outsourcers in the United States and Europe and service providers in Asian countries. Transnational corporations (TNCs), such as ABNAmro, ING, Philips and Shell have been outsourcing business processes to the region for some time now. Nevertheless, despite the technological developments, India, China and the other Asian destinations often are a step too far for the small- and medium-sized enterprises (SMEs). Is that a further restriction to the growth of the BPO market? Superficially, that appears to be the case for the Asian countries, but not for Central and Eastern Europe. Closer in geography and culture, the latter countries pose an interesting destination for relatively small companies, a challenge to the BPO industry in India and the other Asian countries which should not be underestimated. Technological developments have pushed the boundaries of the traditional decision-making processes concerning make or buy. More and more work is eligible for offshoring. As always, the pioneers introduce the fashion trends. For clothing the creative designers in Milan, Paris, London and New York provide the lead; in business the innovative entrepreneurs do the same, sometimes in the same cities. BPO has made the transition from the catwalk to the trendy boutiques. It is a popular fashion. Nevertheless, it seems to be common sense for outsourcers and service providers to avoid the 'sweatshop image'. The infrastructure is another problem. If the customers cannot come to your shop, the products only end up being attractively displayed in the shop windows. A continued strong growth of BPO in Asia seems possible, but is not a given. Robin van Koert, 25 April 2005