[IP] Blame India for that jobless recovery
Delivered-To: dfarber+@xxxxxxxxxxxxxxxxxx
Date: Wed, 01 Oct 2003 22:10:38 -0400
From: Claudio Gutiérrez <gutierrezclaudio@xxxxxxxx>
Subject: Blame India for that jobless recovery
To: dave@xxxxxxxxxx
American Express has its fraud analytics department based in India - 60
PhDs sit
in a room watching credit card use patterns in America, looking for fraud.
JP Morgan has a team of research analysts in Mumbai; another investment
bank has
a team of PhDs in Moscow doing global quantitative analysis; McKinsey has a
research centre of 130 MBAs just outside Delhi.
General Electric is hiring 2000 people a month in India; HSBC now does all its
mortgage processing there; Ford employs 1000 design engineers in India.
Neptune Orient Lines has centralised its global accounts receivable, accounts
payable and general ledger operations in Shanghai; Motorola has its R&D centre
in Russia, where it employs rocket scientists to design mobile phones.
Meanwhile, back in Washington, American politicians are becoming obsessed with
the jobless recovery in the US.
As Steve Roach of Morgan Stanley reported this week, 21 months into the
economic
recovery that began in November 2001, US employment has fallen 1.2 million.
Relative to the average pick-up in employment at this point of the cycle, that
represents a job shortfall of 4.2 million.
This is beginning to overtake security as the number one political issue in the
US, and much of the focus is on China. A rise in protectionist sentiment is
showing up in a new bill proposing an across-the-board tariff on Chinese goods
unless China floats/revalues the yuan, and yesterday Treasury Secretary John
Snow promised to keep up the pressure on the Chinese to float the currency.
There's no doubt China is taking a leaf from Japan's book and using the
currency
to improve export competitiveness, but there's much more to it than that.
There's India, and services outsourcing too - also known as "offshoring", or
"best-shoring" among the real jargon hounds.
Employment in the US services sector has remained unchanged over the past 21
months as the economy has recovered; usually the services industry
headcount has
grown 5 per cent by this stage of the cycle. The employment growth is happening
in India instead.
It is mostly a labour cost arbitrage play. An Indian PhD costs less than
$US10,000 a year - 80 per cent below the starting salary of a similarly
qualified person in the US. Indian universities are producing 2 million
graduates a year, all of whom can speak perfect English.
The other side of this coin is the western corporate focus on headcount as a
management tool. It's not just that companies contain costs through blunt
headcount restrictions - although that's a big part of it. It is also the
use of
headcount to allocate overheads through the group.
I spoke to two Australian investment bankers this week - heads of Australian
branches of big Wall Street firms - who are being driven mad by overhead
allocation. Every time they hire someone, the person's salary is loaded up with
a corporate head office allocation - including the cost of the corporate jets
parked at La Guardia - which is often greater than the salary.
What's more, when you are at the end of the food chain - like Australia,
say, or
Des Moines, Iowa - you end up copping a disproportionate share of the head
office overheads because those above you have kept their share to a minimum
before passing the parcel.
But supply arrangements with other organisations - say an Indian call centre
contract with Accenture - don't attract any overhead allocation at all.
The bottom line is that the American corporate system with its focus on
headcount, also used by most Australian firms, is directly leading to the
so-called "jobless recovery". On the other hand, executives and directors
have a
fiduciary responsibility to shareholders to lower costs where possible, and
there is a snowballing effect taking place as companies find their competitors
are getting big cost savings by shifting the call centres to India.
The system of offshoring now gathering unstoppable momentum has been made
possible in the past few years by high-bandwidth telecommunications, which
allows processing centres in low-cost countries to communicate seamlessly, in
real time, with head office.
Although firms like GE, Ford and the US banks are leading the trend in the US,
and the consultants like McKinsey, Accenture and PricewaterhouseCoopers are
pushing it, offshoring is slow to take off in Australia.
There is great sensitivity here about how the unions and politicians will react
if call centres and data processing are moved offshore too quickly. Recently, a
few hundred unionists stopped traffic outside Telstra's Melbourne headquarters
protesting about its IT processing contract with Indian firm Infosys.
This Australian reluctance so far is why this country's economic recovery is so
far not a jobless one - like America's is.
But protests or not, Australian firms will be forced to catch up: drudge work,
whether making shirts or data processing, is moving to cheap-labour countries.
Australia will become a nation of salespeople, waiters and - one sincerely
hopes - journalists. The Mumbai Morning Herald, anyone?
http://www.smh.com.au/articles/2003/10/01/1064988273910.html
---------------
Claudio Gutiérrez M.
http://claudiogutierrez.blogspot.com
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