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Net makes job exports easy

In online age, company location hardly matters

David Kirkpatrick
FORTUNE.com


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Where is work most efficiently done? It's a logical question, but one that business never had the luxury to ask: Work was done where the company was. Then, as travel and communication got easier in the 1950s and 1960s, manufacturing started moving to wherever costs were lowest.

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Today, with the rise of what's called business process outsourcing (BPO), the same thing is happening to office and white-collar work. In the age of the Internet, a company's location hardly matters. That's starting to make labor little more than a commodity.

It's a scary thought for many of us, but for businesses this new hyper-flexibility may be the most fundamental--and positive--change yet wrought by the Information Age.

Companies now can send office work anywhere, and increasingly that means places like India and the Philippines, where for $1.50 to $2 per hour companies can hire college graduates to do jobs that could go for $12 to $18 in the United States.

Says Damon Jones, a spokesman for Procter & Gamble: "Your expense report doesn't have to be processed by someone down the hall. They can be in another country as long as you both have access to the same computer network." P&G says it has saved $1 billion since 1999 by concentrating back-office work in Costa Rica, the Philippines, and Britain.

Better quality of work

BPO doesn't just save money; it generally results in better work. It attracts the top people in the new countries, since the jobs tend to pay more than most local positions. Turnover is low, and people work hard to improve their skills.

"The shock has been that the quality of the work's better," says Dennis McGuire, CEO of TPI, an outsourcing consulting firm in Houston. "It reminds me of back when we assumed that if something was made in Japan, it was worse quality. We were wrong."

Experts say that even after factoring in transitional and management expenses, most companies can cut net costs of a given process 30 percent to 50 percent.

Says Gail Fosler, chief economist for the Conference Board: "This phenomenon will be a very important force for getting profit to the bottom line."

BPO has its roots in IT outsourcing, which IBM, EDS, and others have been doing for more than a decade. The pace of the dot-com boom years, coupled with pressures surrounding Y2K, forced many CIOs to ship coding jobs to places like India or Bulgaria.

Now, in a time of wrenching pressure to cut costs, non-menial, non-tech jobs are moving too. Ernst & Young uses accountants in India and the Philippines for tax work, and a number of Wall Street firms are considering using offshore researchers to analyze stocks.

Wipro, a major Indian outsourcing firm, has people doing not only customer-service work but benefits administration, credit card and insurance claims processing, and CAT-scan reading for U.S. clients.

Mum for fear of backlash

Atul Vashistha, whose neo-IT firm in San Ramon, California, advises on offshore outsourcing, says a client is negotiating to move 1,000 U.S. product-support jobs. Another recently signed a five-year, $40 million deal to do employee-services work in India.

Outsourcing can enable companies to do things they simply couldn't do before. Wipro CEO Vivek Paul offers as an example a consumer products company that had previously found it impractical to chase down tardy customers buying less than $1,000 worth of goods.

With the process run in India, the cost dropped so much the company can now profitably follow up on bills as low as $100.

Which company is this? Paul isn't saying--and no wonder. Most corporate giants remain mum for fear of a political backlash. There are already signs one is brewing.

After a state contractor hired agents in Mumbai (formerly known as Bombay) to handle telephone inquiries from welfare clients, the New Jersey state senate last fall unanimously passed a bill prohibiting such outsourcing for state contracts.

The bill remains in a state assembly committee. Says Lisa Ross of Ross Research in Cambridge, Mass., which studies the outsourcing industry: "Off-shoring is not viewed as particularly patriotic."

The great equalizer

Fosler of the Conference Board says the critics should relax. She doesn't think that the trend will significantly hurt U.S. employment. Forrester Research estimates that 3.3 million U.S. jobs will move offshore by 2015.

But Fosler points out that the U.S. services sector loses about ten million jobs every year even as it creates another 12 million. "So a couple hundred thousand jobs a year going to India is a drop in the bucket," she says.

In addition, this new means of holding down costs will combat inflation, benefiting consumers. And it will help U.S. companies remain competitive in an increasingly brutal global marketplace.

Vashistha, a U.S. citizen who was raised in India, sees another major benefit in the off-shoring trend -- it helps spread wealth from rich nations to poor ones.

"When I walk through the streets of Manila or Bangalore, it makes me proud to see the impact we're having," he says.

Among its many other virtues, the Internet may turn out to be the great equalizer.


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