White-collar Asia feels outsourcing pinch

FE Team | Published: July 07, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

David L Llorito
The global outsourcing trend, which first made political waves about job losses in the United States, is now starting to cause similar ripples across high-wage-earning Asian countries.
Corporate America's drive to cut costs by shipping service-related jobs to lower-cost developing countries has raised hackles with labor groups, exacerbated structural wage-price discrepancies and caused unprecedented economic and financial insecurity in the US. Now, many white-collar Asian workers are starting to feel a similar pinch.
Largely because of corporate outsourcing, the average American worker now has a one-in-six chance of seeing his or her income drop by 50% or more from one year to the next, according to some US economists' estimates. In 2005, 90% of US taxpayers saw a year-on-year real decline in their wages. Since 2000, the US economy has lost about 1 million service-industry jobs overseas, the same economists estimate.
As globalization spreads, economic theories about wage-price equalization - where through greater economic integration rich countries' wages fall and poor countries' rise - are fast becoming a reality. First witnessed in the relocation of manufacturing jobs, now a growing range of white-collar service jobs are being exported from rich to poor nations, often with the ease of a computer keystroke.
That includes sectors that only recently seemed immune to what started as a call-center trend, including accounting, software development, news reporting and editing, legal services, architecture and engineering design, insurance claims, radiology, financial analysis, and Hollywood-style animation.
Yale University economist Alan Blinder forecasts that about 40 million service jobs could be moved from the US to developing countries over the next 20 or so years. It's a trend that promises to come under sharp political scrutiny in the years ahead - not just in the US, but also in well-to-do Asian countries.
To be sure, economic statistics show that outsourcing pushes developed-market labor up the value-added ladder and the greater efficiencies (and profits) outsourcing achieves for corporations simultaneously helps create higher-paying jobs in new, often unforeseen, business sectors. However, recent economic statistics also show that not all white-collar workers who lose their jobs are so easily reabsorbed into the national workforce.
Ron Hira, an engineer and assistant professor at the New York-based Rochester Institute of Technology, contends that most US workers who lose their jobs to outsourcing end up worse off. He says that as many as one in three remains jobless indefinitely and that three in five are forced to take substantial pay cuts to land another job.
That's presenting a growing policy challenge for US lawmakers, one that some Asian policymakers are just now starting to confront. The US has put in place various social safety nets, mostly in the form of trade adjustment assistance (TAA) programs, which specifically cater to US companies that have gone under because of cheaper foreign competition and include scholarship programs for displaced workers to attend training programs for as long as two years.
So far, however, the programs have failed to help white-collar personnel who worked for companies that outsourced their jobs and are still going concerns. Those familiar with the TAA scheme claim that more than 40% of those who apply for the program are ruled ineligible, as the scheme was initiated to deal with the loss of blue-collar jobs.
Eroding Asian wages
Those same sorts of economic and social pressures are just now starting to build up in Asia's high-wage-earning countries. Take, for instance, Singapore, one Asia's richest countries in terms of gross domestic product per capita. In the 1980s and 1990s, the island state was a showcase example of a rapidly growing newly industrializing country (NIC).
Fueled by manufacturing-oriented foreign direct investment (FDI), Singapore almost overnight became a major global production center for electronics and semiconductors and in the process emerged as one of the highest-wage-earning countries in the world.
More recently, foreign electronics- and semiconductor-producing companies have moved to lower-cost locations such as China, Thailand, Vietnam and the Philippines, forcing Singapore Inc to move up into more services and government policymakers to rethink the national economic strategy.
Now the global outsourcing trend is putting pressure on white-collar jobs, including in the crucial finance and engineering industries. While the Singaporean economy is still growing outwardly at a healthy rate, the official employment figures mask a mounting loss of white-collar jobs. That includes scores of highly trained engineers, many of whom now drive taxicabs to make ends meet while they look for new employment.
"The shelf life for the NIC model is becoming shorter by the day," said Dieter Ernst, economist and senior research fellow at the East-West Center in Honolulu, Hawaii.
He said that while China's emergence as the world's low-cost factory floor has eroded regional manufacturers' competitiveness, outsourcing is now enabling a handful of developing countries - including most notably India - to leapfrog the development process straight into high-value-added service sectors for highly discounted wages.
That's causing fear and trepidation in high-wage-earning places such as Australia. Emma Connors, senior information-technology writer for the Sydney-based Australian Financial Review, said that Australian unions are now campaigning aggressively to ensure that white-collar jobs are not outsourced overseas. And, she said, they have achieved some success by raising the bogey that outsourcing frequently compromises data security.
"What the unions want are new laws that would make offshoring difficult," said Connors. "They think banks and others should have to obtain customer permission before data [are] sent offshore. Such laws are anathema to those who believe offshoring is simply the latest step in the natural progression [in globalization]. But can they hold back the tide?"
So far Australia's unions and politicians have applied enough pressure to coax a number of high-profile companies to rethink decisions about outsourcing their data-sensitive operations. But there are countervailing views in Parliament, Connors maintains, that if Australia fails to keep pace with the outsourcing trend, the country's global competitiveness wanes.
"We have to be careful we're not protecting current Australian jobs to the detriment of future Australian jobs," David Murray, former chief executive of the Commonwealth Bank of Australia, was recently quoted saying. "Everyone knows the value of free and open trade. The opening up of this economy in the 1980s is the only reason we're performing so well now."
Japan is another country starting to grapple with the rising outsourcing tide. Until recently, Japan's corporations had resisted the outsourcing temptation and maintained research and development (R&D) jobs at home for its various technology products through a secretive process known as "technology blackboxing".
Now, Internet-enabled reverse engineering and pirating of Japanese technology products, particularly by China, is fast eroding Japan Inc's ability to pass on the high cost of local R&D-related salaries to consumers. That market-losing trend will likely continue until Japanese corporations make the tough decision to outsource more of their innovation functions.
Either way, Japan is likewise set to lose more white-collar jobs as outsourcing gathers pace and Japanese policymakers will soon face the same employment challenges cropping up in the US and other developed Asian nations.
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