Monday, December 31, 2007

Globalization: How real is the labor turnover problem in offshore centers?

How real is the labor turnover problem in offshore centers? Here’s a question that can turn a meeting about potentially offshoring a company’s processes into a real slugfest. Proponents of offshoring will argue that turnover is no better or worse than here in the United States or Western Europe. Critics will counter that staff turnover rates are a hidden cost of outsourcing both financially and from a customer service perspective. Something is definitely lurking out there.
Reuters recently reported that a major Indian outsourcing firm had over 90 per cent turnover in its business services. Apparently, major Indian firms have agreed not to steal each other’s employees. (Interesting, imagine doing that in this country. Possibly another example of American and European firms outsourcing to places where neither legal nor public opinion constraints prevent practices that cannot be allowed in their own countries. But, enough of that, I’ll save it for a separate blog entry.) Anecdotal evidence makes the rounds of wage costs slowly rising in offshore markets as more work comes in than can be readily absorbed and workers are attracted to higher wages.
Labor turnover is definitely becoming a bigger probelm in the offshore markets and will continue to do so. There is only a limited amount of capacity available outside of the United States and Western Europe to handle the potential demand for these services. Not to say that this demand can’t be met but it will be expensive. And, it will take time. Just because someone graduates from a university with an engineering degree and English language capability doesn’t mean that he or she is ready to step up to the increasingly higher expectations of the global outsourcing marketplace. Companies that want to meet these expectations now are going to have to hire people with experience from other companies. They may even have to turn to their own countries’ diasporas. There have been mentions in the press over the years of people returning to ancestral homes like Ireland and Korea to pursue new opportunities.
How do these companies begin to differentiate themselves? That’s a good question. The large players with strong technical reputations like Microsoft and IBM can differentiate themselves readily. Other large players whether they are home grown like Wipro or Tata will be able to offer diverse opportunities and advancement to potential employees. All of these firms may not feel the need to overpay and find that the “best and the brightest” are naturally attracted to them. However, other players whether they are pure outsourcing plays or captives of foreign companies will find themselves having to continually raise their wage offerings to attract and keep the types and numbers of people that they need. Of course, this leads us back to the original premise of why to offshore in the first place. The major reason for offshoring has been cost reduction. If wages continue to rise through competitive pressures then why offshore? Will offshoring by American and Western European companies continue as it has been going or will it become simply another tool to be used by global corporations in managing their global portfolios of business activities.

Contributed by Guy de Lastin

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