Outsourcing the Executive Suite
Last week, the news page on the intranet of the investment firm where I work announced that the company would move part of our loan servicing function to India. This news affected an office over 1,000 miles away. It had no direct effect on me or on anyone in my office. Most of us have nothing to do with loans, let along loan servicing, and the work we do is both very profitable and very specialized. But the news was still unsettling. The forces of globalization were now apparent to me and my co-workers, not just in the newspaper, but in the lives and livelihoods of some of my colleagues.
The past year has been a bad one for anyone trying to make money servicing loans. Our lopan servicing division, like those of our competitors, makes money by charging a small annual fee to the companies that make the loans. It then tries to make a bit more money from the interest it can earn on loan payments from borrowers from the time that payments arrive to the time that they are due. Short-term interest rates are very low nowadays, so this "float income" is correspondingly low.
The head of the loan servicing division tried to be sympathetic and reassuring in his news to the thousands of employees, like me, not directly affected by the transfer. He wrote that the company had an obligation to its shareholders to guarantee the long-term viability of each division, not just the short-term employment of each employee. He noted that continuing operations as they currently stood could lead to more drastic cuts in the future, or to a takeover that could put all of the loan servicing jobs in jeopardy. (He neglected to remind us that our current corporate masters acquired both the loan servicing division and my division in 1999. I like to think that he unwittingly made a more pointed threat than he intended, not that he was trying to scare us into submission.)
The most telling part of the news item was the paragraph outlining the advantages of India to our company. In addition to an English-speaking workforce, it offered our loan servicing division lower labor costs. One American manager was to relocate to India to oversee the newly placed division, presumably at normal or better American wages.
The Internet allows better and cheaper communications between offices and companies, but it also allows management to find cheaper, more pliable sources of labor. But even for the workers in India, the Internet must be a mixed blessing. On the positive side, our company will be providing decent jobs to its Indian workforce. Even mundane tasks like data entry are far less arduous that most kinds of manual labor. Our workers will likely enjoy wages and benefits that are superior to the alternatives in the Indian city in question. On the negative side, nothing prevents our company from playing this game more than once. Already, American firms have set up shop through the Caribbean and in parts of Africa to handle data entry more cheaply than they could in the United States.
I feel badly for my colleagues in America who will lose their jobs, not because they performed poorly, but because they cannot afford to forfeit the majority of their pay. I would think, however, that all of them will be able to find new jobs working for companies that want to keep operations closer to home.
But I would feel a great deal better if my company had decided to outsource some of that division's management. All of the arguments for moving low-level jobs to countries with lower wage scales work even better when management is involved. Managers in America have readily transferable skills, so they should have absolutely no trouble in finding replacement work. Managers in India will likewise have transferable skills, too, so working with them now means that when we leave for greener and cheaper pastures, we leave behind a skilled workforce able to run their own companies. Managers in India and other poor countries are much less likely to demand huge severance payments if they are fired, or large grants of stock options, or huge salaries. The last manager in charge of American operations at my company left with several million dollars in severance pay. In India, one-hundredth of that amount would probably do. And if the Internet allows data entry to happen ten thousand miles from management, it also allows management to be ten thousand miles from everyone else.
I cannot expect my company to be quite that progressive. But is there not one company that has a clear enough vision of its fiduciary duty to stockholders? Is there not one company with the foresight to see a real opportunity to save money where there is a lot of money to be saved? Is there not one company ready to smash to pieces the myth that every investment in the Third World need be some form of sweatshop?
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