Outsourcing Times

State Auditor Report raises questions on savings for Texas Health and Human Services Commission from outsource contract with Convergys

A recent report by the state auditor has indicated that the Texas Health and Human Services Commission has not succeeded in reaching the targeted $21.7 million savings from outsourced human resources and payroll functions to Cincinnati-based Convergys Corp. This has prompted Texas state senators to ask for the setting up of a legislative committee to examine all current and future outsourcing contracts of the Commission.

At this point of time, Convergys has not come forward with any comment regarding the reported lack of cost-saving results from the contract. A spokesperson of the Commission stated that the agency did not expect any money-saving results in the first year of contract; rather, it is expected that a total saving of $32.7 million will take place over the next five years. Austin Business Journal reports:

Barrientos and Sen. Eliot Shapleigh, D-El Paso, are asking Dewhurst to work with House Speaker Tom Craddick, R-Midland, to create a new, joint interim committee to analyze the findings of the state auditor and scrutinize the commission's contracts, Barrientos spokesman Ryan Duran says.   

India seeks to pressurize US and EU on outsourcing commitment at WTO ministerial meet

At the WTO ministerial meeting, India will seek to impress upon the world community the need for a commitment from member countries, in particular the US and the countries belonging to the European Union, to continue outsourcing to India and bring in trade reforms that will facilitate such outsourcing. Among such reforms is the lowering of custom duties. India is committed to permitting commercial presence in India and allowing cross border movement of services.

India will also take steps to improve services and trade. Within the G-33, India has been concentrating on security mechanisms, and calling for the removal of western agricultural subsidies. The government has also formulated various amendments to the TRIPs agreement, which will have repercussions on the obligations in the convention on biological diversity. This will help protect traditional knowledge and encourage "benefit sharing" with those who possess such traditional knowledge. The Financial Express reports:

As a part of its strategy, India, amid renewed bonhomie with the US and EU, has planned to aggressively seek a commitment from these countries on cross border services, specifically trade reform that would ensure outsourcing to India is not prohibited. India has put forward a services offer which makes fresh commitments on Mode 3 (allowing establishment of commercial presence) and Model 1 (covering cross border supply of services). It has also called upon the US and other nations to lower custom duties.

Read More: India to seek commitments on outsourcing at WTO meet

To outsource or not to outsource: the raging political debate in the US

India and China have been the leading outsource markets for companies based in the US, and the number of US-based companies seeking outsourcing partners in these countries is constantly on the rise. This has led to fears of loss of jobs within the US, and the issue has now become a public debate.

Inc.com reports that more than 35 states in the US are considering anti-outsourcing bills, and some states have gone a step further: Tennessee governor Phil Bredesen put his approval on a bill granting incentives to companies who refrain from outsourcing, and New York and California prevent access to public funds for companies who have outsourced work.

Forrester Research reports that over the next decade, outsourcing will result in the loss of 3.3 million jobs in the US. However, in spite of opposition, outsourcing continues to flourish. Inc.com reports:

Ironically, vocal opposition by politicians as well as extensive coverage in the media are both cited by the report as reasons for the recent surge in outsourcing. The report also says that a "second wave" of outsourcing will form where smaller, tech-orientated companies will follow the lead of large corporations in searching overseas for cost-cutting measures.

Read More: Outsource at Your Own Risk

Nuclear War Avoided Due to Outsourcing?!?

In what seems a rather interesting and incredulous take on the Indian Pakistani conflict, a writer for IndiaDaily speculates that nuclear conflict was avoided between India and Pakistan because of...outsourcing.  In the scenario, India and Pakistan were at the point of escalation when American corporations began to express a real financial interest in offshore outsourcing.  American corporations indicated that they wanted to invest heavily in India, but only insofar as the country remained stable militarily. 

This need caused Indian destination firms, who controlled much of the Indian corporate economy, to lobby the government for a peaceful resolution to the conflict.  Their efforts were successful and instead of beating the war drums, the Indian government made a genuine effort at peace negotation and war was avoided.  The answer seems a touch simplistic, but from a free market perspective it makes some sense.  It is generally agreed that a stable government brings greater foreign investment and that such investment improves the infrastructure and ultimately the standard of living for a particular country.  Whether corporate India would have been able to control the direction of the government in the midst of a run up to nuclear conflict seems a bit difficult to accept, but the underlying logic here works well. IndiaDaily.com reports:

Indian outsourcing oligarchs made enormous amount of money exploiting the youth of India to work for American projects at substandard salaries.  The world was saved from a nuke war that could have devastated South Asia.

Read More: It was American corporate leaders and Indian outsourcing oligarchs who convinced BJP not to attack Pakistan after Indian Parliament attack and avoid nuke exchanges

Sarbanes-Oxley Drives Work to Outsourcers, but Problems Still Linger

Accounting and financial disclosure firms around the world are benefitting from Sarbanes-Oxley's rigorous requirements.  Companies across the United States are deciding to outsource the arduous task of ensuring compliance with the bill rather than attempting to do it themselves.  This has meant jumps in profits as large as 35 percent from firms like India's Infosys.  Despite this rapid increase in business, however, outsourcing companies still face a hige challenge in maintaining their profitability edge.  First and foremost among these is turnover.  In some companies turnover exceeds 70 percent meaning that transition costs run high and the quality of work is lower than it should be.  The turnover is an indication of the increasing competition for labor, whose scarcity is driving up wages and eliminating much of the initial rationale for entering into outsourcing in the first place. CRM News reports:

Selling the end-to-end solution and getting the least risky processes as business.  This is the most challenging aspect of their collective long-term business models. 

Read More: Outsourcing's Double-Edged Sword: Trust

FAA Denies Protests to Outsourcing Contract with Lockheed Martin

In what has become a very high profile outsourcing showdown, the Federal Aviation Administration has defeated two bid protests this week which may have prevented the transfer of flight service jobs to Lockheed Martin Corp. in early October.  The FAA is attempting to enter into a 10-year, $1.9 billion dollar contract with Lockheed Martin to provide services such as weather briefings, flight restrictions information, and in-flight navigational advice to pilots of private planes.  Opponents contend, however, that the move will unfairly eliminate a number of federal retirement benefits for FAA employees as well as expose the FAA and citizens in general to unnecessary safety issues.  Despite the fact that the FAA has succeeded in defeating two cases regarding the legitimacy and safety of the transfer, they are not yet in the clear.  FAA employees have some hope that lawmakers will step in to block legislation, however, it how appears that much of the initial balking at the deal in congress was simply political grandstanding. GovExec.com Reports:

Lawmakers could pass legislation that would block the outsourcing, for example, though the effort appears to have lost some momentum. 

Read More: Options running out for opponents of FAA outsourcing

FAA Proceeds with Outsourcing Despite Two Protests Filed

The Federal Aviation Administration has rejected two challenges to its announcement last February to outsource 2,500 federal flight service jobs.  The two protests claim that there were significant procedural errors in the awarding of the work to Lockheed Martin Corp. and as a consequence the deal was invalid.  The challenges specifically argued that the in-house team was penalized for circumstances beyond its contral and because it failed to accurately account for costs that would be incurred through the Lockheed Martin venture.  Essentially the claims argued that the in-house team had not been given a fair shot to keep the work in-house.  An independent judge ruled recently however, that the protests would be denied and the contracts could proceed as planned.  While there is some speculation that the protesting groups may appeal the case nothing has been definatively stated on the issue.  A bill going through the US Senate may make all this meaningless however, as it explicetly prevents the FAA from giving jobs to a contractor.  If it is passed, it is widely assumed that the contract with Lockheed Martin would become nullified. GovExec.com Reports:

The House, for example, recently voted in favor of an amendment to the fiscal 2006 Transportation-Treasury appropriations bill (H.R. 3058) that would prevent the FAA from giving the jobs to a contractor.  The Senate is crafting its version of the bill this week.

Read More: FAA rejects appeals of outsourcing decision

Read More: FAA rejects appeals of outsourcing decision

Indian PM Singh Promotes Outsourcing in Good Will US Tour

During a four day good will tour through the United States, Indian Prime Minister Manmohan Singh presented his pro-outsourcing case to American corporations and indirectly to the American public.  While the trip did not reveal anything which demonstrated a remarkably new direction for India, it did point to the growing integration of the Indian economy with that of the US and its reliance on America for so much of its technology employment.  Throughout the visit PM Singh reiterated his argument that outsourcing was beneficial for all parties involved and that it was a direct consequence of globalization.  In drawing this tie Singh is making the case that outsourcing is not a consequence of governmental interference in the global economy, but rather is simply a natural development of broader changes in the global marketplace.  This is in an effort to combat those within the first world that are arguing that western workers are overall more efficient and productive than their Indian counterparts but that they are victims of India and other countries efforts to produce for their domestic workers an unfair advantage.  It is his hope that by diffusing the situation early, India can avoid the kind of wrath that Chinese companies have taken for their countries monetary policy.  CIOL Reports:

"Outsourcing is not a one-way beneficial string.  Just as America's outsourcing has helped Indian firms, it also is a source of strength to American corporations.  In a competitive global economy, the fact that outosurcing lowers cost of operations of American companies and enables them to compete more effectively against their competitors not only in the US market but also in the global markets," Singh said.

Read More: Globalization led to outsourcing: PM

Organized Labor Appeals to Security Issues to Slow Outsourcing

A recent report indicates that British Gas (BG) is planning to cut 2,000 jobs from its Manchester offices and move 1,000 of these jobs to India.  This has, unsurprisingly, caused quite an uproar within the organized labor community in Great Britain.  Of particular interest in this case, however, is the approach labor is using to combat the measure.  After achieving little success in halting the larger outsourcing movement by appealing to wage and justice issues, the labor movement is now arguing that offshore workforces do not provide a secure environment for sensitive information.  They are referring of course to the recent spate of incidents in which sensitive information was compromised by Indian workers in Indian firms.  This has led to a wave of concern in the western world about identity theft.  The success of this approach remains to be seen.  If labor can portray the condition of information in Indian offshore companies as unsecure they may succeed in getting legislation requiring more secure measures be taken.  This will, in effect, increase the cost of doing business in offshore locations such as India and curb the flow of companies shifting work abroad. The Financial Express reports:

In the release, Steve Bloomfield, Unison's head of utilities, terming the job losses as "completely unacceptable", says: "Offshoring also brings its own problems of data protection and regulation of customer information." According to Unison, British Gas plans to move backroom work to India where the company claims they can make a 400% saving in operation costs.

Read More: British TU threatens stir against BG's India plans

Outsourcing Deal Leads to Florida Republicans Financial Scandal

The US education system is seemingly a never-ending market for generating reports of inefficiencies and idiocy.  Many of these criticisms are undeserved.  Recently, however a number of individuals are criticising the Tallahassee school district for outsourcing spam protection for their website.  Previously the service was provided for free from Florida State University in an effort to get teachers and students online at a minimal cost. Fear of liability issues and a slew of lawsuits was the purported reason for moving the work to an outsourcing destination firm.  But now critics are concerned that the government's inefficiency in the matter may indicate back room payouts rather than mere costs associated with an outsourcing contract.  The project, which was once free mind you, is now costing school districts like Manatee County $437,000.00. The company is also reportedly providing very sub-par services as e-mails are inundated with spam, the supposed reason for paying the company in the first place.  All this has added up to create a bit of a scandal.  Complicating the story is the fact that Gov. Jeb Bush's one-time campaign manager is the lobbyist that was representing the company in the deal.  All in all, this is a lesson that if outsourcing is not done with cost efficiency as the first priority, it can tend to be a very bad deal for the people it is supposed to serve.  Tallahassee.com Reports:

Hayes took over the contract, FIRN2 was born, and several things happened as a result.  The first was a loss of $7.63 million from the USAC, which concluded that, contrary to its funding requirements, "price was not the primary factor" that the state used in awarding the contract to Hayes.

Read More: Outsourcing is filling your box