Outsourcing threatens middle class

Inexpensive global labour, made accessible by technology, will impact the lives of billions of people and challenge the livelihoods of the middle class, Anwer Sunderji, Chairman and CEO of Fidelity Group told attendees of the Cayman Business Outlook Wednesday.

‘Outsourcing, in the context of jobs, simply means sending certain job functions to other companies or persons to discharge,’ Mr. Sunderji said, noting that Fidelity Group already outsources certain recruitment, marketing and advertising aspects of its business to other local companies.

‘All of you are aware of many similar instances where your companies outsource certain functions to others, who carry them out more cost effectively and efficiently, from IT services to providing you with accounting and human resource support.’

With Internet technology, however, outsourcing certain functions no longer has to be done locally.

‘What is different now is that over the last decade, rapid advances in technology have allowed some of the three billion Indian, Chinese and former citizens of the Soviet Union to compete for jobs in the developed world at a fraction of our cost,’ Mr. Sunderji said. ‘Although many of these people are poor by our standards, the number having an advanced education and sophisticated skills is larger than the populations of many first world countries.’

Advanced Internet technology and lower communication costs have put those three billion labourers in our backyard, Mr. Sunderji said.

‘What this means is that labour, particularly for tasks that can be digitized and transferred across the Internet, will remain very cheap for a long period of time.’

The enormous labour pool will ensure people are paid what they are worth on a global scale, rather than a local scale, and that there will be an accelerating transfer of jobs to India and elsewhere until labour rates equalise, Mr. Sunderji said.

‘This latest iteration will dramatically change the balance of economic and political power.’

The trend will cause the middle class in Europe, the United States and Japan to lose jobs to outsourcing and penalise unskilled workers in those locations, Mr. Sunderji said, noting the Caribbean is not immune from the economic forces.

Mr. Sunderji said India, with a vast pool of relatively well-educated and English-speaking people, has rapidly positioned itself to do high-value processing jobs, which are common to every industry.

‘This is where the biggest threat to the Caribbean economies comes from,’ he said. ‘This pool of educated, English-speaking persons who are prepared to do the bulk of the processing jobs we do at a fraction of the cost; no work permit required.’

Mr. Sunderji said the future of the middle classes in places like Cayman and the Bahamas revolve around the retention of white collar jobs.

‘And it is precisely these jobs that are the most vulnerable to being outsourced or offshored,’ he said.

Any job that can be done without customer contact is vulnerable to outsourcing, Mr. Sunderji said.

‘The bulk of what we do in our financial services industry is process transactions which have limited contact with the client.’

With wage inflation in Cayman in certain skills exceeding 15 per cent per year, businesses are being forced to address the issue of cost.

‘Can we, or more accurately, our clients to whom we pass on these increased costs, afford to pay for our services?’ he asked.

Mr. Sunderji brought up the example of accounting firms in Cayman.

‘At some point in time, in order to stay competitive with companies, which are already [offshoring], the accounting firms will have to address what portion of their services they can effectively offshore,’ he said. ‘And it may not necessarily be to India. It could be to Jamaica or Trinidad in the first instance, because the logistics would be much easier.’

Mr. Sunderji said there was nothing to prevent companies from choosing to locate their front offices in the jurisdiction that affords the best legislation, predictable politics and comfortable living conditions, and to have their entire back offices in jurisdictions that afford the highest productivity at the lowest costs.

While Mr. Sunderji said he believed the overall trend of outsourcing was irreversible, Cayman does have actions it could take.

‘To survive in this interconnected world, we had better offer services at a price no one else can, or do what we do far better than anyone else can do,’ he said. ‘And we had better be getting on the outsourcing and offshoring boat rather than hoping is doesn’t dock at our port.’

Mr. Sunderji said Caymanians must strive to move up the economic food chain through a combination of special skills, higher education and professional certification or they would risk sliding down the ladder to low-paying jobs where the benchmark in compensation is set by their counterparts in India or China.

‘As we consider these new threats, we need to review whether the tourism and hospitality sectors in Cayman should not be more indigenous in labour,’ he said, pointing out that the Atlantis Resort in the Bahamas employs 8,000 Bahamians and fewer than 100 expatriates.

‘Restaurants, hotels… will not be outsourced and offer the greatest stability for the local job market,’ he said.

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