July 6, 2016 4:11 pm | Updated 3 months ago.
Brexit: Ethical issues associated with Offshore Outsourcing
Before we start looking at the ethical issues associated with Offshore outsourcing, especially after Brexit, let us take a brief look at how offshore outsourcing evolved and at what point in time the issues started becoming more ethical, rather than cultural or technical.
Progression of IT Offshore Outsourcing
At the beginning, quality assurance offshore outsourcing started as more of a cost saving initiative, with the customers outsourcing a few simple applications to one or more vendors. As the customers began to see success with this model, they started outsourcing more complex applications and very quickly the process evolved in the late 90s to customers outsourcing business critical applications and business processes. When we analyze this evolution in a little more detail, in the initial stages of outsourcing, the customer employees who were involved with the applications being outsourced, generally moved up the ladder to shoulder bigger responsibilities within the customer’ organization, typically in business critical areas and also spend some time in supervising the vendor personnel deployed in the outsourced engagements. Because of the close relationship between the employees of the customer’ organization and the employees of the vendor organization who started in the offshore engagements, no ethical issues were observed either at the client end or at the vendor end.
The ethical issues, however, started surfacing as the size of the outsourcing engagements grew substantially larger, to the point when the customer’ organizations, to keep the outsourcing initiative cost effective, had to terminate the employment of some of their employees who were working on the engagements that were outsourced. Some vendor organizations, mostly the large established vendors and MNCs, had programs in place to re-badge the displaced employees of the customer’ organization, but these cases were a very small percentage of the overall outsourcing landscape as the re-badging affected the cost structure on the vendor side. Also, the vendors possibly had to use sub-optimal infrastructure, a) being unable to cope with the rapid growth b) trying to adjust to the cost structure amidst intense competition in the outsourcing space. The situation also got a bit more complicated with the advent of “Human Cloud”, where using an online platform, the customers could demand from a pool of virtual workers, services like content generation, sales, and marketing, but had no knowledge of who was providing services and under what work environment etc.
These ethical issues have now become highly visible, and also to some extent have become political with the Brexit referendum clearly demanding greater control and also demonstrating anti-immigrant sentiments. Even prior to Brexit referendum, a number of large conglomerates had started Re-shoring that offshore engagements and it is possible that this process may get accelerated from the Brexit referendum.
Here is D2E’ analysis of the ethical issues that are being raised today from large-scale offshore outsourcing, both at the customer’ end as well as at the vendor’ end. It is D2E’ opinion that all of these issues can be managed and should be managed by the management of the customer’ company and the management of the vendor’ company working together.
D2E’s opinion on managing Ethical Issues
A. Ethical Issues at Customer’ end:
i. Negative work environment resulting from the reduction of employee control over their situation: The employees of the customer’ organization feel uncertain about their future and even feel insulted if they are asked to transition knowledge to the vendor staff, knowing that the vendor’ staff is going to replace them sometime soon.
ii. Destroys production capacity and skills: It is possible that the demand for the skills that are massively outsourced may be significantly reduced in the home country and, therefore, people may be less interested in acquiring these skills. This, over a period of time, may create severe skills shortage in some areas in the countries that outsource very large engagements.
iii. Destroys innovation in the areas specific to offshore outsourcing: This is a corollary of the point above. Once the employees know that certain applications or areas are likely to be outsourced by the management, they will be less passionate about further innovation in those areas.
iv. The organizations that are massively outsourcing are driven purely by profit motive: The employees of the organization that is outsourcing usually feel that the management is doing this purely to increase the profit of the company, while there may, in fact, be several strategic reasons to outsource that may need to be explained.
B. Ethical issues at Vendor’ end:
i. Sweatshop: In D2E’ opinion, this was possibly happening in the late 90s and maybe in early 2000, but in the recent past most vendors have facilities that are comparable to those in the western countries.
ii. Low wages: Again in D2E’ opinion, this was possibly the case 10 to 15 years ago. Today, with most of the western countries having put strict immigration guidelines and minimum wages criteria, the salaries of the onsite staff of the vendor company need to be in line with the professionals in the country where they are based. The analysis of the wages in the offshore location needs to take into account the cost of living and also salaries of similar professionals in the other industries.
iii. Not willing to adapt to the Customer’ culture: In D2E’ opinion, this is possibly the area where the offshore vendors need to put in significant management attention. It is natural for the customer to expect that the vendor staff should adhere not only to its work culture and security needs etc. but also, to the extent possible, to soft issues like language skills, hygiene, attention to detail etc.
In conclusion, it is D2E’ opinion that all the ethical issues relating to the offshore outsourcing need to be jointly managed by the managements of the Customer and the Vendor, and an Aggregator platform can provide a central point for this coordination and management.