INFORMATION TECHNOLOGY (IT) OUTSOURCING – SOCIO-

POLITICAL, ECONOMIC AND SECURITY IMPLICATIONS FOR

CANADA AND INDIA

By

SANTHOSH VARGHESE

Integrated Studies Project

submitted to Dr. Paul Kellogg

in partial fulfillment of the requirements for the degree of

Master of Arts – Integrated Studies

Athabasca, Alberta

November, 2012

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Table of Contents

Abstract ..................................................................................... 3

Dedication .................................................................................. 5

Acknowledgements ...................................................................... 6

Introduction ................................................................................ 7

What is Outsourcing? ................................................................... 8

Key Characteristics of the contemporary IT Industry ........................ 8

IT Outsourcing in General ............................................................ 10

IT Outsourcing from Canada ........................................................ 16

A Personal Perspective ................................................................ 17

Impacts in Canada...................................................................... 19

Social and Economic impacts in India ............................................ 29

Synopsis and Conclusion ............................................................. 33

Works Cited ............................................................................... 37

[3]

Abstract

Information Technology (IT) outsourcing has now become a common

phenomenon among most of the developed and some of the

developing countries. However, despite the reported cost savings,

access to skills, innovation, revenue growth etc., it has its own

drawbacks. The objective of this paper is to study the socio-political,

economic and security impacts of outsourcing of IT primarily in relation

to Canada but with some comments on their impacts in India. This

issue has a personal dimension for the author, as my own job was

“migrated” to Bangalore, India.

The paper explores IT outsourcing scenarios, which are creating

quite a drain of high paying jobs. Young Canadians are increasingly

finding it difficult to establish IT Careers. Enrollment in schools for IT

programs is also being impacted due to the difficulty in getting good IT

jobs (in part because of outsourcing). Outsourcing publicity by private

sector companies who specialize in outsourcing is also a contributing

factor.

This paper looks at the effects on society, the community at

large and political landscapes of both Canada and India. It looks into

how it impacts unemployment, buying power and cyber security of

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data, systems and network infrastructure. I will also provide a small

“window” into the issue through my personal experience.

[5]

Dedication

This paper is dedicated to my parents, who have always believed in

me and who have helped me to be where I am today.

[6]

Acknowledgements

I wish to thank the Lord for giving me the opportunity and resources

for embarking on this program. My sincere gratitude goes to Dr. Paul

Kellogg, my research supervisor who has been extremely helpful with

his guidance and support. Lastly, I wish to thank my wife, my

daughter and son who have been patient and supported me in my

quest towards this master’s degree.

[7]

Introduction

Information Technology (IT) outsourcing has been prevalent since the

early 90’s. IT outsourcing and offshoring have become mainstream in

the last few years. Among the industrialized nations, the United States

is the nation that outsources the largest volume of IT services.

Canada’s IT and non-IT outsourcing began to intensify with the signing

of the North American Free Trade Agreement (NAFTA). Most IT related

services are outsourced to India and other nations such China and the

Philippines. The most prevalent reason for outsourcing of IT services is

cost savings. However, IT outsourcing and offshoring have their own

drawbacks.

Outsourcing has led to many information technology jobs being

shipped out of the country. This has resulted in a loss of high paying IT

jobs for Canadians. Subsequently young Canadians find it difficult to

obtain IT jobs. The publicity by private sector companies encouraging

outsourcing does not help either. North America has now started to

experience the impact of globalization, which it seemed to be immune

from for a long time.

The purpose and objective of this paper to shed light on growing

IT outsourcing trends, to identify some of the socio-political, economic

[8]

and security implications associated with this phenomenon primarily in

relation to Canada with some comments on the implications for India.

What is Outsourcing?

Outsourcing is defined as contracting with a third service provider for

the management and completion of a certain amount of work, for a

specified length of time, cost, and level of service (Oshri, Kotlarsky, &

Willcocks, 2009, p. 4). Offshoring refers to the relocation of

organizational activities (e.g. IT, finance and accounting, back office,

human resources) to a wholly owned subsidiary or an independent

service provider in another country (Oshri, Kotlarsky, & Willcocks,

2009, p. 5). If the organizational activities are relocated to a

neighbouring country it is called nearshoring (e.g. Canadian

organizations relocating their work to the US or Mexico). In regards to

Information Technology (IT) most of the services outsourced are

offshore.

Key Characteristics of the contemporary IT Industry

IT plays a crucial role whether in medical sciences, transportation,

business, or in commerce and industry. It has transformed many

processes that were labour intensive and manual in nature. Production

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and assembly lines have seen great improvements. IT has made it

possible to simplify collection of data and its usage. Typically, it is

considered to be a white collar profession.

The key characteristic of the IT industry is the rapid change with

which it is often associated, often referred to as “clockspeed”. As

Mendelson and Pillai indicated, clockspeed refers to the speed of

change in a business environment (R.Pillai, 1998). It highlights the

drastic speed at which relentless change occurs in IT. This can be

seen in the case of Intel or AMD with their chipsets. Chipsets are

constantly being improved upon for reliability, stability and enhanced

performance. New information arriving at unprecedented rates has to

be processed quickly and effectively. Product life cycles are shrinking,

software development times are being compressed and operations

keep accelerating. Technologies that used to be considered state of the

art and top of the line, are increasingly becoming obscure due to the

advent of newer, faster and more user friendly versions.

Another emerging trend in the IT industry is the constant search

for ways to reduce the cost of doing business. For this purpose IT

organizations are flocking towards nations that offer IT service at a

lower cost. In other words, they are outsourcing, offshoring their work

to other nations which can do the same tasks at a lower cost. In this

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regard, the outsourcing of white collar jobs to countries such as India

has been making big news in the western world.

There has also been a sharp increase in demand for IT workers

in the 21st century. The incremental increase in outsourcing from the

west has resulted in protests from the IT professionals and state

governments alike. IT professionals are not comfortable seeing their

jobs being outsourced. Some states in the US have brought in

legislation that requires services to be contracted from companies

based in their own states or to require that the vendor declare in

advance if services being provided will be performed outside the

United States. Many American, European and to a lesser extent

Canadian companies have experienced some backlash over job losses

due to IT outsourcing. US officials often joked that President Bush had

sacked the elected members of Congress and was replacing them with

staff hired in Bangalore, to help cut the budget deficit (Chithelen,

2004).

IT Outsourcing in General

Outsourcing has become an integral part of the division of labour.

When a producer finds that it is more economical for a part to be

produced offsite, then that part is outsourced. Offshoring is no longer

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restricted to the manufacturing sector. Since the late 1990s we have

witnessed rapid growth in the offshoring of services, which might

ultimately have much more profound implications than offshoring in

manufacturing proper (Paus, 2007, p. 5). With the advances in

information and communication technologies (ICT), it has become

easy to offshore IT enabled service. These services include call

centres, data entry, accounting, software services, professional

services and a range of other back office functions.

The widely cited study by Forrester Research predicted the

number of jobs off-shored from the United States may reach 3.4

million by 2015 (McCarthy, 2004). One of the key factors in the

enhancement of globalization processes and the labour market is the

entry of India, China, Central and Eastern Europe into the world

economy. According to Freeman (Freeman, 2005), these countries

also have large number of highly skilled/educated workers as a result

he says, the “great doubling” has dramatically increased competitive

pressures not only in the production of low-wage, unskilled labour

intensive goods but also in the technologically more sophisticated

products and in IT enabled services. The “great doubling” according to

Freeman stands for the drastic increase in the size of the world labour

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pool from 1.46 billion to 2.93 billion workers (essentially doubling of

the global work force).

Top executives are highly motivated to outsource and cut wage

costs, more so after a competitor has done this. This is very evident

among the big four consulting firms (PwC, Deloitte, Ernst & Young,

KPMG) (The Economist, 2012). Finding cheaper labour is an easy

short-term fix to help cut losses and raise profits. Rising profits mean

larger bonuses and other big financial gains for top executives

including generous self-awards of low priced stock options and grants

at most publicly traded companies.

Until the mid-1990s Indian companies were hired to do mostly

tedious work – writing repetitious code for software programs and so

on. Then in the mid-1990s the Y2K issue (the fear that unless older

computer systems were patched up or upgraded they would crash or

cripple operations when the date switched to the year 2000) boosted

the demand for IT Services. Many of my friends moved from India to

Canada and United States during this period on Y2K projects. Y2K

fears led to an influx of IT professionals from India into the U.S and

Canada. A few years later, the very jobs these professionals have been

drawn to were being threatened by outsourcing to India.

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Nandan Nilekani, head of a leading Indian IT Firm, Infosys

Technologies, was quoted saying at the World Economic Forum in

January 2004, “everything that you can send down a wire is up for

grabs” (Lohr, 2004). The irony of the trend is that Indian IT

professionals in Canada and USA are now themselves being hurt by

the partial success of the Indian educational system, which originally

got them their well-paying jobs in the west (Chithelen, 2004).

Although cost savings are an important reason for outsourcing, the

second most important is the ability to focus more company resources

on the core parts of operations – activities that provide a unique

competitive advantage (Corbett, p. 2004). Provided below is a chart

that depicts the top eight reasons for outsourcing according to a

survey of attendees at the Outsourcing World Summit-2004.

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Figure 1.1 – The Top Eight Reasons for Outsourcing

Source: The 2004 Outsourcing World Summit (Corbett, 2004)

Every organization today strives to stay competitive in this rapidly

changing global economy. The question remains at what cost? Large

organizations are buying smaller ones and expanding their clout in

doing business. Big banks are buying small banks in record numbers

through mergers and acquisitions, both here in Canada but more so in

the United States. TD bank acquired Canada Trust in 2000, Royal

Bank of Canada acquired Admiralty Bancorp of Florida, Barclay’s

Private Banking, Men’s Assurance Company of America in 2002,

Abacus Financial Services and Dexia in 2005, American Guaranty and

Trust, Flag Financial Corporation, Amsouth and Daniels and Associates

INNOVATION (3%)

CONSERVE CAPITAL (3%) IMPROVE QUALITY (3%) GROW REVENUE (4%)

ACCESS TO SKILLS (9%) VARIABLE COST STRUCTURE (12%)

IMPROVE FOCUS (17%)

REDUCE COSTS (49%)

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in 2006. In 2007 RBC acquired RBTT,Alabama National

Bancorporation, Seasongood & Mayer,J.B.Hanauer & Co. (Bank, 2010).

The list goes on and on, the most recent acquisition in Canada being

Bank of Nova Scotia buying ING Bank of Canada (Robertson, Nelson, &

Erman, 2012). Although these banks were said to be “too big to fail,”

this is exactly what happened to many of them in the United States in

the wake of the great recession. This intensifies the pressures toward

outsourcing – a necessary response to today’s extremely competitive

environment.

Proctor & Gamble (P&G) began a pilot project in 2001 to explore

the advantage of globally sourcing some of its information technology

work specifically in software development. What P&G found was that

offshore labour rates were on average about one-fifth of those in the

United States or Canada. For example, a contract Java programmer

that might cost $98 an hour in Cincinnati cost $20 to $22 in India or

the Philippines (Corbett, 2004, p. 40). P&G found that the rates,

competition and work ethic were some of the factors that created an

offshore cost advantage.

Taking the operations offshore (offshore outsourcing) has been

getting unprecedented attention. Some argue that outsourcing offers

one of the most important advantages for improving the organization’s

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bottom line. However, others argue that it is just another example of

short-sightedness, companies only looking at the short term gains

made at the expense of long term damage to employees and

customers.

IT Outsourcing from Canada

Canada has witnessed its fair share of job losses as a result of

outsourcing of information technology (IT) service. Much of this can be

traced to the introduction of the North American Free Trade Agreement

(NAFTA). Contrary to promises that NAFTA could create jobs in

Canada, it made outsourcing to Mexico very attractive to many US and

Canadian companies, especially in manufacturing. In terms of software

development, India is the undisputed leader with two-fifths of Fortune

500 companies outsourcing software requirements to that country

(Matoo & Wunsch, 2004).

Globalization has also played a role in the scattering of Canadian

work. Mergers and acquisitions have led to the parent companies

outsourcing major chunks of IT Operations. Many of Canada’s financial

institutions have outsourced all or part of their IT departments. In

2002, CIBC inked a $2-billion contract with HP to provide it with

“comprehensive IT services” over the next seven years. In 2001,

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Laurentian Bank outsourced its IT services to CGI Group and

Scotiabank outsourced its computer operations to IBM Canada. Even

the Bank of Canada got into the act by outsourcing the data and

support services for its Canada Savings Bond program to EDS Canada,

transferring 500 workers to EDS (CBC News Online, 2006). The Royal

Bank of Canada outsourced its application development work to iGATE

an outsourcing firm headquartered in India (Goolsby, 2005). Some of

the outsourced work that is given to Canadian companies is in fact still

sent offshore to their subsidiaries. For example, Sears Canada recently

outsourced its mainframe support to IBM Canada which in turn sent it

to IBM India. The Big four consulting firms have also established major

presence in India and China and subsequently have outsourced their

work to Delhi, Bangalore, Beijing, Shanghai etc.

A Personal Perspective

I used to work for one of the big four consulting firms. One fine

morning Tata Consulting Services (TCS) Indian staff came over to our

department and started shadowing us (following the professionals and

observing our daily work). They did the same to Desktop, Server,

Network, and E-Learning teams. All these teams had TCS employees

shadowing them and learning various system process and procedures.

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After two months of learning and recording all the details, they were

gone. We were then told that certain portions of our job would be

handled by TCS employees located in Bangalore. They were connected

to our systems remotely and started providing support. This was a

learning curve for them, and we would rectify errors that were made.

We knew that the writing was on the wall and it was only a matter of

time before we lost our jobs. Shortly there after, all our tasks were

being done by TCS folks in Bangalore.

Then came the final nail in the coffin. We were told that our

services were no longer required and were let go. Several IT staff

members including myself were given a package and were told to

leave as our jobs had now been fully outsourced to TCS. Many of us

felt betrayed as we had worked very hard and efficiently over the

years. But it was all in vain. There was a sense of disappointment,

sadness and helplessness. TCS had in fact won the outsourcing

contract to run this organization’s IT operations which were in UK, USA

and Canada to Bangalore, India. Our IT counterparts in US had a

larger fall out as they were greater in numbers, and saw more of their

jobs outsourced.

According to a recent report, Canada stands to lose 75,000 IT

jobs, unless we reposition ourselves as a near shore venue for US and

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European companies (Pricewaterhouse Coopers, 2004). Indian

companies that attract global services through outsourcing in areas

such as software development, are also becoming competitive

multinationals opening offices in US, Britain and Canada to supplement

their Indian operations (Goldfarb, 2004). In Canada for example, Tata

Consultancy Services (TCS) has their Canadian headquarters located in

Mississauga, ON. Infosys, another Indian giant has opened up offices

in Toronto besides other cities. Wipro has their offices in Mississauga,

ON. L&T Infotech, an India based technology company has also

opened up shop in Mississauga, ON and so on.

Impacts in Canada

Information Technology jobs that are being outsourced to offshore

locations are comprised of IT functions such as development and

maintenance of software application, support for the users of software

applications, the development and support of web applications, system

design and integration and support for network systems. This is the

bread and butter for any IT professional. It is difficult to explain how

one feels when this is taken away from them. Outsourcing of IT jobs to

offshore locations definitely has its advantages at the same time it also

has its drawbacks.

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Loss of Employment

Outsourcing inevitably leads to loss of employment for workers. To the

workers, this is an example of corporate managers making financial

gains by destabilizing workers’ earning potential. Yes, it might improve

the company’s bottom line, however it leads to unemployment. This

leads to an increase in the number of unemployed. An increase in

unemployment leads to an increase in the supply of skilled workers.

This often puts pressure on the worker to seek other sources of

income often in a lower class of employment. According to a study by

Harrison and Bluestone (1982), workers whose jobs have been

outsourced experience occupational decline or “occupational skidding”

which leads to a reduction in pay, job status and overall satisfaction

(Harrison & Bluestone, 1982).

Loss of Income

Losing your employment leads to a loss of income. It impacts the

standard of living of the individual and their families. It effects their

buying power. The American or the Canadian dream suggests that

anyone can become middle class if they choose to work for it. The loss

of any jobs to India or China creates a psychic insecurity that is

greater than the net loss of jobs (Buffington, 2007).

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Quality Risk

Quality risks vary, depending on the type of IT work that is

outsourced. In programming work, the risk is that the software will be

less efficient, or, in more extreme situations, “buggy” (SHRC Software

Human Resource Council, 2004, p. 12). In system administration,

being careless can cause serious system outages. Business Week

describes examples of off shored programming work where these risks

materialized and resulted in costs that exceeded the alternative of doing

the work in-house:

“Keith Franklin, president of Empowered Software

Solutions in Burr Ridge, Ill, loves offshore outsourcing. It means more work for his 40-person company. Just last

year, ESS, which specializes in developing applications for Microsoft’s .Net platform for Web services, earned

$500,000 in revenue from fixing buggy software written in India. It took ESS five months to repair a glitch-filled

application for a Web portal. Most pages on the site were not connected, turning updating into a nightmare. Some

code was missing.

The shoddy work didn’t come cheap, either: The Indian outsourcer went $1million over budget. Franklin

says he could have done the project for less than $900,000 right here in the US” (Business Week, 2003).

IT Security Risk

There is an inherent risk in getting programming for proprietary

software done overseas by foreign programmers. It is possible that the

intellectual property rights could be at risk when the work is done

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overseas. To some extent this is safeguarded by Trade Related Aspects

of Intellectual Property Rights (TRIPS) provisions of the World Trade

Organization. Both India and China are signatories to the agreement

but the legal standards are less rigorous than in Canada or the United

States and hence there is more vulnerability (SHRC Software Human

Resource Council, 2004, p. 13).

IT Security risks pertains to the security of data and network

security. It is critical that companies are aware of the ramifications of

having their systems being handled by third parties. There have been

multiple instances of security breaches of data in various outsourcing

locations including India, Russia, the Philippines and Pakistan. In one

instance, in 2002, Geometric Software Solutions Ltd. (GSSL) a

company based out of Mumbai, India fired Shekhar Verma from his

position as a computer engineer (Fitzgerald, 2003) (Garfinkel, 2004).

The Mumbai based GSSL was doing some debugging work for

Massachusetts based SolidWorks Corporation a subsidiary of the

French company Dassault Systemes SA.

Verma had obtained the source code for SolidWorks 2001 Plus, a

critical product of the company and had sent out emails to SolidWorks’

competitors, indicating his possession of this source code. One of the

competitors in turn informed the US Federal Bureau of Intelligence

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which in turn sent an agent to New Delhi. The FBI worked with India’s

Central Bureau of Investigation (CBI) and the undercover American

agent started negotiating with the Verma on the price. They finally

settled for $200,000 and the deal was stuck. Soon after agents from

the CBI arrested Verma. According to an interview by Upfornt eZine

with Laura Kozikowski of SolidWorks, the source code is worth

between $70 and $90 million (Upfrontezine, 2002). Verma was

charged under a general civil theft law with a secondary charge of

criminal breach of trust against his employer, GSSL. He was also

charged under the copyright law.

Despite Verma being caught red-handed there was confusion in

the case as the source code did not belong to GSSL. Technically he

didn’t steal from an Indian company, thus Indian laws did not

necessarily apply. India has since taken steps to ensure that it takes

foreign intellectual property seriously. This came in the form of IT Act

of 2000, which covers data security and cyber crimes and the Indian

Copyright Act, which provides protection to intellectual property and

computer programs (Suri, 2005).

Some observers say that other countries vying for outsourcing

dollars are even worse when it comes to providing legal protection for

intellectual property (Fitzgerald, 2003). Similar incidents of data

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security breaches have occurred in Russia. An instance of source code

theft occurred to Alibre, Inc. which accused a Russian employee of

stealing the source code for Alibre design and then re-releasing it

under the title “RaceCAD” (Business Wire, p. 2003). Like the previous

example Alibre found it difficult to convince Russian authorities to take

strong action against the developers of RaceCAD. For software

developed outside Russia, the copyright law of the country where it

was developed is recognized, however enforcement can be tricky.

When certain jobs/services are outsourced, the impact is not

really known to the client. This is especially true when outsourcing

jobs are sub-contracted to other parties. The University of California

at San Francisco (SCSF) Medical Centre found out that confidential

patient records of its patients were being threatened with public

disclosure by a Pakistani medical transcriber. The apparent reason for

this move was because Lubna Baloch, the Pakistani transcriber had not

been paid the $500 which was owed to her by her contractor. The

university in turn launched an investigation which found a chain of

subcontractors about whom UCSF was completely unaware. As a

result of this incident, some of their subcontractors saw their jobs

disappear. Lubna was barred from getting any more work from UCSF.

These incidents indicate some of the risks involved in outsourcing.

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Time Zone Impediments

Outsourcing of projects to far-flung offshore locations can be difficult

to manage from the host nations especially if the time zones are far

apart. Even though outsourcing might facilitate round the clock

development work, managing a project from Canada can be difficult.

For example, the time difference between Toronto and Bangalore is 9-

1/2 hours - Bangalore is almost ten hours ahead of Toronto.

Deterrent to Joining the field of Information Technology

When IT outsourcing is on the rise from Canada, it deters prospective

students from joining Information and Communication technologies

(ICT) courses. The motivational element simply does not exist when

they see many IT jobs being outsourced. The number of new

graduates joining the Information and communication technology has

become a critical issue for Canada. Enrolment in post-secondary IT

disciplines has dropped dramatically – between 30% and 50% in some

cases (Boisvert, 2008).

At present, the number of IT graduates is insufficient to meet

industry requirements as per the Outlook for Human Resources in the

Information and Communications Technology Labour Market 2008 to

2015 Summary Report (ICTC, 2008). Besides outsourcing, some of the

[26]

factors for this shortage, according to the report, are the inability of

these schools of computer science and information technology to

attract and retain students. According to Stephane Boisvert, President

Enterprise Group, Bell Canada recently in a technology meeting

highlighted the fact that offshoring of IT is having a negative impact

on people considering IT careers (Boisvert, 2008).

Political Aspect

Outsourcing is a political issue. During the 2012 US presidential

election, President Obama accused Republican challenger Mitt Romney

of being at the reigns of a firm that invested in companies that

outsourced their jobs. Mr. Romney in turn labelled Mr. Obama the

“outsourcer in chief” for providing billions of dollars to foreign based

firms that end up making products outside the United States (Shear &

Oppel, Jr., 2012).

In Canada, Ontario in particular seems to be keen on

outsourcing IT services. The Government of Ontario responding to

fiscal difficulties has initiated two pilot projects to outsource some of it

IT Operations (Solomon, 2012). This above scenario is ideal when the

Canadian dollar is at par or above the US dollar. Ironically, the

Government of Ontario, is touting Ontario’s near-shore advantage for

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high value outsourcing (Invest in Ontario, 2011). The near shoring

advantage exists when the Canadian dollar is low, unfortunately, when

the Canadian dollar is at par or above the US dollar, this advantage

disappears. There has to be serious effort from the federal government

to promote ICT starting from our schools. Canada seems to be

complacent when it comes to IT outsourcing and the government and

private sector need to look into the broader implication on an urgent

basis.

Brain Drain

Unemployment of highly skilled workers can lead to brain drain. This is

not unusual behaviour, but to be expected. When educated, skilled

workers find their jobs outsourced and are unemployed, it naturally

forces them to gravitate towards nations that offer them opportunities.

This type of brain drain has a negative impact on Canada. The key

factor is ‘opportunities’ – when opportunities don’t exist, the people

look for other options.

The Indian Institute of Technology (IIT), a premier technology

institution in India, was losing many of its graduates to the United

States due to lack of opportunities in India back in the 60’s, but this

scenario has completely changed now. There is a reverse brain drain

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happening and expatriate Indians are leaving the US in large numbers

to go back to India where they find better opportunities (Ahmed,

2010). There is also significant brain drain from Canada to the United

States in various occupations. According to Statistics Canada however,

the net loss of knowledge workers to the US is offset by Canada

getting more university graduates via immigration (Zhao, Drew, &

Murray, 2000).

We cannot sit back and find solace in the fact that since we are

getting more qualified immigrants, we should be fine. The brain drain

is not really being compensated by the brain gain from immigrants.

Many immigrants who come to Canada with advanced qualifications

and experience do not find employment in their own field. This leads to

under employment. This scenario is exemplified very well in Canada’s

largest city and its financial hub-Toronto. Toronto boasts of having the

highest number of PhD’s and doctors driving taxi cabs in North

America (Editorial, 2012).

It takes years of patience, skills upgrading and further education

to get to where you want to be in life. Having foreign qualifications

does not necessarily translate into Canadian equivalency let alone the

need for so called “Canadian experience”. Hence the net loss of

Canadian knowledge workers to the US cannot be equated with net

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gain via immigration to Canada.

Social and Economic impacts in India

In the late 1960’s and 70’s a number of graduates from the prestigious

Indian Institute of Technology (IIT) migrated to the United States in

search of better economic opportunities. Many of these ended up in

senior management of IT companies such as Intel, AMD, Motorola,

IBM, Texas Instruments and HP. When the Y2K scare came along it

ended up as a bonanza for Indian IT companies such as TCS, Infosys,

Wipro and Satyam. These organizations had the opportunity to deploy

huge number of programmers in the western world. Since then India

has maintained an edge when it comes to providing IT services. It

began with outsourcing of business processes to India to reduce

operating costs.

Today India has become the world’s leader in Information

Technology outsourcing services.

“Indians aren’t just answering your phone calls about your laptop, they are processing insurance claims, researching

legal matters, testing pharmaceutical products and preparing tax returns, you name it, India’s sweet spot is

services – which now constitutes 60% of the US economy. The possibilities for American job elimination via the

Internet from India, a largely educated, English speaking population, are mind boggling and just scratching the

surface” (Buffington, 2007, pp. 103-104).

[30]

In India, average GDP growth rates of 6% to 7% have been almost

the norm since 2000. Currently the foreign exchange reserves in India

as on August 2012 stand at US$289.15 billion (Times of India, 2012).

As a result, India has been paying back its debts at an accelerated

pace, debts it had accumulated during its pre-liberalization days

according to a report by India’s Ministry of Finance, External Debt

Management unit (Ministry of Finance, 2012).

According to Jack Buffington, “Today, some of the best

engineering and management schools in the world are located in India

and its secondary educational system is very strong in math and

science, which is always a key factor to economic growth” (2007, p.

111). He goes on to say, “the Indian young are very diligent toward

their studies, given the competitive nature of their educational system.

The level of intellectual competition really drives excellence at the

Indian school system, something America could benefit from

replicating” (2007, p. 111).

The rapid growth of the BPO (Business Process Outsourcing)

sector has facilitated economic development. The establishment of

high-tech BPO’s led to BPO facilities cropping up in smaller

metropolitan town and cities across the country. For example, you will

find such facilities not only in Bangalore, but in Pune, Mumbai,

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Gurgoan, Delhi, Chandigarh, Chennai, Hyderabad etc. The share of IT

Enabled Services (ITES) industry in India’s GDP has more than

doubled in a five year span, from 1.9% in 1999-2000 to 4.8% in 2005-

2006, according to the Indian Institute of Foreign Trade (IIFT, 2006).

According to a recent article in the Economist (2012), there has also

been a strategic move by Indian BPOs to establish offices in the

Philippines. Companies such as Infosys, Wipro and scores of others

have large operations there.

An employment survey by Ma Foi management consultants

predicts the creation of some 60,000 new jobs each month in

Information Technology and related sectors in India (Sinha, 2004).

The increasing number of foreign IT companies setting up shop in

India, not to mention R&D centres, has had a positive influence on the

minds of the current generation of students. All the big four consulting

firms, employ several thousands of staff in India. The current

generation of students in India prefers to enrol in courses and

programs that deliver employment at the end of their studies. Salaries

of IT staff and management have gone up over the past few years.

Hence their buying power has also increased.

Despite these gains there are some social ills that come with

sudden prosperity. As gleaming call centres crop up on the outskirts

[32]

of Bangalore, infrastructure in terms of roads and telecommunications

struggles to keep up while rural populations suddenly find themselves

part of the expanding urban environment. Many call centre employees

find they lacked any personal life and the job was maddeningly

monotonous. Their cost of living has also gone up considerably. In

Bangalore for example, the cost of renting a two-bedroom apartment

has gone through the roof compared to a few years ago.

The call centre employees were also targets of racism (McMillin,

2006). Employees often change their names as it is considered a

necessary requirement of the job to get to know the clients and

culture. They often get accent and culture training to understand their

clientele better. There is a huge turnover rate in this industry,

something between 22% and 50%. The call centres allocate as much

as 60% to 70% of their budgets on staffing and as many as 72% of

these companies use external agencies to keep up staffing (Sharp,

2003).

Racial tensions as a result of outsourcing

According to Pandey and Singh (Singh & Pandey, 2005), clients were

able to recognize the trace of an Indian accent and they would use this

opportunity to vent their frustrations at the outsourcing market. They

[33]

go on to describe clients who lost their jobs in the United States and

would take it out on the call centre employees and berate them for

being opportunistic and greedy. There are times when people say ‘I

want to speak to someone who speaks English’, or ‘I don’t want to

speak to an Indian’. Some clients were described as being nasty,

especially guys.

Singh and Pandey (p. 687) go on to describe that stress due to

work related ailments led to backaches, eyestrain and headaches and

indigestion. Several team managers stated that stress in the

workplace has resulted in more and more women smoking. Ignatius

Chithelen (2004, pp. 1022-1023), in his report for the Economic and

Political Weekly, points to a high turnover of employees which

indicates that there are more such jobs in India than there are good

candidates to fill them. High staff turnover makes it increasingly

expensive for India based operations and to sustain the quality of their

service.

Synopsis and Conclusion

To conclude, IT outsourcing and offshoring from Canada has many

implications that impact our socio-political, economic and security

spheres. They also tend to have similar impacts in India or other

[34]

nations to where the job is being shipped to. Typically, organizations

that outsource tend to downplay the negative side of outsourcing as

they are more interested in improving their bottom line or the

“financial metrics” and are not concerned with the welfare of their

employees. The prevalence of organizations involved in the

outsourcing business touting the positive side of their services is very

high as are the prevalence of academics who glorify their services.

A recent IBM report, ‘Business impact of Outsourcing’ (IBM,

2004), provides the following results. “Research by IBM Scientists

indicates that the larger the outsourcing contract, the more likely the

improvement in bottom-line results”. “The analysis demonstrates a

strong correlation between outsourcing IT resources and the financial

performance of the companies studied”. The following remarks were

made by Dr. Marc Bertoneche, Harvard Business School, visiting

professor, Finance and coauthor of “Financial Performance”.

“Research surrounding the impact of outsourcing

proliferates. Studies show, for example, that companies across the globe are expanding their use of outsourcing,

especially as it relates to IT, and that worldwide spending on IT outsourcing services is expected to rise over the next

five years. Finding have also been published that looked at the expected benefits of IT outsourcing and determined

that cost reduction, increased operational efficiency and improved IT effectiveness were at the top of the list. Even

more promising are the results of this IBM study that measured the long-term business impact of IT outsourcing

on key financial metrics” (IBM, 2004, p. 3).

[35]

Critics say that by “outsourcing”, we are simply passing on the

problem rather than confronting it. Jack Buffington, in his book An

Easy Out: Corporate America’s Addiction to Outsourcing describes in

great detail why America is on the outsourcing bandwagon. One

wonders about the adage ‘people are the greatest assets of a

company’ when the same people are let go. It brings to mind the

question – are we driven by pure greed?

Canada needs to work hard in order to retain interest in science

and technology programs for our students. This would require

investing more money in research and development hence funding for

R&D programs needs to be substantially increased. The government

could also initiate tax breaks to companies that invest in research and

development. The interest in science and technology programs needs

to be developed right from early childhood. To facilitate this perhaps,

funding for school boards can be increased to bring in curriculum that

has more science and technology projects for children and increases

their affinity in them. It is imperative that Canada take a realistic

approach to outsourcing and find ways and means of reducing our

dependence on countries that offer the services at a lower cost.

Factoring in the human cost of outsourcing will enable us to manage

our resources and talents more judiciously.

[36]

We could also observe the patterns adopted by the top world

leaders (countries) in innovation and knowledge accumulation and

adopt the processes that were used by them in getting there. We

need to enable our highly qualified immigrants to assimilate faster into

the economy by allowing them easier access to practice their trades

and professions for which they were selected during the immigration

process. The federal government in conjunction with the provincial

governments could initiate schemes for employment for highly skilled

Canadians who have already left for the US and other nations. These

types of schemes would enable us to curtail the brain drain and we

might instead see a reversal. There is room for us to improve and

make Canada a destination of choice for ICT outsourcing and/or

nearshoring and other related services from US and Europe rather

than be a source. This, I believe is possible if both the private sector

and governments realize the potential and work collaboratively

towards it.

[37]

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