Outsourcers in Chief?

posted by
on July 16, 2012

There’s something about hot summers in Washington, D.C. that raises political temperatures to their boiling points, especially when certain subjects are mentioned. Like outsourcing. And if you think the rhetoric on outsourcing the 2012 presidential campaign trail is already overheated, there are some previously unreported facts to report that, because they are awkward politically, won’t necessarily lower temperatures before the Nov. 6 election. Not at Romney campaign headquarters. Not in the Obama White House. Definitely not in the Washington Post newsroom and the Washington Post Co.’s corporate suites. Not even at the State Department or certain unnamed defense and intelligence agencies which all benefit, one way or the other, from outsourcing back-office business processing operations. While the diplomats and spooks have merely been spending tax dollars wisely, their efforts are not likely to be much appreciated by some of the more insular-minded denizens of Capitol Hill.

Sorting out the unnoticed facts in the current outsourcing controversy helps illuminate the fundamental economic facts of global competition that drive outsourcing —economic realities that have been almost totally obscured in the the current hot exchange of negative television commercials between President Obama and his Republican challenger. The current heated rhetoric has been sparked by a recent investigative report in the Washington Post.

“Mitt Romney’s financial company, Bain Capital, invested in a series of firms that specialized in relocating jobs done by American workers to new facilities in low-wage countries like China and India,” reported Tom Hamburger on June 21. Hamburger’s essential facts were pinned to public-record filings pertaining to several Bain investments, when Romney was at the helm, in companies that developed successful overseas call centers. Romney howled. But he is the one who set himself for such criticism. Given his background in international business, the Republican must be presumed to understand that outsourcing helps American firms’ competitiveness — and that at Bain, he did nothing to be ashamed of. But rather than offer thoughtful explanations that would appeal to the better nature of the American public, Romney has been talking down to them. He’s been running as something of a Buy American candidate, attempting to out-flank Obama’s economic nationalist appeals by railing against Chinese and other foreigners who “kill” American jobs. One thing about ordinary Americans: they can always sense when they are being talked down to. The Post’s piece quickly resonated because it exposed Romney’s insincere-sounding double-talk.

Obama, who really does appear to believe in economic nationalism, is determined never to be out-flanked when it comes to the Buy American business. The president quickly launched a still-continuing flurry of negative television spots in key electoral battleground states like Virginia. The Obama commercials — touting the Washington Post’s report, while stretching Pinocchio-like beyond the facts that the newspaper had reported — essentially say that Romney wants to be president so he can ship as many American jobs to Asia as he can. Fearing that too many American voters are gullible enough to swallow such strained logic, Romney has shot back with his own negative commercials calling Obama’s charges “dishonest,” and typical of a president who “doesn’t tell the truth.” Lost in all the hot air: any hint from either candidate that outsourcing may be something other than scandalous — and that there are overall benefits from outsourcing to American jobs.

Just look at new fact number one, which begins with the newspaper that has sparked the current controversy. The Washington Post itself outsources its subscription services to a call center in the Philippines. So do other respected major news organizations — the Financial Times and Thomson-Reuters stand out — which understand how such outsourcing of lower-end tasks helps sustain their bottom lines (and the jobs of U.S.-based reporters, even those who go around investigating call centers in aspiring Southeast Asian tigers like the Philippines as if they were unsavory massage parlours).

A second set of facts begins with President Obama, the nation’s number one critic of outsourcing. Flying in the face of his campaign rhetoric, Obama presides over a federal bureaucracy that itself benefits from billions of dollars in outsourced contracts to process back-office services. Obama probably has never thought of it this way, but there are U.S. national security benefits, not to mention savings of tax dollars, that result from hundreds of millions of dollars in outsourced federal contracts just involving national-security agencies.These contracts are very important to U.S. agencies whose operations simply can’t be cut off from the rest of the world they deal with, whether the politicians they report to understand that or not. Here’s the story:

Just consider one federal contract that Obama’s State Department has recently awarded: involving $50.4 million to send some visa-processing back-room operations to India. The services will be performed over two years in India by Stanley Associates Inc. This particular contract is routine: only one of many U.S. diplomatic, defense, and intelligence outsourcing contracts that have been awarded by the Obama administration. If one’s goal is spending tax dollars wisely, logic strongly suggests that when such services are outsourced to places like Bangalore and Mumbai, always-limited U.S. tax dollars go further. So the contract with Stanley Associates that State announced this month makes economic sense.

…and outrage on Capitol Hill
But not everyone sees it that way. U.S. labor unions like the Communications Workers of America and their congressional allies like Sen. Charles Schumer (D-NY) and Rep. David McKinley (R-W.Va) come immediately to mind. Schumer and McKinley have sponsored legislation that would punish American corporations which use call centers and other back-office operations in countries like India and the Philippines (the latter country being the world’s number one call-center economic powerhouse). One proposal is to tax the overseas calls Americans make to call centers. Another is to deny federal grants and loans to corporations that outsource. Still another would require the foreigners who work in call centers to identify which country they were based in, so outraged callers on the U.S. end of the lines could demand to speak to real Americans. On the Hill, it’s not considered polite to laugh at such heartfelt expressions of economic nationalism.

Let them speak Arabic?
But there is a certain humorous aspect, albeit somewhat dark, when it comes to the anti-outsourcing activities of Rep. Tim Bishop, a Democrat from Long Island. In April, Bishop boasted that he had pressured the U.S. Agency for International Development to suspend a program that has been teaching Muslim students in the southern Philippines — a conflict zone —  to speak English. [I can report, at least, that there is no truth to the rumor that Bishop suggested the students be taught Arabic instead of English.’

Bishop, a member of the House education committee, is afraid that if Filipinos get too much education in the English language, they might wind up getting too too many jobs of the wrong kind: in call centers that threaten the jobs of the proverbial decent Americans. The congressman is apparently unaware that one of his district’s largest employers, Enecon Corp. (which sells polymers that coat machinery all over the world), is always on the lookout to hire bright young English-speaking Filipinos for the company’s Philippine operations. And perhaps Bishop might not want to ask too many questions about Enercon’s global supply chains, or whether one of his largest sources of campaign cash, Honeywell, just might benefit from (outsourced) jobs somewhere in Asia. Attacks on outsourcing, sooner or later, all hit bottom lines back home — a fact of life that seems to be only dimly perceived on the Hill.

The insourcing candidate
Obama presumably would not be eager to acknowledge the benefits of Stanley Associates’ outsourcing for the State Department in countries like India. But the president has publicly admired the “insourcing” in the U.S. conducted by the CGI Group, which owns Stanley. On Jan. 1, 2012, CGI’s president joined some other top U.S. executives to celebrate “insourcing American jobs” in rural American towns. When he ran for president in 2008, Obama visited — and highly praised — one such CGI back-office information-technology processing operation in Lebanon, Va. Little Lebanon is located in  Russell County (pop. 3,400, with a 2009 per capita income of $17,500), in  the isolated southwest corner of Virginia. CGI’s operations in such rural American towns, at least, constitute a simple story line for any politician on the stump. The same companies’ overseas operations on behalf of federal agencies, don’t. To the president, just like exports are good things and imports (that sustain American manufacturing) are to be mentioned as little as possible, outsourcing is scandalous while insourcing is politically correct.

Report this!
If politicians like Obama don’t want to talk about their own outsourcing, neither do the Washington Post’s big-wigs appear eager to explain how their own newspaper benefits from such. Rima Calderon, a spokeswoman for the Washington Post Co., did not respond to an e-mail and a voice-mail message inviting comment on any benefits the Post receives from its Philippine-based workers. Kris Coratti, the director of public relations for the newspaper, also declined comment.

(Full disclosure: I’m a Post subscriber, and several of my not-so-secret sources for this story were well-spoken and efficient Filipinos I have gotten on the other end of the line when I have called in recent years with questions about payments. I am also a contributor to ForeignPolicy.com, which is part of the Post Co.)

But those benefits are not hard to see. Outsourcing saves newspapers like the Post money. As the newspaper has been bleeding money, that’s important. In May, the Post reported in SEC filings that in the first quarter of this year, newspaper’s daily circulation declined 9.8% (492,000) compared to the first quarter of 2011. Sunday circulation for the same period declined 5.2%, to 714,600. The Post’s operating loss for the first quarter of this year was $22.6 million, compared to a $12.8 million loss in the first quarter of 2011. The paper  reported that it is offering voluntary buyouts “for certain employees.”

The bottom line for the Post’s reporters who must wonder about their job security is clear: their more highly-paid jobs in a very tough newspaper business environment are sustained by the efficient young Philippine workers who take the subscription calls — and who have little complaint that they are paid far less than the U.S.-based journalists. It’s win-win, for jobs in both countries.

The Philippines: We’re part of your success, too
And if entry-level jobs in call centers helps the Philippines become the next Asian tiger, that’s a very good thing. The Philippines, once one of Asia’s leading economies, has for decades fallen way behind most of its Southeast Asian neighbors, mainly thanks to corruption and a domestic economy that has been dominated by globally uncompetitive local elites. Consequently, some 10 percent of Filipinos — the most intrepid ones — have left their country to seek employment overseas, many of them toiling as household servants in places like Hong Kong, Singapore, Saudi Arabia, and Dubai. These overseas workers support their families they had to leave back home by sending remittances that now amount to more than $20 billion annually. Those remittances have been propping up GDP growth for years.

Steven Rood, the Asia Foundation’s top man in Manila, has watched the country for more than three decades. He relates how heartening it has been to see how domestic call centers have begun to provide better economic alternatives to Philippine graduates.  “The great thing” about these enterprises, which now employ some 600,000 workers — a number that could double in the next few years — Rood notes,”is that the Philippines can now export services rather than workers.”

American success stories
The American companies that employ those Philippine services also have important stories to tell about how their offshore call centers support important jobs back home, and in some of the most competitive segments of the U.S. economy. This is the too-often missed key fact in the in the controversy over outsourcing.

Washington Post reporter Tom Hamburger got to the heart of the matter in one paragraph of his now-famous June 21 article that has not received much notice. Hamburger wrote that outsourcing has become “a powerful economic force,” one that “has often helped lower the prices that American consumers pay for products and created a global supply chain that has made U.S. companies more nimble and profitable.”

Streaming success
But Hamburger wasn’t so charitable to some of the nimble companies that Romney’s Bain Capital had invested in. They generally came across as the sort of American job-destroyers that critics like Obama love to hate. Today’s Philippine operations of one of those companies that Bain backed, Stream International Inc. — today, named Stream Global Services —  suggest a more positive news slant. While Stream also runs business process services in American small towns like Sergeant Bluff, Iowa, the company’s international focus is what catches the eye: some 33,000 employees who speak more than 35 languages in 21 countries. Now headquartered in Bloomington, MN, Stream Global Services’ overseas operations include ten locations in the Philippines. Three of Stream’s largest customers are Microsoft, Dell, and Hewlett Packard. To such stalwarts of American ingenuity, the attraction of outsourcing some lower-end jobs appears clear — the lower-end overseas jobs help sustain those of more highly-paid U.S. based workers. Imagine how such Fortune 1000 corporations that are so important to the U.S. economy would fare if they were forced to hire only American workers for back-office operations. If Stream is a typical example of the kinds of investments that Romney’s Bain Capital has helped foster, the private-equity firm must have been doing something right when Romney was running it.

Supporting global jobs
Another outsourcer with operations in the Philippines that serves U.S. publishing companies —  not the Washington Post — is Sitel. Although a Sitel spokesman said he was contractually bound not to disclose the identity of specific clients, this American company also has a very good story to tell. Headquartered in Nashville, Sitel’s most recent quarterly filing with the SEC discloses that it has about 270 clients in 27 countries, including more than 55 Global Fortune 500 companies: technology, financial services, retail, telecommunications, and media and entertainment. Sitel’s 58,000 employees are in the U.S., Canada, Latin America, Europe, the Middle East, and Asia (10,000 are in the Philippines).

Would-be critics who tend to be suspicious of such enterprises might benefit by reading Sitel’s side of the story, as coherently explained in a company-proprietary document called The Truth About Global Sourcing. In eight pages, the corporation takes a common-sense approach to modern economic realities. “Take a look around your desk and see how many different countries the products there represent,” the white paper suggests. “Chances are, you’ll find ‘Made in Mexico,’ ‘Made in China,’ ‘Made in the USA,’ ‘Made in Germany,’ — countless items of international origin.” The Sitel paper draws the obvious conclusion: “Each of our offices, homes and cars are filled with products, materials and components from around the world,” the Sitel paper continues. “Is it any surprise, then, that the customer support of those products is becoming equally global?”

Perhaps in a perfectly rational world, such cool logic would not be surprising. But in this hot political summer, the real surprise would be if politicians like Obama and Romney would start talking as if they knew a thing or two about what American corporations and U.S. government agencies need to do to survive in the global marketplace.