It's not as easy as you think

[. . . Yrs to Go]

For those obsessing that all American workers are going to be replaced by Chinese and Indian competitors the following article shows that it isn't as easy to do as you think.


Education May Thwart India's Call-Center Dream: Andy Mukherjee
2005-12-19 14:42 (New York)


* * *(Commentary. Andy Mukherjee is a Bloomberg News columnist.
The opinions expressed are his own.)

By Andy Mukherjee
* * *Dec. 20 (Bloomberg) -- McKinsey & Co. has come up with an
assessment of India's potential in software and back-office
services; for the country's policy makers, the consulting firm's
report is both a pleasant dream and a rude wake-up call.
* * *Between now and 2010, $110 billion of technology and call-
center work will move to developing countries. India's share of
such ``off-shored'' tasks may be more than half, or $60 billion,
McKinsey has estimated.
* * *The government in New Delhi, however, shouldn't take the
favorable prognosis for granted. India, McKinsey's researchers
say, ``confronts a potential shortage of skilled workers in the
next decade or so.''
* * *To maintain its global share of 65 percent in information
technology and 46 percent in business-process outsourcing, the
country will need 2.3 million professionals by 2010.
* * *According to McKinsey's calculations, India may face a
deficit of as many as 500,000 workers. As much as 70 percent of
the shortage will crop up in call centers and other back-office
businesses, where proficiency in English is the No. 1
prerequisite for landing a job.
* * *People within the Indian outsourcing industry are aware of
the problem: A number of executives cite high employee attrition
and galloping wages as signs that the labor market for
undergraduates in India is getting tighter.
* * *It isn't obvious why that should be so.
* * *In a country where millions of educated young people are
unemployed, why do call centers feel compelled to give pay raises
of 10 percent to 15 percent a year? Why don't they boot out the
highly paid workers and grab the eager aspirants?

* * * * * * * * * * * * *Education in Disarray

* * *And why do they offer their employees free dance lessons on
top of a $4,000 annual wage -- worth $36,000 when adjusted for
purchasing power in the local currency -- when they can't pass on
the increase in costs to the U.S. bank or the European insurance
company that is paying for the call centers' services?
* * *The answers may have a lot to do with India's education
system. A labor shortage is bound to surface unless India's
colleges can produce more employable graduates.
* * *McKinsey makes just that point. Currently, only about ``10-
15 percent of general college graduates are suitable for
employment'' in the outsourcing industry, it says.
* * *There are two ways to ease the crunch. First, increase
college enrollment. Second, improve the effectiveness of the
three-year university programs so that more graduates are
suitable for call-center jobs. The solutions are related.

* * * * * * * * * * * * * *Dropout Rate

* * *About 8 million students in India begin their undergraduate
studies each year. That means only about seven out of 100 youths
aged 17 to 23 seek higher education. In most developed countries,
the ratio is at least 50 percent.
* * *Poverty, a big part of the reason for student drop outs, is
by no means the only explanation. There's also a huge incentive
problem.
* * *``The net value addition at college in India has become so
low, that it actually makes sense for an 18-year-old to say:
`Instead of hanging out in the canteen I'd rather start
working,''' Rashmi Bansal, who edits JAM, a Mumbai-based youth
magazine, writes on her personal Web site.
* * *The globally renowned Indian Institutes of Technology and
Indian Institutes of Management are islands of excellence; they
produce India's technological and managerial elite. The foot
soldiers of India's knowledge economy are produced in lesser
institutions, the so-called affiliated colleges.
* * *That's where the bottlenecks are emerging.

* * * * * * * * * * * * *Affiliated Colleges

* * *Educators such as V. C. Kulandaiswamy, a former university
vice-chancellor, have identified the affiliated-college system as
the scourge of higher education in India.
* * *A typical Indian university has scores of -- sometimes
several hundred -- related colleges.
* * *The university administers examinations and distributes
degrees. Other than that, ``the entire higher education in India
takes place only in the ill-equipped, understaffed, affiliated
colleges'' that produce 89 percent of India's undergraduates,
Kulandaiswamy wrote in May in India's Hindu newspaper.
* * *Large, single-campus universities that have economies of
scale must replace the affiliated colleges, most of which don't
even have decent libraries.
* * *Regardless of whether they want to become scientists or
customer-service agents, all university students in India should
be able to pick up the minimum English language skills required
for call-center employment. That doesn't happen now.

* * * * * * * * * * * * * *No Quick Fix

* * *There is no quick fix.
* * *In fact, quick fixes, such as requiring affiliated colleges
to offer a business-process outsourcing curriculum, wouldn't work.
The colleges would make a hash of it just as they have made a
hash of all liberal arts and vocational programs.
* * *Even if India's policy makers woke up today to the massive
education challenge that faces them, they wouldn't be able to
ease the white-collar labor crunch by 2010.
* * *The back-office industry will, therefore, have to keep
finding ways to boost productivity and hope that efficiency gains
will somehow be enough to pay for the wage binge.

[Spanky]

The following link contradicts these statements:

http://www.windowatch.com/2005/september/chong11_9.html

[brewer12345]

I was thinking the other day: are there significant call centers in Puerto Rico? i know the economy/job market ain't too special down there and the populace already speaks both English & Spanish and is generally literate/educated. Surely there must be some call center stuff down there. Too expensive, maybe?

[Spanky]

U.S. based companies do have manufacturing plants in Puerto Rico. The biggest advantage is tax savings.

[kat]

Brewer, every single person I've met (in NY) from Puerto Rico does not speak English. Understand, maybe sometimes, but can't find the words. (And every single one asked me to teach him!) So, some ESL first (Rob?), for the call centers, and then good to go. And they'd be good workers, IMHO.

kate

[SteveR]

Originally Posted by kat

Brewer, every single person I've met (in NY) from Puerto Rico does not speak English.* Understand, maybe sometimes, but can't find the words.* *(And every single one asked me to teach him!)* *So, some ESL first (Rob?),* for the call centers, and then good to go.* *And they'd be good workers, IMHO.

kate

My experience some years ago while living in PR was that most natives can speak English but choose not to. They get 12 years of it before college and US TV shows are all in English (with some exceptions) so they hear it a lot. Most mainland businesses require English to be spoken in meetings and procedures and other documents are in English.

Labor costs and the loss of tax incentives are slowing killing off the economy there. Companies are leaving to go to lower cost labor areas. A call center there would likely cost as much as one in the US.

[Spanky]

Our company has a plant at Ireland - labor cost and tax savings.

[kat]

Originally Posted by SteveR

My experience some years ago while living in PR was that most natives can speak English but choose not to. They get 12 years of it before college and US TV shows are all in English (with some exceptions) so they hear it a lot. Most mainland businesses require English to be spoken in meetings and procedures and other documents are in English.

Labor costs and the loss of tax incentives are slowing killing off the economy there. Companies are leaving to go to lower cost labor areas. A call center there would likely cost as much as one in the US.

Steve, I don't want to assume too much, but perhaps it's a class/economic issue. I was working for a large non-profit (Catholic Charities) at the time, and was meeting economically poor Puerto Ricans. They couldn't fill out forms or verbalize their questions in English. Not an issue of intelligence, but trying to find words. I know the experience. I studied Spanish for 12 years in school, and never had a reason to use it -- until about 18 years later. It was loads of fun understanding all the Spanish they were using, which they assumed I couldn't because I couldn't speak it. I couldn't remember the words... Quite a scene.

[. . . Yrs to Go]

Originally Posted by Spanky

The following link contradicts these statements:

http://www.windowatch.com/2005/september/chong11_9.html

I'm not sure that it does. The study attached to the original post cites a specific problem that India is having right now. Which is, they can't take their legions of "square peg" workers and just jam them into the "round hole" outsourcing opportunities that are available. The 'windowatch' link, like most of the reports in the press, only looks at the aggregate labor pool of places link India and China without consideration for many mitigating factors - including the worker suitability problem India is having with its outsourcing industry.

Another mitigating factor is the fact that worker productivity in developed countries is much higher due to generations of capital investment - a fact not easily overcome. You simply can't compare the wages of one worker against another without knowing something about the level of worker productivity – an important distinction that gets ignored in the often hysterical treatment of these issues. These articles also ignore the fact that the 1 billion people in India have their own needs that must be met and that these needs are growing at a very rapid rate. This increases aggregate demand for goods and services, which increases demand for labor, which results in higher earnings, which increases the demand for goods, and then labor, etc. etc.