When Qantas wished to outsource some of its engineering operations in the 1990s it came to a compromise with the unions - the 767s would be done in-house, and the 747s outsourced.
Decades on, clashes between management and unions on outsourcing and offshoring are not confined to the aviation sector, and much less likely to lead to compromise.
Recently, there have been highly publicised cases of back office jobs from Telstra, its subsidiary Sensis (which produces the White Pages), and ANZ being sent to the Philippines.
The Philippines, along with India, is regarded as the capital of the call centre industry with its widespread use of English and strong service culture.
According to Anthony Weymouth, Australia’s senior trade commissioner in Manila:
There are over 800,000 workers in a number of office blocks clustered in down town Manila, and they are a very important source of consumption for the local economy, along with the remittance payments for overseas based Filipina workers.
And this has meant a boon for Australian companies involved in food and beverage in central Manila and in building and construction.
Outsourcing is becoming more nuanced
Despite Telstra, Macquarie Bank, ANZ and other Australian companies operating some services via the Philippines, not all outsourcing has worked out well.
Many Australian companies found having customer services a long way from customers and not attuned to their needs didn’t deliver a financial gain.
At the same time, Anthony Weymouth points out, the Philippines is moving up the value chain. “The Philippines doesn’t want to be known just for call centres, hence its new investments in mining and shipbuilding as well as professional services.”
The outsourcing industry itself is moving beyond call centres into business procurement, IT and human resources, as well as in health care (post surgery services, virtual nursing and physiotherapy services).
Even the industry association that traditionally represented call centres has changed its name to the Information Technology Business Procurement Association of the Philippines.
A similar story has emerged in India, where businesses looking to bring service staff closer to customers have pulled back some operations from Mumbai and Bangalore.
Like the Philippines, India sees its workforce as highly skilled and takes offence to the notion that call centres are merely for the low skilled. For some years India has tried to get away from the “open cut mining” attitude to higher education with India seen simply as a gold mine for Australian institutions to issue undergraduate degrees to.
Supply chains in a globalised world
Australian companies are also basing parts of their operation in Thailand. In the automotive sector (the eastern seaboard is known as “the Detroit of Asia”) many Australian component makers have set up shop be close to their customers.
Manufacturing companies like Trimotive and ANCA wanted to be close to assemblers, and pharmaceutical companies like TUTA Healthcare found they were able to expand employment in Australia by basing part of their operations in Thailand.
These activities have worked for manufacturing in Thailand in the same way that professional services have been the focus of India and the Philippines.
Policy tests to pass
So what’s the bottom line of all this outsourcing activity? The test is whether there are more jobs created on average, than are moved overseas.
The advocates would say that if outsourcing some of the work to Asia enables overall growth in employment in the company (and in some cases survival), then it is worth doing. It also ensures that living standards can grow in a number of developing countries.
The detractors say that outsourcing undermines conditions for workers at home and may harm workers abroad if decent labour standards aren’t available.
The outsourcing debate has even divided opinion amongst senior academic economists with heavyweights such as Princeton’s Alan Blinder and Columbia’s Jagdish Bhagwati on different sides of the policy divide.
At the end of the day it is a matter for judgement by policy makers. As an open economy, Australia wants to be able to create jobs at a rate that is greater than those that are lost through structural change whilst at the same time ensuring that our neighbours in Asia are able to improve living standards for their workforces.
Having labour market institutions that are inclusive and not extractive (as described in the great Harvard/MIT study Why Nations Fail) is an important part of the policy solution. That is, you can’t have free trade without free trade unions, and you can’t forget the delicate balance between wealth creation and wealth distribution in economic development.
Since 1983 Australia has been able to move from a closed economy to an open one, while improving wages and living standards and reducing unemployment. It has done so with strong labour market institutions and social safety nets, which has enabled a good balance between entrepreneurship (the right to have a go) and social justice (the right to the fair go).
If this balance is struck then integration with the Asia Pacific region can occur successfully, and even a subject as sensitive as outsourcing can be handled delicately in the national interest.