'Women are IT' Debate and Discussion

Australia v's Offshore – how can Australia win?

Melbourne
10 October 2003

I’m pleased to get a chance to speak to the issue of ICT Offshoring.  It’s obviously an important topic, and it’s not going away, but it has achieved special relevance with Telstra announcing a new $75 million deal with Infosys just last month 

This deal could see up to 180 Australian jobs lost as Infosys moves this work overseas.  Australia has a choice: if we are complacent, or if we resign ourselves to this phenomenon, it will be just the beginning.  I don't accept it is inevitable that somehow Australia must be relegated to being minor, limited contributor to a global production process for IT products and services.  The truth is, we can’t simply give up, we must take steps to combat this trend.

It is time to understand that Australia has a unique position and status in the global economy.  It is not acceptable to assume that the industry and economic development strategies and measures adopted by very large economies are directly transferable to Australia without assessing the fully the impact.  The fact is we are a small, advance economy that has to fight or space in global trade. Our policy solutions across industry, education and employment need to reflect this.  Our relative small size means that if Australian companies are to expand their export capabilities, scale in the domestic economy is as important for these companies as being 'global'.

I think that the worst thing Australia can do is to unquestioningly accept that Australia will only have a pre0determined 'niche' role to play in their 'globally dispersed model' for application development and service delivery, which is the latest business pitch from global IT services companies.  It is particularly offensive when the pitch is cost cutting (they say labour is cheaper overseas) when the exorbitant and unanticipated costs currently being incurred by many an agency, department or private corporation is as a result of the very same group of global companies last business model. 

I was disappointed to hear that the Howard Government isn’t too concerned with this state of affairs.  Telstra’s offshoring plans were raised with the Government in question time this week, regarding its role as majority shareholder, and it has chose to do nothing to stop the loss of jobs.  Perhaps this is typical of a Government which has consistently promoted Australia’s use of ICT, whilst neglecting our ICT production capability.  Unfortunately in this scenario, the issue of scale in the local market for local companies doesn't even get a look in. 

Typically ignorant, the Howard Government is continuing its negligence in the ICT industry policy area and unfortunately offshoring is a growing trend.   I have no doubt that many ICT purchasers, including federal government departments are or will be considering outsourcing to offshore companies and effectively sending jobs overseas.

For ICT purchasers it seems pretty attractive.  CIOs look at figures like those published in the November 2002 issue of CIO Magazine, which show the average annual wages of systems programmers in Eastern Europe, in Russia, or in Asia and the sub-continent, and they think, “Why am I paying $50,000 per annum for a programmer in Australia, when I could be paying $10,000 per programmer in one of these countries?”

Then they listen to the spiel produced by some of the overseas-based IT firms in the marketplace, which tell them that they can help them cut their ICT costs by outsourcing the work offshore.

However, it’s never that simple.  For example the Australian Government has some pretty nasty war stories about the consequences of believing certain ICT firms which told them how, seemingly co-incidentally, the taxpayer would be better off if they bought into their preferred ICT procurement model.

I’m sure the Department of Finance and Administration will never forget how projected savings under the Government’s IT Outsourcing model turned into a $5 billion debacle.

ICT purchasers – and I hope the CIOs of Government departments are listening – need to be aware that promised savings in ICT projects have a habit of evaporating.

In the case of the offshoring of ICT jobs, there is evidence to suggest that the savings promised by adopting cheaper foreign labour can be eaten up by the further burden of administration.

Some reports estimate that an overseas worker can cost a company four to eight times the cost of their salary through transistional costs such as laying off current staff and setting up business overseas, the costs of managing an offshore contract, and productivity costs.

According to Meta Group, organizations going offshore will experience lags in productivity which can add as much as 20 percent in additional costs to the contract.

However, I leave it to businesses to explore the costs and benefits of offshoring.  For my mind the adverse impact that this phenomenon will have on Australia, is significant enough to warrant Federal Government attention.

To anyone in the industry the most obvious issue is of course unemployment.  To an unemployed ICT professional in his mid-forties, waiting for the ICT sector to turn the corner, this trend is frightening news.  On a broader scale it should be alarming to any Government that believes that Australia should be developing innovative industry sectors.

We’re already talking about hundreds of jobs, and we can’t afford complacency.  This number will rise.

According to a November 2002 by the Forrester Research Group, the United States will lose 472,632 white-collar jobs in IT and Mathematics overseas by 2015.  We can’t kid ourselves by thinking that Australia will be immune to a proportionally similar number.

If ICT jobs are exported offshore, Australia risks losing its capacity to compete in this sector, as we risk dulling the capabilities of our ICT labour force through under-utilisation.  High unemployment also reduces the attractiveness of the sector to new talent – as is already occurring if declining university admissions for ICT courses are anything to go by.

The end result will be a reduced capacity to innovate and commercialise, and therefore develop new business opportunities in the ICT field.  When one thinks that under the Howard Government our ICT trade deficit reached $14.4 billion in 2001-02 alone (equivalent to 65% of the Current Accounts Deficit for that year), one has to wonder how much more ICT business we can afford to lose from Australia. 

Clearly it is important to keep ICT jobs in Australia.  However, we should also be concerned with the security of ICT systems outsourced overseas, and of the privacy of Australians whose information may be kept on these systems.

Unfortunately, when ICT systems are outsourced it becomes much more difficult – and certainly much more expensive – to guarantee these security and privacy standards.

This is especially the case where the offshore country has security and privacy laws which are more lax than our own.  The Privacy Act 1988 does not limit the capacity for organisations to transfer private information overseas, and nor does it extend to cover foreign companies.  Therefore it is up to outsourcing organisations to take the necessary steps to protect this information.

I note that while the home of Infosys, India, is on the verge of adopting stronger privacy laws, it hasn’t done so yet, and there are other countries, similarly unprotected, seeking our ICT business.

While it is easy to say that the Federal Government should give some attention to this issue, it is much more difficult to buck what is becoming a global trend.  As I mentioned, this is a problem that is even affecting the United States.  Nonetheless there is a combination of short and long term measures that a Government can take.

For a start, as a major Australian purchaser of ICT the Commonwealth Government needs to set its own good example.  Labor has consistently endorsed the use of Government procurement for industry development, and supports departments and agencies purchasing from enterprises based in Australia – in particular, small to medium enterprises.

This approach by its very nature entails the employment of Australians in the provision of ICT services.  However, it is my opinion that the Federal Government should go beyond just the rationale of industry development, and ban the offshoring of ICT services by departments and agencies, purely because it is so difficult to guarantee both the security of their systems, and the privacy of personal information contained in them.

In the longer term, it is vital that we make a concerted effort to build our ICT industry.  I don’t believe that offshoring will provide companies like Telstra  the savings they are expecting.  However, we must continue to build the local industry to make the choice of keeping jobs here a no-brainer.

I began this speech by saying that Australia has a choice in this globalised environment.  We can either give up, or we can work harder to fight the trend and grow Australia’s attractiveness both here and overseas as a producer of ICT.  Achieving scale in the domestic market is important for local companies and both industry development and purchasing polices can assist in improving these opportunities.  Labor remains committed to Australia’s ICT sector.

Thankyou