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Nash, Brad; Holland, Peter; Pyman, Amanda --- "Turning the tables on off-shoring" [2005] MonashBusRw 4; (2005) 1(1) Monash Business Review 8

Turning the tables on off-shoring

Brad Nash, Peter Holland, Amanda Pyman

How stakeholders hijacked the offshore call centre debate

In a global economy underpinned by a neo-liberal economic philosophy, the emergence of stakeholders in influencing corporate decisions on moral and social grounds appears at face value an interesting phenomenon. However, because of the diverse and often complex issues, relationships and contexts, it is difficult to interpret the influence of stakeholders on corporate decisions. Through an analysis of stakeholder theory (please see our full paper for this analysis), we have set out to develop a framework to explore the role of various stakeholders and interpret these relationships. We used this interpretive lens to analyse the case of Coles Myer Limited, one of Australia’s largest companies, and its plan to outsource or “off-shore” its credit card facility.

“Off-shoring”, or the export of skilled “home country” jobs to more cost-effective regions, has become a hot topic in political, economic and academic circles in Australia, the UK and the US, especially in relation to the export of information technology and call centre operations to countries such as India, Mexico and China.

Some research has examined the effect of outsourcing on employees, but there has been little done on the effect and response of other organisational stakeholders. The emphasis on the economic benefits of off-shoring, in the form of lower costs and increased flexibility can overshadow important factors related to the role, influence and management of stakeholders. Ultimately, these issues may be crucial in the long-term success of such decisions, yet, have been given little consideration by many organisations. Indeed, recent cases (for example Intel) illustrate the importance of involving stakeholders in decisions to off-shore, and the ability of stakeholders to influence decisions, even to the extent of reversing or rejecting the off-shoring route.

Major international companies such as British Airways, GE Capital, and American Express have either established their own centres, or contracted the services of a third party to operate call centres from India, underpinned by significant cost savings. As Martin Conboy, chief executive officer of callcentres.net Australia, points out: in the US, call centre costs are $US25 per hour per agent. In Australia, the cost is $US21 and in India $US10.

India has become the most attractive proposition because of its longer working week (6 days), quality of the labour force (call centres attract large amounts of university graduates and there are 700,000 new graduates each year), language (English) and geography (normal working hours in India coincide with appropriate time zones for outbound calls to the UK and US).

The Myer Card decision

Coles Myer Limited operates more than 1,900 stores in Australia and New Zealand under the brand names of Target, Coles supermarkets, Bi-Lo, Myers, Officeworks and Grace Bros. They are Australia’s largest non-government employer with over 165,000 staff.

As part of a revitalisation strategy in 2001, following a decade beset with significant financial and managerial problems, depressed profits and poor growth, Coles Myer’s newly appointed Chief Executive Officer, John Fletcher moved to minimise duplication of credit card brands and merged them into the one corporate card, The Coles Myer Card.

The Card management was given to a specialist call centre operator, GE Capital. From 2002, 50 per cent of customer queries were directed to operations in Delhi, India. This was expected to deliver substantial savings.

It is unclear how much input Coles Myer had into this decision, but it is reasonable to expect that they were aware of it. It appears there was little, if any, communication of this decision to stakeholders of the organisation, and a review of Coles Myer’s Ethics and Polices does not provide coverage of this issue. However, the organisation has a clear policy on the prevention of the exploitation of workers in the apparel manufacturing industry due to previous high profile campaigns. In the year the off-shoring occurred, Coles Myer’s 2002 Annual Review contained the following statement, appearing for the first time in relation to communication with shareholders: “Coles Myer Limited is committed to ensuring that shareholders and the financial markets are provided with full and timely information about its activities.”

The stakeholders

Coles Myer stakeholders include: the customers, shareholders, trade unions and the Federal Government. While it is difficult to assess customer reactions, in early 2003, the media publicly revealed that some of the Myer Card call centre staff was based in India. Kate Nancarrow in the Sunday Age wrote: “Callers to talkback radio complained about poor service and communication and bemoaned the loss of Australian jobs.” Initial adverse publicity continued with the ABC television documentary, Diverted to Delhi, a program on outsourcing call centre and IT jobs to India and which prominently featured the GE Capital and Coles Myer move. An interview conducted with a shareholder of Coles Myer indicated that he was unhappy that part of the call centre operations had been outsourced to India, because of the loss of Australian jobs.

At the forefront of the off-shoring debate in this documentary was the union movement. Belinda Tkalcevic from the Australian Council of Trade Unions (ACTU) and Martin Foley from the Australian Services Union (ASU) were both concerned about the export of skilled Australian jobs and attacked the Federal Government’s position, particularly in light of their role as a key stakeholder in Australian organisations. Tkalcevic said: “It’s great for big multinationals who can get cheaper wages from India, but what about Australian workers… isn’t the Australian Government there for us and not for companies to try and save a few bucks?” Foley said: “For Australian jobs to stay in Australia we have to get better and smarter on how we do it, but for the Australian Government to join the cheer squad of off-shoring jobs to India is just appalling.”

Union officials, as representatives of the employee voice, identified themselves as a significant stakeholder within Coles Myer. One official we interviewed said that in relation to off-shoring, the union is focused on preserving jobs, the economic longevity of an organisation and the relationship between the organisation and the community.

The CEO of the Shareholder’s Association also identified his organisation as a primary stakeholder in Coles Myer on the grounds of its financial investment and the ability to vote for Board representatives. However, he drew boundaries around the involvement of the association in managerial decision-making. He said the association would regard decisions such as off-shoring as being the “business of management”, that they recognise “management’s right to manage” and therefore, it would be very rare for the association to offer an opinion. This attitude suggests that the Shareholder’s Association regard various aspects of managerial decision-making as falling within the domain of managerial prerogative and beyond their direct involvement.

Job loss fear

A union official said that the preoccupation with cost reduction and associated job losses had led to increased levels of job insecurity among union members. Another official pointed out that in recent workplace surveys, job security is the number one issue. According to these officials, cost reduction is also being used by organisations as a “stick”, a fear factor when negotiating workplace agreements. Consequently, employees adopt an approach of “not rocking the boat”, which translates into seeking minimal enhancements to terms and conditions of employment for fear of loss of jobs. One official said: “This tactic ensures that the employees’ focus is on keeping their jobs and not on improving conditions of employment. If they save their jobs then that is a win and this removes the focus on improving their entitlements.”

Two officials agreed that the threat of job loss by employers is a successful tactic, particularly during agreement negotiations, where employers use job insecurity as a bargaining ploy. Nevertheless, both unions also pointed to the danger of employers using job insecurity. Agreeing that the threat is “real”, three officials pointed to a more hardened attitude among members to employer threats, and the fact that job security is a “hot” issue that “pushes people’s buttons”. As a result, the off-shoring debate has generated dissatisfaction and mobilisation among members and led to increased awareness in the community about the insecurity of professional work, particularly among IT and call centre workers.

The issue of exporting jobs, however, was not the only concern of the union officials interviewed. These officials were also fundamentally concerned about the types of jobs that were being off-shored. As one official said, the off-shoring of “skilled” local jobs raises significant questions about the types and skill levels of those jobs that are left for local people to apply for. The union also noted that it was inhibited by three related factors when developing an effective strategic response: the limited representation of IT workers by unions; the absence of a primary award in the industry; and, the absence of a single union representing IT workers.

A related concern was the nature and extent of regulation in those countries to which the work was being off-shored. India, for example, is less regulated and some states are not subject to international laws. In these areas, workers lack basic rights including the right to organise and the right to minimum wages. This absence of regulation raises questions concerning the exploitation of workers by the organisation that off-shores the work in the first instance.

The final concern pinpointed in interviews with the unions was related to the cultural assimilation training utilised to educate the “host” country employees performing the work. As highlighted in the ABC documentary and the Sunday Age story, call centres typically instruct workers in India, for example, that they should not tell the customers where they are located. In addition, many organisations give workers localised names and teach them the local culture and heritage by, say, watching Australian television and listening to the radio so that they can engage customers on local issues and prevent them knowing that the service is being performed overseas.

Be upfront

As one official argued in relation to the Coles Myer case: “There is an issue about Indian workers losing their cultural heritage. This is undesirable. In addition to losing jobs, Coles Myer is trying to trick people.” This point was also reinforced by an ACTU spokesperson in the Diverted to Delhi documentary: “If you are going to do it, do it and be upfront about it, but don’t think we are idiots and we can’t tell that in fact there is not an Australian person at the end of the phone… and then there are the cultural implications for the Indian people… what is it like to be told you get to pretend you are not in fact who you say you are.”

While not directly involved in the Coles Myer debate, the Federal Government gave tacit approval to off-shoring. However, by the end of November 2003 and within 12 months of a Federal election, the Federal Treasurer as majority shareholder of Telstra, cautioned that company over the export of Australian jobs to India.

Core issues

The framework developed in this paper helps draw together the literature on stakeholder theory, with a view to illustrating the complex interrelationships and interactions between stakeholders, and their impact, or potential impact, on organisational decision making. The interpretive lens acts as a tool for determining the power, legitimacy and urgency of the key stakeholders in an organisation.

The core issue uniting Coles Myer stakeholders was the export of Australian jobs (see the diagram in Figure 1) and was magnified by a clear lack of consultation with these stakeholder groups on a significant and potentially emotive issue. It is from this perspective that Coles Myer had to respond to these stakeholders and re-evaluate its decision to off-shore. The low-cost advantages needed to be reassessed against the moral and/or social concerns of stakeholders which say that an Australian “icon” company which accounts for 40 cents of every retail dollar, was exporting home grown, skilled local jobs. As one shareholder on the Diverted to Delhi documentary said: “I think the part that annoyed me most… I see this like exporting jobs. Myer does not have stores in India… so their customers are not in New Delhi… The customers are here and I think that kind of employment should be here [in Australia].”

Figure 1 Coles Myer: core issues

In late 2003, Coles Myer call centre operations were brought back to Australia. Their 2003 Annual Review makes no mention of the relationship between Coles Myer and GE Capital, and more significantly, no reference is made to the changes at the call centre during that year.

An analysis of the case study suggests that there was no link between the identification and management of stakeholders in relation to the issue of off-shoring, from either a moral or social perspective. The sole focus of Coles Myer on instrumental concerns, namely cost reduction and enhanced profits, was linked to a motive of increased competitive advantage. In hindsight however, it appears that the instrumental concerns of management outweighed their normative concerns. Arguably, increased growth, reduced costs, and a competitive advantage, will only result when management carefully balance instrumental and normative concerns.

From a union strategy perspective, the focus of the unions’ campaign was solely on the primary organisation, Coles Myer. The unions did not directly target GE Capital, to whom the work was off-shored. The core tactic utilised by unions was “corporate campaigning” in a bid to attack the Coles Myer brand and their reputation, and by doing this, expose links between the primary organisation and the organisation to which the work was off-shored. Public (customer) opinion is a corporate pressure point for Coles Myer, often seen in the public domain as an Australian “icon”. Therefore, from a strategic viewpoint, the creation of unfavourable public opinion by the union, via publicly expressed member dissatisfaction, can damage the Coles Myer brand name, and, therefore, may elicit a favourable response from the organisation.

Indeed, union activism and campaigning on this issue, negative customer feedback, perceptions of poor quality of service and adverse media publicity, together, placed significant pressure on Coles Myer. The uniting of the key stakeholders on “sensitive” issues associated with the off-shoring of Australian jobs, gave them legitimacy and power. In addition, the stakeholders created a sense of urgency in their claims, and as a result, managed to successfully implement change. The ascendancy of social and moral issues, led by the key stakeholders, appears to be fundamental in Coles Myer reversing their decision and relocating the call centre in Australia.

Significantly, Coles Myer management in 2003 started a Continuous Disclosure Committee. This Committee is “Responsible for monitoring the continuous disclosure practices of the Company, assessing the information provided by the Company’s businesses and considering the appropriate response to any market rumours concerning the Company.

Once again, the motivation behind the introduction of this Committee is of interest in this case study. The timing of the introduction appears to be linked to the negative publicity Coles Myer received in relation to the off-shoring experiment, and, the perceived lack of communication and consultation with key stakeholders. A second and related point of interest is the absence of any mention of a relationship between Coles Myer and GE Capital in the 2003 Annual Review. Whilst this research is limited by a reliance on secondary sources as a means to analyse the management position within Coles Myer, it is important to recognise that Coles Myer denied an invitation to participate in this research. Nevertheless, the primary focus of this paper was the development and testing of a model to explore the role and influence of stakeholders in organisational decision making.

While the stakeholders did not directly collaborate in their response to the off-shoring of Coles Myer’s call centre operations, the stakeholders were unified in their emphasis on the issue of the loss of Australian jobs. This combined focus gave the stakeholders power, legitimacy and urgency – key elements of the stakeholder theory – thus forcing Coles Myer to respond on normative and instrumental grounds. The eventual outcome was the relocation of the call centre operations back to Australia.

Cite this article as

Nash, Brad; Holland, Peter; Pyman, Amanda. 'Turning the tables on off-shoring'. Monash Business Review. 2005.; Monash University ePress: Victoria, Australia. http://www.epress.monash.edu.au/. : 8–13. DOI:10.2104/mbr050003

About the authors

Brad Nash

Brad Nash (MHRM MIR Monash) is a postgraduate researcher in the Department of Management at Monash University. His current research interests are in industrial relations, outsourcing/off-shoring and the implications for the employment relationship.

Dr Peter Holland

Peter.Holland@buseco.monash.edu.au

Dr Peter Holland (PhD, University of Tasmania, MA Kent) is a Senior Lecturer in Human Resource Management and Employee Relations at Monash University. His current research interests are in: new patterns of work organisation, Greenfield sites and monitoring and surveillance in the workplace.

Amanda Pyman

Amanda.Pyman@buseco.monash.edu.au

Dr Amanda Pyman (PhD, BCom (Hons) Monash University) is a research fellow in the Department of Management. Her current research interests are union effectiveness, privacy, monitoring and workplace surveillance, and union strategies in Greenfield sites.


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