offshoring global outsourcing and the australian-economy continuing australias integration intothe...

8/11/2019 Offshoring Global Outsourcing and the Australian-economy Continuing Australias Integration Intothe Global Econom

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OFFSHORING, GLOBAL OUTSOURCING

AND THE AUSTRALIAN ECONOMYCONTINUING AUSTRALIA'S INTEGRATION INTO THE WORLD ECONOMY


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Offshoring, Global Outsourcing

and the Australian economy -

Continuing Australias integration

into the world economy

July 2004


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1. Introduction 1

2. The Benefits of Globalisation 3

3. The Role of Technology 5

4. Globalisation Challenges 6

5. The Australian Context 8

6. Offshoring 9

7. Drivers of Offshoring 10

8. Assessing the Impacts of Offshoring 11

9. Policy Implications 14

10. Specific Policy Agenda 15

11. Australian Experience Supports Optimism 16

PAGE

TABLE OFCONTENTS


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controls came down. Yet as foreign companieshave become increasingly integrated into ourmarkets and seen as important employers andspurs for competition, Australias access toforeign capital has also been widely seen asa benefit.

The term offshoring is at the centre ofthe latest phase of globalisation. As withprevious phases of globalisation, this latestmanifestation has generated widespread andsometimes heated debate. Offshoring is not

an issue or process unique to Australia. It isbeing increasingly used by service industriesacross the world to remain cost competitive.While offshoring may seem to be a new kindof business practice, it combines establishedpractices of outsourcing with advances incommunications technology so real-timeinformation and expertise is provided byservice providers in one country to customersin another.

It could be argued that the concept ofoffshoring is in itself open to debate, giventhat it is simply the latest manifestation of the

exchange of goods and services that hasdefined Australia as a participant in the globaleconomy for many years. Indeed,the practices associated with offshoringcould just as easily be described asglobal outsourcing.

As an organisation representing Australiaslargest businesses, which collectively employaround 1 million people throughout thecountry and account for around 30 per cent ofAustralias total exports, the Business Councilof Australia has a clear interest in contributingto a constructive debate about the role oftechnological progress and globalisation insupporting economic and broader prosperityin Australia.

However, in order to determine the appropriate

responses for the country as a whole, theremust be informed debate about the processof offshoring and its longer term costs andbenefits. The aim of this paper is to help withconstructing a more informed debate. Inparticular, the paper:

outlines the largely positive relationshipbetween Australias economic developmentand globalisation;

defines offshoring as a further phase in theglobalisation of Australias economy; and

outlines some public policy issues for bothbusiness and governments to consider asthey manage the effects of offshoring.


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2. The Benefits of Globalistation

3 1 PRODUCTIVITY COMMISSION (2000), AUSTRALIA IN THE GLOBAL ECONOMY, ANNUAL REPORT 1999-20002 CORRELATION COEFFICIENTS ARE CALCULATED ON THE BASIS OF QUARTERLY DATA SINCE THE MID-1980s

3 AUSTRALIAN SOCIAL TRENDS 2004; ABS 4102.0.

High-profile anti-globalisation protests, stalledWorld Trade Organisation talks, and headlinesabout job shedding as local companies loseout to, or outsource activites, to lower costoptions overseas easily create an impressionthat the net effects of the freer movement ofgoods and services, investment and peopleare negative.

Despite these views, globalisation has givenAustralian consumers access to a far widerrange of goods and services, often at lower

prices, than would be available from domesticproducers alone. The availability of alternativegoods and services has put competitivepressures on local firms to produce new,better, and cheaper, goods and services. At thesame time, globalisation has providedAustralian firms with a larger pool of capitalfrom which to source investment aimed atimproving productivity and product quality,while also providing greater access totechnologies from overseas that improve theircompetitive performance. At an individuallevel, globalisation has also meant Australians

now have greater options in terms oftravelling, living, studying and workingoverseas.

For Australian companies, globalisation hasalso provided access to major new markets inmany overseas countries. This in turn hasenabled them to increase sales, develop newproducts and services and deliver higher levelsof output, as well as source a much largerpool of returns for investors, particularlyAustralians who have direct investmentsthrough shares in publicly-listed companies,including through superannuation funds.

To quote the Productivity Commission:

Reductions in barriers to trade and foreigninvestment have encouraged Australians tocompete and learn from the worlds best,

and

By a range of indicators Australian firmshave become much more productive andinnovative, including through the adoptionof new technologies.1

One of the fears associated with globalisation,and in particular with Australian companiescompeting with firms in developing countries,is that we might find ourselves in a race to thebottom in terms of jobs, wages and ourstandard of living. The statistics showotherwise. While Australia has experiencedrising imports, employment has also beenrising as Chart 1 demonstrates.2

Critics of deregulation and trade liberalisationcite a rise in income inequality as evidence

of the so-called race to the bottom. This is agross misnomer. Earnings of low incomeindividuals have risen significantly in recentyears. Over the period 1994-95 to 2000-01, theaverage real equivalised disposable householdincome of people in the low income groupincreased by eight per cent, while it grew by14 per cent for the high income.3 Furthermore,this increased income dispersion is not dueto wage rates for high income groupsaccelerating faster than low income groups.Instead, it is primarily the result of changesto the employment structure of the economy.

12

16

20

24

28

55

56

57

58

59

60

61

CHART 1EMPLOYMENT TO POPULATION RATIOAND IMPORTS

March1986

March2002

March1998

March1994

March1990

correlation +0.6

Imports Share GDP % (RHS)

Employment / Population % (LHS)


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Research4 has found that relative rates of payfor major occupation groups have notsignificantly varied over the last 25 years, butthat increased earnings inequality is duelargely to strong full-time employment growthin highly-skilled and paid occupation groups,while full-time employment has fallen and part-time employment has risen in low-skilled, low-paid occupations. In other words, thechanging structure of the workforce is theresult of forces such as globalisation and

technological progress, which mean that inAustralia, as in other developed countries,there is a change in demand and comparativeadvantage towards goods and services whichare produced by individuals in high-skilledoccupations. The same research concludesthat, over time, income inequality in Australiawill be more effectively addressed byincreasing the proportion of people in highly-skilled and paid jobs than in seeking to returnto previous structures of employment.

In terms of Australias economic profile andperformance, it is also worth noting that:

Australia sells more to developing countriesthan we buy from them;5

while manufacturing as a proportion of GDP islower than it was in the 1980s, manufacturingoutput is now nearly 40 per cent higher inabsolute terms than it was at that time;

over 1 million people are employed inmanufacturing, notwithstanding intensifiedcompetition6; and

one in five jobs in Australia is connected toexports and hence tied directly to theprocesses of globalisation.7

In summary, there is little or no evidence

demonstrating that the globalisation andoutward orientation of the Australian economy,as reflected by a rising share of imports, hasresulted in negative labour marketdevelopments. Nearly three decades aftertrade and investment barriers began to besubstantially dismantled, Australias economicoutcomes have been impressive, and currentlyoutshine many of our peers.

As Australia has benefited from the process ofglobalisation so too have other countries.Globalisation is not a zero-sum game, in thatone economy benefits at the direct expense ofothers. It is an evolutionary process thatenhances productivity and underpins strongereconomic and income growth and higher livingstandards in the vast majority of countries thatparticipate in freer trade and investment. Thereis a very solid body of research whichdemonstrates that globalisation has brought

tremendous benefits for many poor anddeveloping countries in terms of reducingpoverty and raising living standards. To citejust one World Bank study:

Integration through trade in goods, foreigninvestment, international telecommunications,and migration reduces these gaps by raisingproductivity in the developing world. In thisway globalization can be a powerful force forpoverty reduction.8

In contrast, protectionist policies are far morelikely to result in a race to the bottom. Duringthe period from 1914 to 1950, concerted

efforts were made in economies around theworld to halt deeper integration through theadoption of nationalistic policies aimed atprotecting domestic production. The endresult was not only collapsing trade,investment and migration, but alsosignificantly lower economic activity andhigher unemployment. This was not a periodof global prosperity to say the least.

To illustrate a specific Australian exampleof the inverse outcomes of protectionism,the Productivity Commission notes thatemployment in the Textile Clothing and

Footwear industry actually fell in the decadeto the mid-1980s, notwithstanding a significantincrease in protection afforded to that sectorover that time.9

4 KEATING, M. (2003) EARNINGS AND INEQUALITY, DISCUSSION PAPER NO. 460, CENTRE FOR ECONOMIC POLICY RESEARCH, ANU

5 PRODUCTIVITY COMMISSION (2000)

6 ABS YEAR BOOK 2003

7 DEPARTMENT OF FOREIGN AFFAIRS AND TRADE, TRADE AND THE AUSTRALIAN WAY OF LIFE

8 DOLLAR, D (2001), GLOBALIZATION, INEQUALITY AND POVERTY SINCE 1980, WORLD BANK BACKGROUND PAPER.HTTP://ECON.WORLDBANK.ORG/PRR/GLOBALIZATION/LIBRARY/DOC?ID=2944

9 PRODUCTIVITY COMMISSION (2000)


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3. The Role of Technology

10 IBID

While globalisation attracts much of thescrutiny when it comes to businessrestructuring and job losses, technologicalprogress in fact plays a major part in thesechanges. According to the ProductivityCommission, the wage and employmenteffects of changes in trade barriers have beenovershadowed by technological change.10

While the economic and social costs andadjustments, including job losses, related tonew technologies are often similar to those

brought by the freeing up of trade, few wouldargue that the benefits of these technologicaladvances should be foregone. Nor wouldmany suggest that the technological advancesthat we have seen in recent decadesrepresents a decline in living standards oropportunity for Australians. For example, no-one would seriously suggest the use anddevelopment of the internet should becurtailed even though the economic and socialramifications of this technology for business,consumers and competition have been hugein a relatively short period of time.

Furthermore, globalisation and technologicalchange are inherently linked. Globalisation ofthe world economy has been made possiblelargely as a result of developments intransportation and communicationstechnologies. At the same time, closerintegration fostered by globalisation andthe increased importance of innovationas a result of global competition has ledto significant technological breakthroughs.

Despite this, globalisation has largely been

viewed with far more scepticism thantechnological change. This reflects the factthat many of the benefits of technology aremore readily observable and identifiable ona day-to-day basis for individual users andconsumers. In contrast, the benefits ofglobalisation are often less well recognisedand understood. This does not mean Australiawould be better off by embracing moreprotectionist policies rather, more needsto be done to dispel some of the mythssurrounding globalisation.


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611 AUSTRALIAN VICE CHANCELLORS, COMMITTEE ESTIMATE, UNPUBLISHED INFORMATION

4. Globalisation Challenges

The challenge created by the combination ofglobalisation and technological progress is thatthe sources of competitive advantage changeat a faster pace than ever before.

For a relatively higher skilled, higher wagecountry like Australia, this means we must findbetter and smarter means of production, aswell as producing new goods and services.Local companies need to stay ahead in termsof innovation and productivity improvements,as well as keeping a close eye on the capacity

to reduce costs wherever possible. Over thepast 30 years, Australian businesses havebeen largely successful in adapting to newforms of competitive pressures andchallenges, including from countries withlower labour costs. In the 1980s, Australiafaced competitive pressures from thecomparatively low wage economies of HongKong and Singapore. Over time, wages andlabour costs in these countries equalised withthose in developed countries. In turn, thesecountries have felt the pressures of growingcompetition from newer market economies,

such as India and China. In the same wayAustralia responded to the same competitivepressures two decades ago, these countrieshave responded by shifting investment andresources to higher value added and higherskilled production.

This cycle of change as emerging marketeconomies move from developing todeveloped status produces a continuing flowof potential new markets and opportunities forAustralia. As increasing demand for labour indeveloping countries results in higher wagesand incomes in those countries, this creates

demand for goods and services produced byadvanced economies. A significant example ofthis trend has been the growth of Australianexports of education services. Educationexports are now Australias third largestservices export. They contribute some $A5billion to the economy annually and are worthmore than our exports of wool and almost asmuch as annual wheat exports. Currently 70per cent of our education exports arepurchased in Asia.11

However, economic and social changesbrought by globalisation and technologicalchange can create dislocation and hardship.Competition from overseas as well as theongoing business restructuring required tomeet this increased competition means thatour ability to create job opportunities in somesectors, especially those requiring relativelylittle skill, becomes increasingly limited. Inparticular, growth and activity in the Australianeconomy over the last 20 years has shifted

from relatively low value manufacturing tohigher value services-oriented industry. Thechart below highlights the extent to whichemployment opportunities have changed invarious sectors over the past two decades.

CHART 2 SECTORAL EMPLOYMENT SHARESIN 1995 AND 2003

Services

% of total employment

Manufacturing

2003

Other "ProductionIndustries"

0

20

40

60

80

1995


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7 12 49.2 PER CENT IN 1986-87 TO 51.9 PER CENT 2000-01, PRODUCTIVITY COMMISSION (2003) TRENDS IN AUSTRALIANMANUFACTURING, COMMISSION RESEARCH PAPER.

13 PRODUCTIVITY COMMISSION (2003) REVIEW OF TCF ASSISTANCE, PRODUCTIVITY COMMISSION INQUIRY REPORT NO. 26

Not only has employment throughout theeconomy moved towards the generally higher-skilled services sector but within manufacturingitself there has been an increase in the shareof high-skilled manufacturing employment tototal manufacturing employment.12 For many,particularly lower skilled individuals in decliningsectors of the economy, it is often difficult tofind new employment and efforts need to bemade to assist those significantly impacted.

Australian Governments over the past 20 years

have intervened to manage the transition ofsectoral decline with re-training and othersupport. Since the mid-1980s Governmentshave implemented a number of industryrestructuring and adjustment plans in sectorssuch as motor vehicles, textiles, clothing andfootwear (TCF), steel, agriculture and shipping.

Australia has demonstrated that many policyoptions are available with which to managethe impacts of globalisation and technology.These plans have been aimed at reducinglevels of assistance, while at the same time:

providing funds to help industries modernise; removing pricing and production distortions;

helping to reduce adjustment costs (egunemployment) associated with industryrestructuring; and

encouraging industry rationalisation,economies of scale and greatercompetitiveness.

While assessing the effectiveness of thesepolicies is inherently difficult, there is someevidence that they have been successful. Forexample, a recent Productivity Commissionreview of assistance to the TCF industry13

concluded that policies implemented to assistthe industrys adjustment to open internationalcompetition had helped some firms toimprove their international competitivenessand long-term viability. The review noted thatalthough there were some shortcomings in the

implementation of industry policies in the TCFsector, the overall objectives of well-designedtariff reductions and transitional assistanceencourage the development of internationallycompetitive economic activity that is capableof providing sustainable jobs.


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5. The Australian Context

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The challenges outlined above, while oftendifficult, are not unique to Australia. Everydeveloped economy is subject to a constantprocess of change in response to emergingcompetition and new markets. Still, there areunique aspects about Australias position thatunderscore the importance of local firmsfocussing on innovation, competitiveness, costand productivity.

The BCAs recent publication AustraliasPopulation Future highlighted the challenges

for Australia as a small economy located along way from global markets. Australia is oneof the most remote countries in terms of itsproximity to global wealth. We are thousandsof kilometres away from our major tradingpartners. These distances impose additionalcosts on Australian business, which can be theequivalent to a 7 to 17 per cent tariff.14 As aresult, local firms competing globally arerequired to be that much more competitive.

In addition, while recent advances ininformation and communication technologyhave brought us closer to the rest of the

world, latest research shows that the benefitsof innovation diminish with distance. Ourremoteness from the sources of ideas,innovation and technology serve as anadditional competitive disadvantage that wemust seek to overcome. In other words, whiletechnology makes business interactionpotentially easier, it is also easier for othereconomies who may have the addedadvantage of being closer to global markets.Therefore, technology makes it more, not less,important for Australia to look for additionalsources of competitiveness.

14 BCA (2004) AUSTRALIAS POPULATION FUTURE: A POSITION PAPER


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6. Offshoring

15 YU, Z., (2003), A NEW PUSH ON AN OLD FUNDAMENTAL: UNDERSTANDING PATTERNS OF OUTSOURCING, LEVERHULMECENTER FOR RESEARCH ON GLOBALISATION AND ECONOMIC POLICY RESEARCH PAPER 2003/25

Offshoring generally refers to the outsourcingof services by workers in another country, thatis, offshore. Because it involves sourcing skillsfrom other countries, it raises differentoutsourcing options across a wider range oforganisations and operations. Once again it isimportant to put the process of offshoring intocontext. While offshoring is a relatively newterm, the broader trend and process of

outsourcing is not. It could also be argued thateach time goods are imported into Australia,

we have outsourced a portion of economicactivity offshore.

As stated. the legitimacy of offshoring as aconcept describing a new economic andbusiness phenomenon is open to debate.It might be argued that the term re-inventsexisting and largely accepted economic andbusiness practices into a new concept whichcritics use to highlight new uncertainties andrisks. The term like globalisation is oftenused in a perjorative way to highlightperceived negatives associated with localeconomies becoming more open and

integrated with global markets.As discussed, the process of global integrationand its various manifestations has beenongoing for over a century, and the risks andopportunities have been by and largemanaged successfully by Australia and othercountries in the past.

Outsourcing as a driver of new businessopportunities and competitiveness has beenidentified as taking place as early as the 1920sin the auto industry. General Motors appliedthe approach to enable production of a widerrange of cars to satisfy the needs of a more

diverse range of customers.15 The advent ofnew technology means that more goods, andindeed services, can be outsourced in a waythat has not been possible in the past.


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8. Assessing the Impacts of Offshoring

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The term offshoring refers to a processof outsourcing that is more personalised,involving the direct transfer of jobs, debatetends to focus specifically on job losses.

To understand how offshoring impacts onemployment, an assessment of net job lossesor gains must be made. Analysing thesejob gains and losses is by no meansstraightforward. At all times, there is significantjob turnover or churning taking place in Australia.Even at a time when the economy is creating

new jobs overall, there are still job lossestaking place. Between 1988 and 1998 2.5 jobswere created for every 1.5 shed.19 Focussingon each 1.5 jobs shed rather than the 2.5jobs created would present a very differentperspective on labour market developmentsover that decade. In the same way, focussingon job losses stemming from offshoringis likely to create a distorted image of thetrue net impact of offshoring in Australia.Therefore, it is important to acknowledge thatas with any competitive economy in the globalmarket, Australia can and does also benefit

as a destination of offshoring.In summary, to assess the impact ofoffshoring from an employment perspective,the following needs to be considered:

employment lost as a direct result ofoffshoring from Australia;

new jobs created as a result of offshoring toAustralia; and

net job creation that stems from shiftingresources towards more productive areaswhere Australia has stronger competitiveadvantage.

In employment terms, Australia benefits fromoffshoring due to a number of competitivefactors. A recent study by KPMG comparingbusiness costs in Australia with 10 otheradvanced countries shows Australia hassignificant cost advantages, particularly in theareas of software production, research anddevelopment, but also in terms of corporateservices and manufacturing.20

While direct business costs in Australia arehigher than in developing countries, a highly

skilled workforce, stable political system andthe relative quality of our infrastructure andregulatory environment provide positiveoffsets. In addition, being an English-speakingcountry is a distinct advantage, as is our multi-cultural background which means that thereis a pool of workers that can speak a widevariety of other languages.

These strengths have underpinned thedecisions of global companies to offshoreactivities to Australia. The following examplesillustrate recent offshoring successes forAustralia.21

Deutsche Bank has decided to locate morethan 100 global technology and operationsjobs in its Sydney office by the end of 2004.The Sydney operation is one of DeutscheBanks two global processing hubs forforeign exchange.

DST International, a leading businesssolutions provider for the investmentmanagement industry, is moving its globalsoftware development and testing programsfrom the UK and US to its MelbourneDevelopment Centre.

19 CALCULATIONS OF THE OFFICE OF ECONOMIC AND STATISTICAL RESEARCH QUEENSLAND BASED ONUNPUBLISHED ABS DATA.

20 HTTP://WWW.COMPETITIVEALTERNATIVES.COM/REPORT/DEFAULT.ASP

21 AXISS AUSTRALIA, A2A NEWSLETTERS, /HTTP://WWW.AXISS.COM.AU/CONTENT/PUBS/NEWSLETTERS.ASP


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- the Centre will house a new developmentprogram for OpenMessenger, one of thecompany's leading global solutions used forelectronic trade confirmation, settlementand reconciliation by investmentorganisations;

- the Centre will also be the base for allproject management and future producttesting of the group's back officeaccounting engine for the US market;

- it is anticipated that the productdevelopment and testing programs willbenefit from the proven capabilities of theCentre and the lower cost structures ofundertaking business in Australia.

UBS has selected Sydney as the locationfor its Global IT Support Centre;

- the decision reflects Australia's low-costenvironment and highly skilled financialservices workforce;

- UBS will progressively bring the help-deskoperations of other regions, such asEurope and the US, on board;

- the Centre, located in the northern Sydneysuburb of St Leonards, will providecomputer help-desk support 24 hours aday, seven days a week for around 16,000UBS staff across 30 countries. The projectwill create around 170 new jobs.

other companies have chosen Australiafor technical support centres, including OM(a global leader in transaction technology,providing processing and outsourcing solutionsfor securities transactions) and IBM Global.

The above examples demonstrate that offshoringis not a one-way street and that Australia alsogains jobs and economic activity as a directresult of offshoring decisions. Most of thecurrent debate about offshoring in Australiadoes not take into account these gains.

To understand the broader economic impactsof offshoring for Australia, we also need tounderstand what the net effects of offshoringare for:

Australian exports and growth stemming fromincreased income and demand in thosecountries which businesses are offshoring to;and

domestic growth stemming from lower pricesand/or higher profits that result from moreproductive operations.

Taking into account these and other factors,the actual employment loss of high profileoffshoring/job loss announcements is not aslarge as often argued. A recent study by BoozAllen Hamilton suggested that only between2 and 4 per cent of jobs in Australia could bepotentially offshored.22 This is within thecontext that nearly three-quarters of Australiasworkforce servicing local industries, suchas retail, health and hospitality, cannot beoffshored. At the same time, based onoverseas studies the economic benefits toAustralia from offshoring are large.

22 BOOZ ALLEN HAMILTON (2004)


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McKinsey Global Institute found that for theUS economy, every dollar spent overseas onoffshoring creates $1.12 to $1.14 for the USeconomy, or in other words produces a netgain of 12 to 14 cents for the economy.24 Thisincreased wealth creation in the economyencourages further consumption, investmentand jobs. The study calculates the net gainfrom offshoring results from cost savings forUS businesses, increased purchases of USgoods and services from suppliers of offshore

services, repatriated earnings from offshoreUS companies and the redeployment of labourwithin the US economy. A recent report byDeloitte Touche Tohmatsu estimated thatwithin four years, communications companiesworldwide will have saved at least $20 billionannually by offshoring services to developingcountries.25

Importing services are also a quid pro quofor our export success. As exports createemployment and income opportunities inAustralia, so too does offshoring for countrieslike India and China. As average incomes in

these countries rise as a result of their ownexport successes, so does their demand forgoods and services, including exportsproduced by Australia. The case cited aboveregarding growth in our education exports toAsia is one clear example. So are exports ofgas and coal, which are boosted by strongeractivity in developing countries such as China.

The Australian National Training Authority in theirrecent National Industry Skills report highlightsthis process and conclusion very clearly26:

History suggests that, as each nation goesthrough various phases of development,

it starts small as a growth prospect forAustralian exporters. But as it rapidlyindustrialises, it becomes a major exportmarket for us.

The reality is that Australia cannot have it both

ways - that is, exporting those goods andservices that we produce well and effectively,but limiting the import of those goods andservices that others can produce more cheaplyand competitively than can Australianbusinesses and workers.

Offshoring is a mechanism, like many othersthat have been used by Australian businessesto boost competitiveness, which enables themto cut costs and lower prices and/or to sustainprofits and earning for investors. In some

cases, the direct result is job losses. Yet, tofocus on this as the only outcome of theprocess is misleading. The benefits ofoffshoring also involve lower prices and/orhigher investment returns which flow toconsumers and investors and ultimately resultin higher levels of consumption and economicactivity and jobs than would otherwise be thecase. It is also important to note that as weconcentrate our production on areas ofcomparative advantage (i.e. high-value addedproducts) jobs are created that are better paidthan the ones that were lost. In Australia, there

has been an increase in the share of skilledwhite-collar jobs to total employment - fromaround 29 per cent in 1986 to around 33 percent in 200027. These jobs tend to be thehighest paid jobs in the economy and we arealready seeing a movement of people intobetter paid occupations a dynamic thatoffshoring should help to foster.

23 MCKINSEY GLOBAL INSTITUTE (2003) OFFSHORING: IS IT A WIN-WIN GAME?

24 DELOITTE (2004) MAKING THE OFF-SHORE CALL: THE ROAD MAP FOR COMMUNICATIONS OPERATORS. THEREPORT ALSO FOUND THAT ONE OF OFFSHORINGS KEY BENEFITS WAS TAKING ADVANTAGE OF TIME ZONEDIFFERENCES, ALLOWING COMPANIES TO EFFECTIVELY CREATE A 24 HOUR WORKDAY. THIS IN TURN ALLOWSTHEM TO ACCELERATE DEVELOPMENT OF PRODUCT OFFERINGS AND TECHNOLOGY APPLICATIONS.

25 ANTA (2004), NATIONAL INDUSTRY SKILLS REPORT

26 PRODUCTIVITY COMMISSION (2002) SKILL AND AUSTRALIAS PRODUCTIVITY SURGE, STAFF RESEARCH PAPER.


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9. Policy Implications

While globalisation, including the processesof offshoring and global outsourcing, producesbenefits by allowing companies and countriesto specialise in producing those goods andservices, there are both winners and losersfrom these processes.

Some companies and sectors face uncertaintiesand decline as a result of greater globalcompetition. Individuals are confronted withinvoluntary unemployment reflecting theimpact of globalisation and often technology

advances. This creates hardships for theseindividuals and their families.

There is a relatively clear consensus that thosewho tend to bear the most significant burdenin advanced economies as a result ofglobalisation are those individuals withrelatively low skills. Low-skilled jobs are thefirst to face pressure from increased globalcompetition. In past decades, this has beenreflected in declining blue-collar jobs.

Over the course of the past two decades,Governments have sought to assist and

support this adjustment process throughsupport for individuals and sectors. As thepace of change advances, it is important toensure that this assistance is as effective aspossible and supports positive long termoutcomes for those impacted.

As developing countries become moreadvanced and industrialised, the nature ofrelatively low skilled work itself changes.As wages rise, businesses seek to add morevalue to what they do, as do workers throughthe acquisition of new skills and training.Consistent with this, the more recent labour

pressures stemming from offshoring, inparticular, have been felt higher up the skillspectrum, and have been characterised bywhite collar jobs being lost.

As a relatively high skill, high wage economy,Australia needs to be realistic about thecapacity and desirability to compete for jobsand production based on relatively low skilllevels. Our response should not be to attemptto wind back openness and to limit thecapacity of firms to outsource or offshore.This would have adverse implications for thecompetitiveness of companies, consumersand investors. It would also deny developingcountries important opportunities to improve

their own circumstances.Our response must be to position Australia,its businesses and individuals, to remaincompetitive in the production of higher valueadded goods and services based on skills andinnovation. At the same time, this is notdownplaying the adjustment costs and theimpact on those workers whose jobs becomeuncompetitive and unsustainable in the face ofglobal competition. The challenge for Australiais to manage and support the adjustmentprocess as best as possible while ensuring thatwe position ourselves as a nation to remain

competitive and at the high-skill, innovativeend of global production and competition.


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10. Specific Policy Agenda

This paper has argued it is one of a number ofoptions Australian businesses have to remaincompetitive in a global market. The focus onoffshoring raises issues about the need forAustralia to continue the process of openingup its markets by taking advantage oftechnological progress. As part of a widerglobalisation policy agenda, Australia needsto focus on:

Education, skills and training so that weenhance our position as a highly skilled,productive and high wage economy, andsupport ongoing workforce participationthrough appropriate and ongoing retrainingand reskilling.

Innovation, research and development

in support of new ideas, products andprocesses and ultimately sustainedproductivity and competitiveness.

Labour market flexibilities that support andencourage an innovative workplace culture,ongoing productivity improvement,participation in employment, job creation andto allow people to work to their full potential.

An appropriate and effective safety netsystem to support those adversely impactedby technological change and globalisation.

Continuation of sound macroeconomicframeworks and outcomes including a robustand transparent fiscal policy process andinflation targeting regime, which are conduciveto supporting economic activity, investmentand job creation.

Support for further global trade and investmentliberalisation as a driver of economic growthand opportunity.


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11. Australian Experience Supports Optimism

DESIGNED BY ERD

Over the past several decades of liberalisationand reform there have been periods in whichsignificant public doubt was expressed aboutour capacity to compete globally and to createjobs to replace those being lost. Yet oureconomy has performed remarkably well.

During periods of weak demand among ourkey trading partners, as was the case followingthe Asian financial crisis, our businessesdemonstrated flexibility in seeking out newmarkets and opportunities. These opportunities,

which were not available two decades ago,have underpinned and sustained jobs andeconomic growth in Australia, when manyother economies faltered.

Australian listed companies also sustained solidearnings performances in the face of the burstingof the technology bubble and recent downturnsin global economic activity and stock markets.In addition, business has had to adapt to newuncertainties such as the rise of global terrorismand the impact of SARS. Notwithstandingthese external shocks, and severe droughtin recent years, over the past decade:

economic growth has averaged around 3.8per cent per year;

around 1.9 million jobs have been createdsince 1993;

the unemployment rate has fallen below 6 percent and has remained there now for morethan 8 months; and

inflation has remained low and stable (takinginto account the once off impact of the GST).

The Australian economy has benefitedsignificantly from deregulation bothdomestically and internationally throughgreater access to global markets. The ability toweather external shocks and sustain economicgrowth and prosperity as well as rapidtechnological change provides a strong casefor remaining optimistic about our capacity torespond to further change including thepressures and opportunities brought byoffshoring. But Australia needs to continue

implementing a comprehensive andcomplementary policy agenda to remaincompetitive ideally with bipartisan support.


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LEVEL 42

120 COLLINS STREET

MELBOURNE 3000

T 03 8664 2664

F 03 8664 2666

www.bca.com.auBUSINESS COUNCIL OF AUSTRALIA

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