I read this week an article in eWeek that pointed to a labor problem that impacts outsourcing. The gist of it says:

While reluctant to join labor movements in the past, information workers may be fed up with offshore outsourcing and restrictive contracting rules, analysts and unions say. Is the IT workforce ripe for union membership? . . . Growing IT pessimism and the increasing strength of offshore outsourcing are fueling new efforts to attract information workers, insiders say. There may be growing support among the workforce for such union representation. A union-backed survey revealed “increasing pessimism” among United States-based technology workers, who see less demand in the future for their skills. Analysts said new moves are brewing to organize IT professionals here in the United States and overseas.

The article was published in September of 2005. Yes, you read that date correctly, though it does seem to fit with current situations. 

Over the years, the media has prominently displayed news of companies planning an outsourcing initiative that encountered problems from unions. Telstra immediately comes to mind. The Australian telecom company hit a snag from union demands on the selected service provider when Telstra wanted to outsource its logistics and inventory management functions.

Enterprise Rent-a-Car faced a boycott as it planned to outsource car-cleaning and passenger-shuttle jobs to a service provider in Texas.

I’ve spoken with several companies that were determined to outsource despite union challenges. One company had to work around labor agreements that permitted outsourcing but not offshoring. Another company had to deal with its unionized employees threatening to call the company’s customers and alert them to a planned offshore initiative. 

An executive at a third company explained their recent outsourcing initiative hit about the same the economy collapsed, which threw the company’s business into a severe decline. They were up front about the situation with all employees and explained that, union or not, switching over to the service provider’s staff was a smart move since the job market offered very few opportunities. 

The union agreement at another company required that it identify why a certain process or function could not be performed by the union employees and that the service provider’s staff had more expertise before the company could get clearance to outsource it. 

There are many examples of companies zigzagging their way through union challenges at the time they need to outsource. 

It’s problematic for both sides. Union resistance to outsourcing claims that companies use outsourcing as a way to hinder a union’s growth and strength. On the other hand, outsourcing can trigger an increase in union activism and organizing. It also can take “protected” unionized employees and put them in competitive situations. Or it can cause the outcome of employees leaving one union and joining another at a different company, thus making that union even more powerful. 

Opinions abound, but what are the facts regarding unionization and the extent of outsourcing? In an April 2010 article in Economic Inquiry, Elisabetta Magnani and David Prentice share the findings of their study on this question. 

They conclude that outsourcing has contributed to higher labor productivity. They also find that the union wage premium is “significantly positively correlated with outsourcing,” but this is also the case for non-union employees whose jobs are outsourced. Further, the study revealed: 

A set of tests on whether there is any negative relationship between unionization and the extent of outsourcing fails to find any support for this hypothesis. 

Here’s the financial bottom line of the study’s conclusions:  

Given no correlation between unionization and outsourcing, the unions have misallocated their resistance resources.

So where do we go from here? 

Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.

No related posts.