OUTSOURCING AND OFF-SHORING OF JOBS (Impact on Singapore economy and employment situation)

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OUTSOURCING AND OFF-SHORING OF JOBS:

(Impact on Singapore economy and employment situation): 6.

Dr Amy Khor Lean Suan asked the Minister for Trade and Industry (a) what is the impact, if any, on the Singapore economy and employment situation in the short to medium term from the trend toward outsourcing and off-shoring of jobs to lower cost countries; (b) how will this affect Singapore's oft-repeated role of being a bridge to the recipient countries like India and China, particularly in the light of the possible backlash in USA from anti-globalists; and (c) what strategies are there to counter any negative impact of this trend.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Mr Speaker, Sir, the market for Business Process Outsourcing (BPO) has seen

explosive growth since the 1990s. Gartner estimates that the global BPO offshore market was worth more than US$120 billion in 2003 from virtually zero in the early 1990s, and still growing rapidly.

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Much of this business is coming to Asia . To date, India has emerged as the hub for BPO activities, capturing about two-thirds of the offshore market. Besides China , Malaysia and the Philippines , Singapore too has seen such services coming our way.

However, lower-end business processes in Singapore are also being outsourced to lower-cost countries. There are no reliable statistics on the size of these flows. What we need to do is to position Singapore to benefit from the global trend towards outsourcing. Over the medium-term, if Singapore can capture just a tiny percentage of the global BPO market, it would create many good jobs here.

Singapore 's role as a bridge to India and China can become more important if we position ourselves well for the new flows. In the case of India , we are becoming part of the BPO value chain. Let me cite some recent examples.

Earlier this year, Tata Consultancy Services unveiled plans to embark on a pilot programme with several global financial services companies that are willing to co-locate their mid- and back-office activities in Singapore and India respectively. Singapore would get the higher value added mid-office activities, which would comprise an estimated 25% of the total activities outsourced.

Another example is Scandent, which has made Singapore its strategic base for global business process operations. This makes good economic sense, as Singapore is home to a base of more than 6,000 MNCs or potential clients. Scandent has a business continuity centre in Singapore to perform higher-end consulting such as business process analysis. Like the case of Tata, Scandent's operations here would complement those in India .

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We are hopeful that this trend would continue. To date, all of the top 20 Indian IT companies have set up offices in Singapore . As their operations expand, Indian IT firms would provide more well-paying jobs for Singaporeans. While anti-globalists would try to stop outsourcing, competitive pressures would eventually force governments to open up because their companies would otherwise be at a disadvantage. Just earlier on, we have heard Mr Khaw Boon Wan saying that our hospitals should consider cross-border outsourcing in order to lower their costs.

Dr Khor also asked what strategies we can pursue to counter the negative impact of this trend. While we cannot stop some lower-end processes in Singapore from being outsourced to lower cost destinations, we should compete to attract higher value-added business processes here. These include activities such as risk management, disaster recovery, content development, design and engineering. They require a stable political environment, good public administration, human capital, technology and infrastructure, all of which are available here in Singapore . We provide an attractive front end for BPO businesses. Our FTAs also provide some protection against protectionist pressures in other countries. For example, even if the US were to legislate against the outsourcing of government work to foreign countries, under the US-Singapore Free Trade Agreement, companies with a substantial presence in Singapore will still be eligible for such work.

We also need to ensure that our costs in Singapore are competitive. For software, in particular, we need to bring in more employment pass holders with the requisite skills. MTI is now working with MOM on this. Recent measures to lower employers' CPF contributions and promote a more flexible wage structure will also help to improve our cost structure.