When I told my husband that I was going to write a post defending outsourcing, he suggested the title “I love foreign workers.” That would be more attention-grabbing, but I stuck with the more descriptive heading. Why do I want to defend outsourcing as moral? The Royal Bank of Canada (RBC) has been under attack in the social media because its supplier, an IT outsourcing firm iGATE Corp. has brought in temporary foreign workers for training, to replace 45 workers in RBC’s Investor Services division in Canada. Eventually the jobs will be transferred abroad.

RBC is defending itself by stating that its suppliers, not the bank itself, is hiring foreign workers, and that not all 45 jobs will be lost, as RBC is working diligently to “assist workers through the transition.” But this defense is not good enough.

The critics in the social media are shaming RBC for moving Canadian jobs overseas, which allegedly jeopardizes the employees’ livelihoods. The critics are threatening to take their business elsewhere, presumably to more nationalistic banks (if they can find some).

RBC’s meek defense will not placate these critics or the government. Federal minister of human resources and skills development has reportedly stated that RBC contracting with iGATE to replace Canadian workers is unacceptable, and the government is investigating and determining the next steps.

RBC, and outsourcing in general, needs a moral defense, one that explains why outsourcing is right and why the bank—or any company—has the right to do it.

The role of banks is not to provide jobs for home-country employees but financial services to their clients, and to do so profitably.

Banks offer us valuable financial services: they safeguard our savings and pay us interest on our deposits; they give us mortgages so we can buy homes, and other loans and lines of credits so that we can finance other purchases such as cars, home renovations, tuition fees. They finance companies that employ us, or businesses of our own. Without banks, we would have to resort to storing our cash under the mattress (no interest earned), and depend on friends and family for loans. This would be too cumbersome, too risky, or not sufficient, at least for mortgages or business loans.

For banks to exist and offer all the financial services they do, they must be competitive. This requires controlling their costs and operating as efficiently as possible. Otherwise, they will go out of business, replaced by more efficient competitors.

The role of banks is not to provide jobs for home-country employees but financial services to their clients, and to do so profitably.

Therefore, banks should hire those who are willing to do a job competently at the lowest salary, wherever in the world they may be. This is the moral thing to do—because it is good by the standard of human well-being. Hiring employees who are willing to do the work at the lowest salaries—such as workers in developing countries where the cost of living is much cheaper— allows the bank (its shareholders) to remain competitive and profitable. But it also benefits all the employees of the bank, whether in the home country or elsewhere. When the bank is thriving, it can continue to employ them. Clients, both individuals and businesses, also benefit from the competitively priced financial services that make achievement of their goals possible.

But what about those home-country workers, such as the 45 employees in RBC’s Investor Services division who will lose their jobs? They will also benefit, despite the temporary hardship that the job loss may cause.

The fact that RBC will remain competitive means that the bank can afford to help them to find jobs elsewhere. Remaining competitive means also that the bank will be able to finance other businesses (and their cheaper and better products). This creates more job opportunities elsewhere for the laid-off bank workers. Competitive banks also mean that all customers, including the laid-off employees, can enjoy more, cheaper, and more innovative financial services—as opposed to fewer, more costly, less innovative services that less competition in the banking sector would lead to.

This is why I love competition and foreign workers—they are good for all of us. RBC and any other company should be free to outsource as much as they want, to help their business thrive—because it is moral.

 

Originally posted 8 April 2013

 

2 COMMENTS

  1. As the person who coined the term ‘insourcing’ I comment:
    – where to have people helping the business is a business decision, for example the bank does not construct its own buildings
    – OTOH, some companies bring work into their organization, in some cases as they gain experience and grow, in other cases because they can control it better (the perennially profitable Southwest Airlines ran its own fuel trucks for years, so that it controlled priorities for refueling, based on integrating operational factors at the moment (such as first refueling an airplane whose flight itinerary was behind schedule). If bringing in is fair why is not taking out?
    – competition is good, but we do not have that in retail banking in Canada because of regulation
    – some outsourcing is the result of internal bureaucracies that do not facilitate efficiency, unions included, so owners replace them with outsourcing as they cannot improve internally
    – outsourcing has to be done well, bureaucracies rarely do. For example, the BC government continues to stumble with IT (including for example BC Hydro’s billing and payments, online form does not recognize account number as formatted on the bill and does not cross-check name and account number to catch error, and the fiasco of student registration a few years ago (the BC government rejected a usable program developed by a school board, in favour of one from a supposedly experienced company but it botched)). Buying cheap, as learned the hard way with having software developed in India, is a recipe for failure. (The best and brightest were already engaged by smart companies including Microsoft, ignorants got the mediocre.) The Royal Bank of Canada is a bureaucracy.

  2. Rational thinking on sound values helps all honest people.
    The fixed-pie thinking behind the objection to outsourcing does not.

    Hmm – wasn’t there a fictional scenario to illustrate decision-making, in a book titled How To Be Profitable and Moral? 😉

    There’s also the point that more skilled and knowledgeable people, including those who can communicate well, can be employed in more valuable work once freed of other work. Note that Japanese auto companies make precision items like transmissions for cars they assemble in southeast Asia.

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