1) You have no idea what outsourcing is and no idea what this site is about.
2) You know what outsourcing is, but you don't know what's happening in Alberta with regards to outsourcing.
3) You know about outsourcing initiatives across Alberta.
Assuming the first category, try this: open a new window on your browser and do a Google search for the words "outsourcing definition".
That will bring up a simple definition: "obtain (goods or a service) from an outside or foreign supplier, especially in place of an internal source."
To simplify this broad concept, there are 2 ways of outsourcing. To make explaining them easy, I named them "external outsourcing" and "internal outsourcing":
- External outsourcing involves going to an outside source to get a product or service. Here's a very recent example: In April 2013, Enbridge laid off a vast number of "operational support" staff from their IT department in Edmonton and Calgary. These operational support staff maintained both generic (made outside) and proprietary (made in Enbridge) software applications and supported them. Accenture Philippines won the bid and now all that work is done from the Philippines at a far lower cost. No doubt Enbridge made some gains, but the workers who lost their jobs likely did not appreciate it. I called this external outsourcing because the work was outsourced to an external party to perform.
- Internal outsourcing involves a company creating one or more new offices in countries where the cost of labor is lower. Work that the company previously did locally would be sent to those offshore offices to be completed by staff there. Here are a few examples:
- In the PC processor industry, Advanced Micro Devices (AMD [Intel's smaller competitor]) was losing losing badly to Intel in the US. To stem the tide, it needed intelligent and ambitious people who could be hired at a lower cost than in the US. The answer? They created an office in India and sent a number of their projects there. This is one of the examples of the benefits of outsourcing.
- In the Engineering, Procurement & Construction (EPC) industry,
outsourcing started a number of years ago. More than 10 years ago,
companies like Jacobs Engineering and Fluor Daniel discovered that by
setting up offices in Asia where they could get cheap labor, they could
send drafting work there and do less work here. They called it "high value
engineering" or "HVE". The logic driving HVE is that by outsourcing,
companies might offer a lower charge to customers and be more price
competitive. WorleyParsons Canada (formerly Colt Engineering, a
wonderful Alberta-born company before being bought out) followed suit to
maintain competitiveness. The overall result has been a disaster bad
for local labor. Many local engineers and technicians (typically earning
between $50,000 up to $180,000 depending on level of responsibility)
have been laid off in Alberta and the work was mailed to offices in
India and China. More layoffs are coming because more work is being
outsourced to further cut costs. APEGA also issues engineering stamps to
people outside Canada, so now engineering work, the real thinking and
technical part of the work, is also being outsourced more and more. Now, local offices
are slowly being turned into "mail boxes". A mailbox is a device or
facility where you put in mail that is sent to a destination. Canadian
engineering offices, are being converted to ship local work to Asian
offices... hence the mailbox analogy applies.
What makes it worse? Seeing the need to cut costs, companies like Suncor and Shell have asked for more 'high value engineering (HVE)' and lower pricing. Lower prices (hourly rates for engineering and drafting) makes sense. But what about HVE? People locally would even accept pay cuts if they could keep their jobs, yet because the work is sent abroad, and more technicians and engineers are being laid off.
If you already know about these outsourcing initiatives in the engineering services industry, then let's look at the impacts:
- Increasing unemployment & more EI. As more Albertans are laid off, they apply for employment insurance (EI). The federal government pays for EI and its deficit grows, creating more debt, and challenges in paying for services and supporting the provinces.
- Brain drain and its financial consequences. As IT staff, engineers and technicians leave Albertato find work elsewhere or switch over to other careers, we lose local skills. When the economy outside improves, we will need to bring those skills back (if those jobs are still available). If thery're required, then bringing them back costs more money and that will slow down the recovery. Even worse, when skilled people leave, knowledge transfer lessens. Knowledge transfer is the process of raising the skill level of newcomers to an industry. If people with knowledge and skill are fewer, training new people and a new generation of youngsters falls behind.
- Losses to provincial and federal government tax revenues (leading to a growing deficit): If one engineer earning $95,000 per year (that's around the average engineer's salary in Alberta) is laid off and moves out of the province to get a job, then the Alberta government loses more than $9,500 in taxes. For each month that an engineer remains unemployed, the federal government / CRA loses over $1000 in tax revenue and other contributions (incl. CPP). If 5000 engineers were laid off and moved out of the province, then the provincial government will lose $47.5 million in revenue per year and the federal government would lose over $5,000,000 each for each month those 5000 engineers remain unemployed. Engineering is a pretty specialized career. If an engineer cannot get a job locally, then he/she must move elsewhere (e.g. Toronto, Montreal, other parts of Canada or even abroad). Technicians and technologists, though more flexible in options for work, still need time for changing jobs. Layoffs cost the government revenues. The current NDP government in AB already is expecting a deficit of more than $6.5 billion. Revenues are needed for maintaining and supporting local services such as schools, universities and health care.
- Trickle-down effect: The retrenchment problem obviously trickles down the economy. In response to a layoff or the threat of losing one's job, one spends less. That's natural. If a large number of people spends less, then all local businesses suffer: restaurants, shops, and then manufacturers, etc.
Here's what should bother you: the engineering and drafting work being sent to these Asian locations is for construction projects in Alberta, i.e. the pipelines, mines, upgrades, buildings, etc were/are going to be built here. Until now, mostly only drafting was outsourced. Now, even engineering is being sent out.
Outsourcing has severe consequences upon the Alberta's economy. This campaign to Save Alberta's Jobs aims at stopping outsourcing of engineering, construction, procurement, administration, document control and IT-related services work (including all work that can remotely be done by technicians, technologists and engineers) from being outsourced to other countries. If work is going to be constructed here, then it must be engineered, drafted, and supported by local staff. If local computers are being updated, then they should be updated by local or at least Canadian staff. Canadians deserve better. You deserve better.
Our campaign begins on November 9th, 2015. If you are interested in participating, if you have policy ideas for protecting Albertan labor, talk with us.
Please follow this blog. The next postings will present research papers that show more unexpected impacts of outsourcing that match the macroeconomic results that we see today in North America and the policies that this campaign is promoting.
If you agree and support our cause and campaign, please help us with a donation. Financial contributions will help us to lobby the provincial and federal government to change course and protect local labor.
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