Chapter 8 Off-Shore Office Work - princeton.edu

Chapter 8

Off-Shore Office Work

Contents

PageThe Present and Future Status of Off-Shore Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How Off-Shore Offices Operate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Linkage Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Types of Data Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Examples of Off-Shore Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Factors in Moving Data Entry Off-Shore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Differing Views of Off-Shore Office Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. Off-Shore Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .U.S. Labor Organizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign Government Officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Economic Development Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Public Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Regulating or Prohibiting Off-Shore Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Regulation of Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Encourage or Do Nothing About Off-Shore Office Work . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 8

Off-Shore Office Work1

While the cost of electronic office equipmentdeclines, the cost of employing Americans toperform routine office tasks is rising both peremployee and in the aggregate. Some U.S.firms have established off-shore offices in or-der to take advantage of lower cost labor. Someof these offices involve manual clerical worksuch as coupon sorting. However, advancesin information and communication technol-ogies make it increasingly attractive to movedata-entry operations off-shore. Data entrymeans converting information from ‘hard’ orpaper form into digital form so it can be storedelectronically. This entry phase of data proc-essing is commonly referred to as “keypunch-i n g , “keyboarding,” or “keying.”

High domestic labor costs could lead to aninternational division of labor in data proc-essing. Data-entry clerks in Caribbean coun-tries, for example, typically earn weekly wagesthat range from about $15 (U.S. equivalent)to approximately $60, while their counterparts

“I’his chapter draws hea~’il~. from an OTA contractor re-port: (’Christopher P. Astriab, .4n .+ls.sessment ofoff-.$hore Of-fice 11’ork, prepared for the U.S. Congress. Office of ‘I’echnol-og~’ .4ssessment, contract No, 583-0630, Feb. 28, 198.5; andfrom an additional report from Consultant Anne Posthuma.

in the United States may earn at least six timesthe latter figure per week. Even with trans-portation, communications, and other costsaccounted for, total expenses for keypunch-ing data off-shore may still not equal the costof carrying out the process domestically. z

Several data-entry facilities are presentlyoperating in the Caribbean region, and theirnumber is expected to increase. Labor costsare low and the region is easily accessible andclose to the United States. Transportation andcommunication networks are reasonably welldeveloped, literacy rates are high, and thereare favorable tax provisions for foreign in-vestors. The Caribbean is only one region,however, in which off-shore offices could pro-liferate.

These operations can be simple to imple-ment. The tools and raw materials are light,relatively inexpensive, and easy to transport.If full advantage is taken of communicationtechnologies, distance and time become almostincidental factors when choosing sites at whichto locate off-shore offices.

-F’ig-ures deri~’ed from Caribbean Central American ~\ctiondata (Washington, DC, 1982).

THE PRESENT AND FUTURE STATUS OF OFF-SHORE OFFICES

While off-shore offices have existed for the data processing operations in the Caribbean.better part of two decades, the arrival of elec- Barbados hosts seven such firms, while Ja-tronic communication and information tech- maica hosts at least three, and St. Christopher-nologies has set the stage for new and possi- Nevis and Haiti each host one. In these fourbly rapid growth in the near future. The countries, approximately 2,300 workers arenumber of companies entering data at off-shore directly employed in off-shore offices. Thesites are still few, and the impact of the largest such office in the region is a coupon-phenomenon on foreign and domestic employ- sorting operation that employs approximate-ment and economic situations is at present in- ly 1,200 people in Haiti.significant. At least three off-shore offices in St. Vin-

Off-shore data processing facilities are pre- cent, Haiti, and Grenada closed down in re-dominantly located in the Caribbean region. cent years. Managerial and transportationCurrently, there are at least 12 U.S. firms with problems were the causes; the ability of the

211

212 Automation of America’s Offices

employees to carry out the operations wereapparently not in question.3 In the case ofGrenada, which hosted a firm for some 10years, recent “unsettled conditions” there werecited as the cause.4

Other countries including India, Singapore,the People’s Republic of China, and Irelandalso host at least one data-entry firm each.Approximately 27 coupon-sorting operationsare located in Mexico, one of the first coun-tries to host off-shore offices. The total num-ber of people employed by these firms is notknown.

There are generally two types of firms in-volved in establishing off-shore offices. Thefirst perform only their own clerical work off-shore in order to reduce labor costs. The sec-ond group are vendors who have establishedoff-shore offices to provide data processing or-word processing services to clients in theUnited States.

All signs indicate that off-shore data entrycould undergo rapid growth over the next 10to 15 years. The vendors who provide theseservices are optimistic about the future of theindustry:

In 3 to 5 years we expect to have 300 to500 people (keying) in different locations (inJamaica). This is a large market, perhaps $50billion by 1990.5

The growth industry in Barbados has tobe information services and data process-ing . . . As Barbarians acquire data process-ing skill, Barbados, with its investment intelecommunications, can develop softwareand other applications. The industry in Bar-bados . . . has tremendous opportunity togrow and evolve, especially given. . . the gov-ernment’s commitment to it. G

For now, any softening of data-entry mar-kets is being offset by explosive growth ofdata-base services. Such growing needs will

‘Donald Marsden, Coopers, and Lybrand, St. Kitts-Nevis.Personal interview, Miami, Dec. 7, 1984.

‘Ibid.‘Mary Ramond, “Jamaica On the Move, ” Business Week

special advertising section, Sept. 17, 1985. (Gary Bechtel, presi-dent of Telemar Data Systems, Fairfield, NJ, is quoted.)

‘Mary Ramond, “Barbados - 1984, ” Business Week, specialadvertising section, Apr. 16, 1984.

give (data-entry firms) a big market to shootat . , . 7

In view of dramatic growth in data process-ing and expanding needs for digital data, theseobservations may be justified. There is con-siderable interest in establishing new dataprocessing facilities abroad and some compa-nies already in the business have cited expan-sion plans.

Several companies are now studying the pos-sibility of setting up keying operations inthe Caribbean. Barbados, St. Lucia, St. Kitts-Nevis, Dominica, Jamaica, Trinidad-Tobago,and Grenada are all possible sites for furthergrowth. 8

Firms already in the region maybe expectedto expand, but the scale of this expansion isuncertain. A firm in Jamaica that presentlyemploys approximately 60 plans to expand toabout 500 employees over the next severalyears. This growth-approximately 700 per-cent—is probably exceptional, however. Thewhole industry now employs about 500 peo-ple in Jamaica. The Jamaican Governmentencourages this industry, and ,Jamaica Invest-ment Promotion, Ltd.—the government devel-opment agency—has reportedly secured con-tracts for another company that would requireit to expand “significantly.

While the industry has existed m the Carib-bean for some time, investors are showingrenewed interest since the passage of the Carib-bean Basin Initiative Act by the U.S. Con-gress.10 While no specific provisions in the actdeal with data processing, the act does expressthe commitment of the U.S. Government toassist in the development of the region. Earlysigns of success in using satellites to trans-

“’The Instant Off-Shore Office, ” Business Week, Mar. 15,1982, p. 136.

“Anecdotal information from various interviews, U.S. De-partment of Commerce, Caribbean Basin Business Informa-tion Center, and others.

“Audley Shaw, Director, North America, Jamaica NationalInvestment Promotion, Ltd., New York, personal interview,.New York, Jan. 14, 1985.

“Gary Bechtel, President, Telemar Data Systems, Fair-field, NJ, personal interview, and presentation given at the Mi-ami Conference on the Caribbean “Off-Shore Key Punch Oper-ations” square table discussion, Miami, Dec. 7, 1984.

mit data from the region are also attractingattention. Based on observations of peopleknowledgeable about the industry, it is prob-ably safe to assume that at least l,000 to 2,000additional data-entry jobs could be created inthe Caribbean region over the next decade.

In Mexico, the growth potential of data proc-essing is high. An estimated annual growthrate of 10 percent has been cited, but competi-tion from the Caribbean region is anticipated. 11

In other areas of the world, growth is de-pendent on: 1) companies’ willingness to estab-lish operations at great distances from theUnited States, 2) the type of data they are deal-ing with (i. e., the lead time available for data-conversion work), and 3) the mode of opera-tion being used (i.e., air transportation or elec-tronic transmission). At the present time, thepractice of flying hard copy to off-shore sitesand returning the data on magnetic media isthe predominant mode of operation. Only afew firms are using two-way satellite links toany extent, and the oldest has been operatingfor about 3 years. Unless satellites are used,it seems unlikely that time-sensitive workwould be exported to areas such as the FarEast or India. Air transport to these areas canbe relatively slow and complicated, particu-larly if time is of the essence.

Wage rates in these areas, however, can bemuch lower than in the Caribbean. In the Peo-ple’s Republic of China, a figure of $2.00 perweek for clerical workers was cited.12 In In-dia, the labor rate for keyers may be as littleas one-tenth to one-fifteenth of the U.S. rate,which more than compensates for transportcosts, ’3 The president of one firm operatingthere estimates that it would cost approxi-mately $65 to key 10,000 characters in theUnited States, while he can get the same jobdone in India for about $7 to $10, and the qual-ity is higher. ’4

— ..— .‘lMollie Shields, Commercial Officer, U.S. Embassy, Mex-

ico City, Mexico. Telexed response to inquiry.Posthuma, op. cit., p. 5.‘ ‘Nick E}age, General Information Ser\’ices, Philadelphia.

Telephone inter~’iew, July 3, 1984.‘Ibid.

Ch. 8—Off-Shore Office Work . 213

At least one U.S. firm keys data in Singa-pore, but this site may have been selected be-cause the data is then relayed to the firm’soffice in Australia. Presumably, transmissioncosts also were an important factor. However,a World Bank report says that two-thirds ofSingapore’s total output is services and over35 percent of these services were devoted tothe production and distribution of information.The primary information sector in Singaporecontributes over 24 percent of gross domesticproducts. 15 In the Far East, therefore, Singa-pore would be a promising site for expansionof data processing work.

As to the future of off-shore keying, theremay be inherent limitations on growth. Inter-national telecommunications to link off-shoreoffices with the United States may not be avail-able everywhere or may not have the tremen-dous growth in capacity that some expect. Notall “raw” information (i.e., hard copy) can bereadily transmitted abroad for keying. Fac-simile clarity is still a significant problem, par-ticularly if operators must process large vol-umes of data. The use of facsimile equipmentdoes not appear to be cost effective as yet.Facsimile transmitters may take as long as6 minutes per page, “. . . far too long to letoverseas operators compete for time-sensitivejobs, ” according to one firm.16

Advances in facsimile technology will, pre-sumably, solve these problems. But the veryfact that such advances are being made maydrastically reduce the need to hire operatorsfor many kinds of data-entry work.

Perhaps the most important technologicalconsideration when assessing the future growthof the industry regards optical character read-ers (OCRs). As advances in the field permitthe widespread use of scanners, and the useof machine-readable documents increases, theneed for human intervention in data entry willbe reduced considerably.

“W’orld Bank, il’orld De\’elopment Report, 1982, NewYork, 1982.

“’’The Instant Off-Shore Off ice,” p. 136.

52-644 0 - 85 - 8


Most of the experts consulted on behalf ofthis study agreed that the arrival of cost effi-cient, highly capable optical scanners wouldmean the end of off-shore data-entry work. Forexample, an executive of one company believesthat his firm will stay as long as the cost-effectiveness of satellite transmission is notoutpaced by advanced technologies that couldeliminate the need for a majority of data-entryjobs altogether: “To say that we’ll be doingthis for the rest of our lives is not accurate;

but to say that we’ll pull out in the near fu-ture is also not accurate. ”17 Others in the in-dustry agreed. It is thus reasonable to expectthat off-shore keying may have an effectivelifetime of only 15 to 20 years, but during thatperiod it could grow rapidly and have a signif-icant effect on U.S. clerical employment.

‘Posthuma, op. cit., p. 18. (James Marston, vice presidentof data processing for American Airlines, is quoted. )

HOW OFF-SHORE OFFICES OPERATE

Linkage Arrangements

There are three principal methods of link-ing off-shore data-entry sites with data sourcesand end users in the United States. All threeuse some combination of air shipment or elec-tronic transmission to move data back andforth between sites.

The least sophisticated approach is to shipinformation by air in both directions. Typi-cally, paper documents, microfiche, magnetictapes, cards or discs, or audio recordings arecollected at one or more U.S. sites for packag-ing. In the case of paper documents some pre-liminary hand sorting may occur at this time.A major U.S. airline, for example, sorts ticketstubs according to station, flight number, andpassenger class before shipping them abroad,

Documents are then packaged and shippedto the off-shore site via regular air freight orovernight courier services. On arrival at thehost country airport, the packages are clearedthrough customs and delivered to the proc-essing site by courier services or employeesof the user firm. At the processing facility eachkeyer has a video display terminal that is typi-cally linked to an onsite computer central processing unit. The information on the documentsis keyed into the computer, the data is recordedon magnetic tapes, disks or cards, and shippedback to the United States, where the data canbe stored, printed on paper, or fed into a com-puter program for analysis.

The second method of linking sites involvesair shipping documents from the domesticpoint of origin to the processing site and thenelectronically transmitting the digitized databack to its source or to other end users. Typi-cally, the data processing sites are linked viaterrestrial telephone lines to satellite Earthstations. The use of this method is, of course,limited by the availability and proximity ofearth stations, but permits shorter turnaroundtimes. Where satellite communication facilitiesare not available it maybe possible to use sub-marine cable links to the continental UnitedStates. Theoretically, the reverse of this proc-ess (i.e., transmitting data to the off-shoresite and shipping hard documents back to theUnited States) is also possible, but OTA foundno instances of such use.

Finally, electronic links may be used to trans-mit data in both directions. Documents arefacsimilied in the United States and trans-mitted to the off-shore site, keypunched, andthen retransmitted back to end users. Infor-mation that has already been digitized, butrequires further processing or revision mayalso be sent abroad by simply “playing back”data on magnetic media and transmitting itfrom the United States to the off-shore site.

Two-way electronic links offer the shortestpossible turnaround times, and may, in fact,be the only practical method of processing dataoff-shore when the ability to deliver it to endusers within a very short time is essential. A

major U.S. printing house that must processand deliver financial data to end users in aslittle as 15 hours is presently exploring thefeasibility of establishing data processing fa-cilities off-shore.

Types of Data Processing

The kinds of data processed off-shore andthe types of processing they require are manyand varied. Documents sent abroad for proc-essing include manuscripts; legal documents;insurance or medical records; statistical data;financial statements; coupons for food andother products; order or subscription forms;business documents such as ledgers, payrollsand the like; ticket stubs; mailing lists; con-test or sweepstakes entry forms; and audiorecordings. In most cases, the documents areproduced in large volumes on a relatively con-tinuous basis, and their conversion to elec-tronic form is essential to the end users.

Processing in many instances is limited toconverting textual or tabular information onhard copy into digital form so it may be morereadily reproduced, stored, manipulated, oranalyzed. One company, for example, keys inmailing lists and contestant entry forms, whileanother concentrates on keying textual andfinancial data for a Fortune 500 client base.

Processing may also involve reformattingdocuments or revising and correcting textsthat have already been proofread or edited anddigitized in the United States. The printingfirm noted previously may transmit to an off-shore site “rough’ copy that had already beenkeyed. The off-shore facility would key in thenecessary revisions to make copy ready fortypesetting. 18 Another firm reformats finan-cial data at its off-shore facility into standardforms for use in the United States. ’g

Examples of Off-Shore Offices

The following capsule descriptions exemplifythe types of off-shore offices and the methodsby which they operate.

‘Keith Adams, R.R. Donnelly & Sons Co., Chicago. Per-sonal interview, Miami, Dec. 5, 1984,

‘gBechtel, op. cit.

from airline ticket stubs for a major U.S. airline,

●

●

the keyed information is returned to theUnited States via satellite

A California-based firm air-freights batchesof paper copy to its keying facility in Sin-gapore. From there, the keyed data is sentto its branch office in Australia via satel-lite. This allows the company to updatethe files of its Australian clients on a dailybasis.A Texas businessman has an arrangementwith students at Tsinghua University inthe People’s Republic of China to key innumerical and narrative information fromsurveys. Magnetic tapes containing theinformation are then flown to the UnitedStates for analysis.In Limerick, Ireland, a major U.S. mar-ket research firm keys magazine subscrip-tion information. The same firm hasbranches in Port-au-Prince, Haiti, and Chi-huahua, Mexico, where product couponsare sorted and rebate lists are developed.A major U.S. international airline collectsticket stubs from its operating basesthroughout the United States and fliesthem to its keying facility in Barbados.There, information on passenger class,point of embarkation, and destinations,etc., is keyed by a staff of almost, 300. Therevenue database is sent over privateleased lines via satellite to its data proc-essing office in the United States on a

216 ● Automation of America’s Offices—

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daily basis. The company transmits about2.25 million characters to the UnitedStates every month. Information on dataentry personnel efficiency is transmittedback to Barbados for analysis by man-agerial staff. The airline is now solicitingcontract work in order to make its keyingoperation into a profit center.A New Jersey company has entered intoa joint venture with a Jamaican firm tokey financial data for approximately twodozen Fortune 500 clients. The data--about 50 percent textual and 50 percenttabular-is used for financial reports. Thefirm cited a document turnaround timeof 1 to 2 weeks. It presently flies hard copyto the facility for keying, but anticipatesusing facsimile equipment in the UnitedStates to transmit information to Jamaica,and then return it to the United Statesvia satellite. Approximately 60 people areemployed in the firm. It expects to dou-ble its size sometime in 1985.A firm in Montego Bay, Jamaica keys inmailing lists for such companies as TheGreat American Sweepstakes and Pub-lisher’s Clearinghouse. The responses tomass mailings are flown to Jamaica andmailing lists on magnetic media are flownback to the United States.A small, Philadelphia-based firm operatesa joint venture data-entry service that em-ploys about 20 people in Madras, India.The company concentrates on keying inpast records, and disk-to-disk conversionof data for clients shifting from one kindof computer system to another. It hadoriginally used a Kurzweil optical scan-ner that translates printed characters intodigital form for storage on magnetic me-dia. It found that use of the machine wasnot cost effective, and also encounteredtechnical problems regarding the capabil-ity of the machine to read accurately. Itgave the machine to a university and nowuses data-entry workers exclusively to keyin information.

—

Factors in Moving Data EntryOff-Shore

Several general factors encourage Americancompanies to establish off-shore offices:

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The

growth in information processing and in-creased need to convert information fromhard copy to digital form;rising domestic labor costs and the avail-ability of lower cost labor off-shore;the availability of good communicationinfrastructure;the existence of suitable office space,transportation facilities, electrical power,and other support infrastructure;the availability of measures that can betaken to ensure the security of informa-tion in transit;the general absence of regulatory impedi-ments to the exportation or to the flowof data across international borders; andthe existence of politically stable and eco-nomically attractive environments in oth-er countries.

Information Market

The director of one foreign government in-dustrial development corporation says:

In today’s world, information resourceshave become abundant. . . and more efficientas a result of the progress stimulated by thenew electronic technology. It seems fairlyclear, to me at least, that as the U.S. econ-omy continues its transformation from indus-trial activities toward information creationand distribution, that the demands for infor-mation services will continue.20

The need for rapid access to informationhelped to stimulate the creation of electronicdata storage and retrieval systems. Their ex-istence, in turn, has accelerated the speed atwhich information must be generated, and in-

‘[’Fred Gollop, Chairman, Barbados Industrial DevelopmentCorp., Bridgetown, Barbados. Gollop moderated the “Off-shoreKey Punch Operations” square table discussion at the MiamiConference on the Caribbean, Miami, Dec. 7, 1984.


creased the volume of data needed to enterinto computerized information systems, Thepresident of a U.S. firm, presently engagedin off-shore keying, notes that “. . . the his-tory of the world, which is in writing, is aboutto be put into electronic databases through-out the world. 21

The capability and need to generate infor-mation in large volumes and on a relativelycontinuous basis is essential for the move tooff-shore data-entry operations. It is thestrength of this growing information marketthat makes owners of off-shore keying opera-tions enthusiastic about their future. In theabsence of an expanding information market,the viability of off-shore operations would bedoubtful. Attracting workers would be diffi-cult if work were sporadic, and cost efficiencycould decline rapidly, thus defeating the pur-pose of establishing such operations in the firstplace.

Domestic and Foreign Labor Costs

In the recent past, there has been a trendtoward an international division of labor, inwhich labor intensive manufacturing work hasmoved to countries where wages are signifi-cantly lower than in the United States. Thishas allowed many American manufacturingfirms to maintain their competitiveness in in-ternational markets. The exportation of data-entry work—one of the most labor intensivephases of data processing—is now occurringfor the same reasons.

The hourly wage rate for keyers in othercountries may range from one-fourth to as lit-tle as one-fifteenth of rates paid to U.S. key-ers.22 One U.S. firm reports that it was payingdomestic keyers $9.50 per hour, whereas aver-age hourly rates at its off-shore facility in Bar-bados are approximately $2.10.23 This is a sav-ings of 78 percent in labor costs alone. Whilecompanies use different methods of estimat-ing their savings by moving off-shore, thosequestioned indicated that it is costing them

about 75 percent less off-shore than it wouldin the United States to obtain a comparablelevel of labor output.

The availability of trained workers is a ma-jor consideration in choosing an off-shore site.Because the bulk of the work done at data-entry sites involves typing (typically, 60 to90 percent of the employees of data-entry oper-ations may be keyers), a pool of trained typistsmust be assembled. Companies located inJamaica and Barbados report no apparentshortage of trained clerical workers; they in-variably had more job applicants than posi-tions.24 Young women comprise about 99 per-cent of the workers. One firm reported thatthe average age of its keyers is 26.25 Most ofthem have at least a secondary school educa-tion, while many have completed at least somepost-secondary training.

A keying rate of 10,000 keystrokes per houris cited as an industry standard.26 Higher ratesmay be achieved if conversion is limited to key-ing tabular data on a numerical ten-key pad,while rates may average somewhat lower iftext data is being keyed.

All companies surveyed indicated that a highliteracy rate was a primary consideration. Lit-eracy in English is strongly preferred to avoidthe complications of crossing a language bar-rier, although language barriers may not becritical if keying is limited to numerical data.

However, other firms have experimentedwith using non-English speaking workers forkeying text, and report excellent results. Theworkers do not need to understand words tokey the right letters. Workers can learn to rec-ognize up to 100 characters without any priorknowledge of them, and to respond by hittingthe correct key. Because thousands of ideo-grams are used to write many Oriental lan-guages, workers literate in these languagesmay be particularly adept at character recog-nition.

Bechtel, op. cit.‘-Page, op. cit.-’Jordan, op. cit.

-’Bechtel, op. cit.; and Jordan, op. cit.-c Jordan, op. cit.“Bechtel, op. cit.


The ability to achieve high accuracy ratesseems to be a direct result of employing lowcost labor. In order to assure high standardsof quality control, two or three keyers maybe given the same information to key, on thetheory that no two people will make the sameerror. After copy is “double-” or “triple-stroked, ’ parity checks may be conducted tospot errors. The original copy is then checkedin order to correct those errors .27 It has beenreported that by using this technique firmshave been able to obtain very high accuracyrates even using non-English speaking keyers.

It would obviously be expensive to achievequality control in this manner in the UnitedStates. Using the hourly wage comparisoncited earlier as an example, copy triple-strokedfor one hour in the United States would cost$28.50, while the same task off-shore wouldcost $6.30. This estimate is for Barbados,where wage rates are higher than those formost developing countries.

Some firms have noted that it is more diffi-cult to find skilled managers locally than itis to find clerk-typists. However, this was usu-ally overcome through programs to promoteand train supervisory personnel, sometimesby sending them to the U.S. office for train-ing.28

The size of available off-shore labor poolsmay be an important consideration for largeoperations, especially in countries with smallpopulations, such as many of those in theCaribbean. U.S. off-shore offices in the Carib~-bean presently employ from 10 to as many as1,200 personnel each. At least one firm choseto locate in Jamaica because keying operationscompanies already were absorbing most of theavailable labor pool in Barbados, and biddingfor such labor “might get a little steep . . .particularly for a start-up company. ”29

In sum, countries most apt to attract U.S.firms to off-shore offices are those with low-wage rates and a highly literate, skilled laborforce of a size sufficient to support proposed.—— -- . . -- .

‘-Adams, op. cit.‘Becker, op. cit.; and Jordan, op. cit.“’Bechtel, op. cit.

operations. The degree to which these charac-teristics are present promotes establishmentof off-shore data conversion.

If English literacy is not critical, then vir-tually any developing country willing to pro-vide the necessary infrastructure and havinga large pool of unemployed people could hostan off-shore data-entry operation.

Communication Technology

Advances in telecommunication, in particu-lar, the advent of satellite communication,have encouraged the operation of off-shoreoffices. Unlike manufacturing industries, whichface high costs and pay a time penalty fortransporting raw materials and products, theinformation industry may ‘‘ship’ its raw ma-terials and products thousands of miles inseconds when in electronic form.

International communications usually takeplace by satellite or by undersea cable. Theuse of satellites appears to predominate, butthe use of international submarine cables can-not be discounted, and the desire for greatersecurity and reliability of data transmissionsmay prompt some firms to maintain accessto both.

A number of technologies are used to pro-vide access to the international communica-tion networks. Some firms have satellite earthstations on their own premises. Most, how-ever gain access to common-use earth stationsor to undersea cable terminals as subscribersto the local telephone system or by leasingdedicated lines. Firms transmitting large quan-tities of data generally find dedicated linesmore economical since they can be designedto accommodate high-data transmission speeds.Thus, one criterion for locating off-shore dataconversion facilities is the existence of a com-munication infrastructure with sufficient ca-pacity to provide dedicated lines to large users.

Microwave transceivers are widely used forprivate line communications in the Caribbeanwhere an extensive microwave system is al-ready in place. It has been suggested that cel-lular telephony could also offer the capabilityof providing data links between off-shore

. .

Ch. 8—Off-Shore Office Work ● 219

offices and international communication ter-minals. Cellular telephony allows voice or datacommunications without the use of land lines.It could play a significant role in bringing theinformation age to Third World countries, al-lowing them to not only catch up, but perhapsalso even surpass the phone networks thatpresently exist in the developed countries.’”According to a representative of a U.S. cellu-lar telephone company:

Cellular will provide nationwide data net-work capability and needed mobile and fixedservices to all segments of an emerging na-tion. It may well assume the role of the wire-line system replacement in smaller cities andin isolated rural areas. Cellular could be uti-lized to remove isolation, encourage disper-sal of industry and increase the efficiency ofprojects located far from the urban concen-trations of industry.’]

Costa Rica is expected to begin installationof a cellular system in early 1985, which willprobably make it the first Third World coun-try to use cellular technology as an integralpart of its telecommunication systems. Instal-lation of cellular systems in several countriescould increase the options of firms looking foroff-shore office sites.

Of importance to operators of many off-shoreoffices are the telecommunication regulationsin the host country. In many developing coun-tries, communication networks are owned andoperated by the government in order to gen-erate public revenue. In some cases, all phoneequipment and services must be purchased orleased from the government, thus limitingusers’ options with regard to the availability,type, and capabilities of equipment.

A country’s reputation for providing hook-up and maintenance service also deserves con-sideration. Clearly, it would not be desirableto establish an off-shore office where bureau-cratic problems or lack of well-trained techni-cal personnel caused significant delays in— — —

Charles T. 1 lagel, .4pplication of Cellular ‘17echnolog-?’ forL~e\wloping Countries, presented at the Miami (’conference onthe Caribhean ‘‘Communications I nfrastructures’ squaretahlediscussion, N!iami, December 1984.

‘ I hid.

service, or impeded the timely and propermaintenance of the phone network.

Facilities, Transportation, andElectrical Power

By and large it does not appear that U.S.firms have had serious difficulties in locatingfacilities in which to set up shop, especiallyin the Caribbean. Many governments have de-veloped industrial estates that rent or leasefactory space at very low rates to foreign in-vestors. In Jamaica, for example, the averagerent for such space is a mere $.42 per squarefoot per month, or about $5 (U. S.) per squarefoot per year (1982 figures).” The leasing ofspace at off-shore sites is considerably cheaperthan in the United States, and in some casesso much cheaper that leasing costs may bea minor consideration in the course of siteselection.

Space may be leased or purchased outrightfrom the private sector, depending on foreignownership restrictions imposed by govern-ment. Or, it may be possible to expand exist-ing locally owned data processing facilities,if, for example, a U.S. firm enters into a jointventure with an existing host country firm.

The quality of available facilities in devel-oping countries may vary considerably. Some

‘-Caribbean Central American Action, op. cit.

Photo credlf M/v/s(r) of T r a d e /~?cfustrj and Deve/oprnentS( Chmfoober and Neb/s

Off-shore data processing offices occupy a wide rangeof fact I i ties from modern office buiIdings to convertedfactory shells. This one is In St. Christopher and Nevis


office buildings may be on equal footing withthose commonly found in the United States,while others may be simple corrugated metalor concrete block shells adaptable to manyuses. One U.S. firm adapted such a shell forits data conversion operation in St. Kitts-Nevis. Another spent approximately $1 mil-lion (U. S.) to upgrade an existing office build-ing in Barbados. Its facility is regarded bythe company, the Barbados Government, andthe company’s competitors as a “showcaseoperation” equal to the best facilities in theUnited States.33

The availability of international air trans-portation may be essential if electronic link-age arrangements are not being used in bothdirections. Both regular air freight and over-night courier services are used. One reason forthe proliferation of off-shore offices in theCaribbean is the availability of frequent, di-rect flights of relatively short duration to manyof the islands from major cities in the UnitedStates. Time in transit from New York to Bar-bados, for example, is about 4.5 hours. Thisis particularly attractive if time-sensitive doc-uments are being dealt with. It also makesit easier to manage off-shore facilities, sinceU.S. personnel may get to the sites relativelyquickly if necessary.

Companies generally indicate that availabil-ity and reliability of electrical power are notmajor concerns in their site selection. Somefirms use on-site back-up electrical generatorsbecause power grids in some countries experi-ence sporadic brownouts (i.e., voltage dropsbelow specified levels) or blackouts. The costof electrical power is not a major concern; inJamaica for example electrical rates are com-parable to those on the eastern seaboard ofthe United States.34

In general, facilities are less costly off-shore,although infrastructures in many countrieslack the reliability and redundancy that istaken for granted in the United States. Thegrowth of foreign investment in less developedcountries has, in many cases, spurred govern-

ment efforts to enhance their infrastructureswith a view toward attracting still more for-eign capital, technology, and expertise.

Security of Data Shipmentsand Transmissions

With large amounts of data being trans-ferred across international boundaries, secu-rity of data shipments and transmissions isa concern, but has so far been a minor prob-lem in off-shore sourcing. None of the firmsinterviewed for OTA identified any specialmeasures that they take to ensure the secu-rity of shipments. Yet the loss or interceptionof documents containing sensitive informationcould conceivably cause serious damage, par-ticularly if, for example, information on stockofferings or other financial information weremade known prematurely, or if private, intra-corporate communications are intercepted.

Interception of such shipments is not with-out its difficulties. One would need to knowin advance about the nature and timing of ship-ments. If particularly sensitive documents arebeing shipped, air courier services may be usedto ensure their safety. One courier firm in theCaribbean region indicated that its shipmentsare accompanied and monitored by their per-sonnel on a continuous basis.35 The companiesshipping the information, as well as theirclients, appear to be satisfied with its security.

Intercepting electronic data transmissionsis another matter; it requires technical knowl-edge, and may not necessarily yield usable,understandable data because encryption canbe used. Even if unscrambled transmissionswere intercepted, strings of characters maynot be useful unless one knows what to do withthem.36 In some industries such as airlines,much information is already shared, so thevalue of information transmitted may be neg-ligible to another airline.

Nevertheless, wires can be tapped, and sat-ellite transmissions can be picked up by par-ties other than the intended ones. Wiretapping

‘;The firm referred to has operating bases in Miami, NewYork, and other cities in the United States and the Caribbean.

“’Jordan, op. cit.‘iGollop, op. cit.“Ibid.


can be detected fairly easily because the am-plitude of an electronic signal is attenuatedwhen a third-party taps the line.37 Identifyingunintended recipients of satellite transmis-sions can be far more difficult. In either case,however, it would seem that a considerableamount of technical ingenuity would be re-quired to not only intercept transmissions, butmake them usable as well.

Rules and Regulations

At the present time, regulations of any sortthat bear directly on the establishment or oper-ation of off-shore data-entry services appearto be so few and/or minor that firms involvedhave expressed relatively little concern overthem.

Laws that generally affect off-shore keyingoperations are those concerning telecommu-nications. Such laws often mandate the useof government-owned Post, Telephone, andTelegraph (PTT) networks and equipment,since the PTTs of developing nations typicallygenerate revenues needed for other govern-ment functions. Firms report that these regu-lations have been more of an annoyance thana major obstacle to off-shore sourcing.

Foreign customs regulations also do not ap-pear to have been a problem for data-entryoperations. Many firms investing in develop-ing countries are granted concessions includ-ing the privilege of importing raw materialsand equipment duty free. The only notablecomplaints have to do with the difficulties ingetting documents and other items clearedquickly through customs, especially on week-ends, which can be a problem for firms keyingtime-sensitive documents. However, seriouscustoms problems would probably spur au-thorities to make remedial actions to avoid los-ing sizable foreign investments.

U.S. telecommunications and customs reg-ulations at present raise no obstacles to off-shore keying. Customs laws govern the im-portation of documents and magnetic record-ings, but tariffs are extremely low or not lev-

Hough, op. cit.

ied at all.38 U.S. companies keying their ownbusiness data (e.g., payroll, inventory, ar-chives, etc.) may import these records dutyfree. These are classified under schedule 8, pt.7 of the Tariff Schedules of the United StatesAnnotated (TSUSA) (1981) as item 870.10–“records, diagrams and other data with regardto any business . . . operation conducted out-side the United States, whether on paper,cards, photographs, blueprints, tapes or othermedia. 39

Ordinarily, recorded magnetic tapes, cards,or discs are classified under TSUSA schedule7, part 2, subpart G as item number 724.40–‘‘recordings on magnetic tape or any mediumother than wire. ’ ’40 A duty of 9@ per squarefoot of recording surface is specified. Thus,a duty of only $9 would be payable for a record-ing on a standard 2,400 foot reel of .5" inchcomputer tape (which contains 100 square feetof recording surface). Even this duty may notbe imposed if the recordings originated in acountry that is beneficiary to the GeneralizedSystem of Preferences. Such countries mayexport most or all of their goods to the UnitedStates duty free. In any event, recorded me-dia from data-entry operations are, by andlarge, regarded as returned U.S. goods and notsubject to duties.41

While the physical characteristics of the me-dia itself are not “advanced or improved” atkeying operations, it can be argued that suchmedia has an intangible good—information—added to it, and is, accordingly, increased invalue. There has been sharp criticism in thisregard, particularly by U.S. labor representa-tives. As one union spokesman says, “You may

—.—‘“John R. Gray, Chief, Classification and Value Di\’ision,

U.S. Customs Bureau, Miami, personal inter~iew, Nliami, Dec.6, 1984.

“’Tariff Schedules of the United States Annotated 1980,Washington, 1980, p. 774.

“’Ibid.‘]’’ The Instant Off-Shore Office, ” p. 136. Specifically, they

are listed under TSUSA schedule B, pt. 1 as item number800.00–’’products of the United States when returned afterha~’ing been exported, without having been advanced in \ralueor improt’ed in condition by any process of manufacture or othermeans while abroad. ”

222 ● Automation of America’s Offices—

be importing a $10 tape with $50,000 worthof information on it. “42

Such claims do not appear to be exaggera-tions in view of the prodigious volume of datathat can be recorded on a given amount of mag-netic media. If recorded at maximum density(data density is dependent on the type of rec-ording equipment used), a .5" inch wide nine-track computer tape can hold 6,250 bytes orcharacters of data per linear inch. A 2,400 footreel of tape holds up to 94 megabytes (i.e., 94million characters). To put this in perspective,a commercial directory listing the names, ad-dresses, telephone numbers, chief executives,Standard Industrial Classification numbers,sales levels, and number of employees of thetop 51,000 U.S. corporations comprises onlyabout 30 million characters.43 This equals ap-proximately 1,500 pages of high-density textin very small print.

The president of a domestic data-input com-pany has argued that duties should be paya-ble at least on the labor value added to proc-essed tapes and disks. The directory mentionedabove, for instance, probably took at least3,000 person-hours to key at 10,000 keystrokesper hour. Using the $2.30 per hour wage forBarbados, it would cost roughly $6,900 to en-ter all of the data in the directory. His con-cern stems from the fact that his firm has lost“millions of dollars in contracts to off-shorefirms. ’44

Certain countries have erected tariff and non-tariff barriers to regulate the content andoperation of data banks, and designate themethods and routes by which data can betransferred across international borders. Wherethese regulations exist, they usually stem fromgovernments’ concerns over the privacy oftheir citizens, national security, perceived lossof cultural independence, and concern thatunrestricted data transfers could lead to loss

“Dennis Chamott, Assistant Director, Professional Work-ers Division, AFL-CIO, Washington, DC, personal interview.Washington, DC, Dec. 17, 1984.

“The listing referred to is Ward’s Directory of 51,000Largest U.S. Corporations, vol. 1 (Petaluma, CA: Baldwin H.Ward Publications, 1984). The directory consists of “1,504 pages,11 “ x 914 “ over 30 million computer data bytes. ”

“’’The Instant Off-Shore Office, ” op. cit., p. 136.

of control over economic development andgrowth.45

Off-shore data-entry operations have notbeen significantly affected by such laws be-cause they have generally been established inthe countries that have not enacted such laws.Many countries have not yet addressed theissues surrounding data and its transfer, andthese countries tend to be less developed, havewage rates that are generally lower, and wantthe jobs, training, and capital that data-entryoperations can provide. They view data entryas a basis for the development and advance-ment of computer and computer-related indus-tries and capabilities.

Thus, data-entry firms presently operate ina very lenient regulatory environment. Devel-oping host countries are not inclined to killthe proverbial “goose that laid the golden egg”by legislating against the data-entry indus-try. The benefits they obtain from it far out-weigh any gains to be had by levying discrimi-natory taxes or imposing other restrictions.Undoubtedly, any moves in this direction wouldquickly cause firms to relocate to countrieswith more favorable business environments—of which there are many. U.S. laws impose vir-tually no burden on off-shore sourcing. Vigor-ous debate over regulatory matters can be ex-pected to continue, however, as labor unionsand domestic firms pressure authorities to ex-tend tariff treatment to international trade indata and data processing services.

Political Stability and InvestmentClimate in Foreign Countries

The reason most frequently cited by U.S.firms in all sectors for not investing abroadis perhaps that they must deal with too manyunknowns. Political stability of a foreign coun-try and its policies regarding foreign, privateinvestment are foremost concerns of U.S. bus-inesses thinking about establishing off-shoreenterprises.

45James R. Basche, Jr., Regulating International Data Trans-mission: The Impact on Manag”ng International Business,Washington, DC, 1984, p. 16.

————. -.. — ..— - —-.——

Despite these problems, U.S. firms havefound that the Third World presents an abun-dance of business opportunities for those will-ing to assume the attendant risks. Many de-veloping countries recognize the advantagesof permitting foreign investment to enhanceprivate sector development. Not only does itexpand their capital base, but it also providesnew opportunities for host-country ownedbusinesses, brings in foreign technology andexpertise, and provides training for their peo-ple, which in many cases is their most abun-dant resource.

The host country’s investment policies arealso instrumental in attracting off-shore busi-ness. Specific investment incentives differ de-pending on the country, but various forms oftax relief and import duty exemptions are com-monly used. The investment incentives pro-vided by many developing countries are help-ful to investors, and their existence is generallya good indicator of a country’s need for suchinvestment and recognition of its importance.Such incentives may, at the very least, pro-vide an appearance of political stability andcontinuity, and an indication that foreign gov-ernments are aware of the need to create fav-orable business environments for investmentby industrialized nations.

Ch. 8—Off-Shore Office Work ● 223.

The U.S. Government and the governmentsof other countries have encouraged investmentin developing nations by helping firms to locatebusiness opportunities, guarding them againstthe effects of adverse political developments,and providing attractive business incentives.At least one American company notes thatboth United States and foreign governmentassistance was instrumental in the establish-ment of its data-entry operation in Jamaica.Of significant importance to the firm was assis-tance provided by the Overseas Private In-vestment Corporation (OPIC). OPIC is a self-sustaining, profit-making Federal agency (acomponent of the U.S. International Devel-opment Cooperation Agency, which also in-cludes the Agency for International Develop-ment) whose mandate is to “mobilize andfacilitate the participation of United States’private capital and skills in the economic andsocial development of less developed, friendlycountries and areas. To do this, the agencyprovides political risk insurance, direct loansand loan guarantees, and other service, “All(of which) are designed to reduce the perceivedstumbling blocks and risks associated withoverseas investment. 46

“ <l~?rseas Prit’ate investment Corporation, corporatebrochure, Washington, DC 1984, p. 1.

DIFFERING VIEWS OF OFF-SHORE OFFICE WORK

U.S. Off-Shore Companies

For the most part, U.S. companies cite sav-ings in labor costs, as much as 75 percent, astheir primary motivation for seeking off-shoresites for data processing.47 None of the com-panies questioned thought that this trendwould have a very significant detrimental im-pact on U.S. employment, and some suggestedit would create many new marketing jobs inthe United States.48

——‘-Answers were in response to interviews conducted by the

contractor primaril~’ at the Miami Conference on the Carib-bean, Miami, Dec. 3-7, 1984. Other interviews were carried outin New York and Washington in early 1985. Astriab, op. cit,

“Bechtel, op. cit.

Some companies have found that produc-tivity off-shore is often higher than in theUnited States, and standards of accuracy andemployee conscientiousness are generally high-er. One company had originally underesti-mated the capabilities of foreign workers, andanticipated a standard of performance 70 per-cent of that attainable in the United States.After only 1 year in operation, the company’sforeign employees keyed better than its U.S.keyers who, on the average, had over 5 yearsseniority over their foreign counterparts. 49 Atleast two other companies confirmed the claimof higher productivity .50 As noted earlier, high-—

“’Jordan, ;p. cit.‘13echtel, op. cit.; and Becker, op. cit.


er accuracy rates for converted data can alsobe obtained abroad because low-labor cost per-mits redundant keying.

Another argument raised in favor of off-shore data processing is that in some casesthe work will not be done otherwise. One com-pany official pointed out that his firm is do-ing massive archival work for several majorcustomers. The customers had considered do-ing it in-house, but finding the work too costly,they postponed it until they could find a com-pany like his to do it at an economical rate.51

U.S. Labor Organizations

Representatives of U.S. labor unions arguestrongly against the movement of data-entryoperations off-shore. While the AFL-CIO hasnot yet adopted an official position, their gen-eral opposition to moving any type of workoff-shore is based largely on the followingpoints:

●

●

●

The creation of off-shore work representsa direct displacement of U.S. workerswhich is detrimental to our domestic em-ployment situation, and does not alwayshave a permanent, positive effect on thedevelopment of needy countries.Labor competition for jobs based on wagerate differentials is not fair or equitable,and is inherently exploitative of labor inless developed nations.Moving operations of any kind off-shorereduces effective control of our economy,and threatens our economic security.

U.S. labor organizations argue that for everyjob created off-shore, one is lost in this coun-try. Exporting clerical work to low-wage coun-tries is the latest phase in a trend that hasbeen going on for a long time in U.S. manufac-turing industries. While the number of peopleemployed in off-shore offices has had, as yet,no discernible impact on U.S. labor, thisshould not preclude our taking steps to stopthis trend.

—“Bechtel, op. cit.

Further, it is argued, creating such work off-shore does not always have a permanent de-velopmental impact on poorer countries, be-cause companies always seek areas where wagerates are lower. As a country develops and itswage rates rise, companies located there maymove to still less developed and less costlyareas in which to operate.52

Union representatives argue that becauseour economy is becoming more heavily depend-ent on information and white-collar work, asopposed to manufacturing or blue-collar work,and as white-collar work becomes more auto-mated, we could be “taking away the last largegroup of jobs that the economy is supposedlygoing to have available. ”53

Others argue that locating more and morejobs off-shore may jeopardize our economicsecurity because: 1) investment in the econ-omy is lost, and 2) off-shore operations existin environments that cannot be controlled,thereby making the investments vulnerableto adverse political developments. The con-tinued relocation of work out of this countryis economically unsound because we are fore-going opportunities to create domestic jobsand new business enterprises.54 Also, our de-pendence on foreign labor further diminishesthe ability to function economically and inde-pendently, and, therefore, weakens the UnitedStates. There have been repeated nationaliza-tions of U.S. investments abroad in recentyears. Off-shore office work is particularlyworthy of special consideration:

What (we’re) doing now with shipping jobsoverseas (via the use of) electronic transmis-sion. . . is making (companies) even more vul-nerable. Work that they have to have for(their) company to function, they are placingoutside the realm of their control. In termsof control, what do you do if you’re not

-Chamot, op. cit. This argument is also presented in TheElectronic Sweatshop: The Use and Misuse of Work Stationsin the Home, a presentation given by Dennis Chamott and John1,. Zalusky to the National Executive Forum: Office Work Sta-tions in the Home, November 1983.

“’Chamot, interview,“Barbara Hutchinson, Director, Women’s Bureau, AFI,-

CIO, Washington, DC, personal interview, Washington, DC,NOV. 19, 1984.


duplicating that system here, and that sys-tem shuts down?55

Off-shore offices would be very easy to shutdown, because they tend not to be very large,do not have a major impact on host countryeconomies, and are heavily dependent on vul-nerable communication and transportationnetworks.

Foreign Government Officials

The direct impact of off-shore data entry onincreased employment in developing countriesmay be significant and quite rapid. One com-pany began interviewing prospective employ-ees in Barbados in May 1983, commencedtraining on August 1, and began productionin October of the same year. The operationpresently employees 275 people, 80 of themmanagerial, technical, and supervisory person-nel. This suggests that keying operations, espe-cially larger ones, may provide significant jobopportunities not only for clerical workers, butalso for more highly trained workers. The samefirm let approximately $1 million in contractsto local firms to refurbish its building. Thus,business opportunities and jobs may also becreated in other economic sectors.

Reactions of foreign government officials tooff-shore office work are very positive. Thosecountries that already host such operationsare pleased with the results, while those thatdo not yet have such operations want them.In an informal survey, representatives frommore than 20 Caribbean and Central Amer-ican countries unanimously claimed that suchinvestment projects would aid their economiesand would be welcomed.56

Barbados has gone so far as to single outinformation services as a sector to receive ma-jor emphasis for development. At the otherend of the spectrum, representatives of some

—Ibid.

‘ Answers were in response to informal interviews con-ducted by the contractor at the Miami Conference on the Carib-bean, Miami, Dec. 3-7, 1984. Representatives of approximatel~’20 Caribbean and Central American countries were queried,Astriab, op. cit.

countries know little about the phenomenon,but are eager to learn more about it.

The work is labor intensive, requires onlya moderate capital outlay, and can generateemployment rapidly. It is a “clean’ industry,without the heavy equipment, large space re-quirements, and pollution often associatedwith other industrial enterprises. The indus-try provides, at the very least, rudimentarytraining in computer use—a rare opportunityfor workers in less developed nations. Finally,it establishes a foundation on which furtheradvancement in computer-related industriessuch as software development, technical serv-ices, and data transmission may grow. The Di-rector of the Barbados Industrial DevelopmentCorporation (BIDC) elaborates:

1 know from experience in Barbados . . .that we can offer a lower cost location (forthe industry), and answer the needs of manyindustrial companies in the United States. Iknow too that the countries in the Caribbeancan benefit from increased employment, andin the case of off-shore keypunch operations,this can be fairly rapid. And I also think wecan benefit from technical education whichwould ultimately set us on the path to higherlevels of technology in the computer servicesindustry .57

Barbados has targeted information servicesas an industry group that is expected to havea major impact on the objectives of the Bar-bados Industrial Development Corporationand the Barbadian economy. According to its1983-87 Development Plan:

The Information Services industry can beexpected to generate substantial employmentin the short term . . . linkages with the moretechnically proficient computer industry . . .will be sought as a means of expanding thesector’s contribution to the economy . . . Lo-cal participation in the Information ServicesIndustry can come about through the estab-lishment of service bureaus to perform off-shore data processing for North Americancompanies. 58

Gollop, op. cit.‘Ilarbados Industrial De\relepment Corp., Industrial De\’el-

opment Plan, 1983-1987, 13ridgetown, Barbados, 1983.

226 ● Automation of America’s Offices.

Development officials interviewed for OTAall agreed that foreign data-entry workers viewtheir jobs and status in a considerably morepositive light than their American counter-parts. While keying in the United States issometimes pictured as a low status, boring job,foreign workers often consider it a gatewayto opportunities that did not formerly exist(as do many minority workers in the UnitedStates–see chapter” 12).

Over-dependence of countries on informa-tion services is not seen as a problem at thispoint because the industry is presently sosmall. In addition, many developing nationsopt for diversification of industrial develop-ment as a key ingredient of a more stable econ-omy. They want to avoid heavy dependenceon traditional industries such as tourism oragriculture, with their characteristic seasonalfluctuations in income and employment.

Economic Development Organizations

Development organizations are in essencethe ‘middlemen” in regard to the developmentof off-shore office work. They view the expan-sion of the sector in the much larger contextof economic development, are supportive ofits growth, and reaffirm the arguments putforth by U.S. companies and foreign govern-ments in favor of such growth. “The sheernumber of jobs (off-shore data processing) cre-ates is the main attraction of the industry inthe view of developing countries, ” says oneofficial of a private, nonprofit developmentorganization .59

This development expert claims that nega-tive reactions, if any, in developing countriesusually come from the more educated sectorsand the labor movement, or, as he put it: “peo-ple who are not worried about having a job. 60

Those citizens of developing countries whoview U.S. investment as exploitative are thosewho are generally of higher economic status

“’Gordon Hunt, Director, Investment Services, Carib-bean/Central American Action, Washington, DC, personal in-terview, Washington, DC, Dec. 18, 1984. This claim was alsoaffirmed by Gooch, op. cit.

“’Ibid.

and are not in need of the job opportunitiesthat result from such investment.

Some experts favor investment in develop-ing country private sectors as opposed to justpublic-infrastructural development projects.”According to this argument, in many casesdevelopmental aid programs have not achievedtheir intended purposes. For example, whilegood roads may indeed have been built, pri-vate businesses along those roads are neces-sary for the general advancement of the econ-omy. While the wages paid to workers in thesebusinesses may be extremely low by U.S.standards, this should not be considered ex-ploitative.

Rebutting arguments from U.S. labor thatthe flow of clerical work out of the UnitedStates should be stopped, development orga-nizations point to the great impetus of in-creased international economic interdependen-cy and the disadvantages of impeding capitalflows. “Business goes where business can bedone, ” as one development organization officialsaid, “The flow of capital cannot be stoppedunless one wishes to control the economy, andthis runs against the whole tradition of freetrade. 62

Answering U.S. labor’s claim that wage com-petition is the only focus when selecting busi-ness sites, a development official counteredthat it has never been a case of just wage rates:“If that were the case, there wouldn’t be a bitof work done but in China and India. 63 Whilethis is, of course, an overstatement, higherprofits are not the only motivation for manybusinesses off-shore. For some, it may simplybe a matter of survival. Viewing the exploita-tion argument in a different light:

You will certainly get cases of exploitation,but it is far more exploitative to say (thatwe will) keep those jobs here, and pay an un-acceptably high level of wage which will makeour products unacceptable anywhere otherthan in our own economy. Plus, by doing so

‘] Ibid.“Ibid.“Ibid.


we will ‘starve’ (the people in less developedcountries). 64

There has been massive legal and illegal im-migration to the United States from the Carib-bean. Many countries in the region have theirsecond largest, and in some cases their largestpopulation centers in the United States. Somesee it in the best interest of the United Statesto create jobs for people in their own coun-tries to stem this tide of immigration:———-

“Ibid.

Do you employ those people in their owncountries or do you employ them (in theUnited States)?, because that’s where they’reall coming. Do they come up here and workillegally for sweatshop wages , . . or do theystay in their own countries, where they wouldrather be to begin with if they could makea decent wage?65

Ibid.

PUBLIC POLICY

Off-shore office work does not have a signif-icant influence on the U.S. economy at present.Only a few dozen firms and a few thousandemployees are involved. Nevertheless, it couldgrow. If domestic wage rates remain compara-tively high and telecommunication and trans-portation costs continue to fall, market forceswill encourage more firms to investigate theoff-shore alternative. Growth could be quiterapid, at least in the short- to medium-termfuture.

In the long term, technological advances ininput technology, especially optical scanning,are likely to undermine the cost advantagesof off-shore data-entry work. Thus, off-shoreoffices are likely to be a temporary phenome-non, unless some other technological advancesor economic conditions make it feasible tomove other types of office work off-shore—for example, telephone reservations or orderprocessing.

Assuming that it is temporary, the questionremains how U.S. public policy should dealwith off-shore offices. The alternatives includeprohibiting, regulating, or encouraging it.

Regulating or ProhibitingOff-Shore Offices

Methods for limiting the growth of off-shoreoffices could include such government actionsas:

ISSUES

imposing regulation on the types of datathat can be imported,imposing restrictions on the hardware andsoftware used off-shore,using taxes to discourage off-shore workor encourage that work be done domes-tically, and/orimposing restrictions on the use of pri-vate telecommunication lines.

Regulation of Data

Many nations have imposed restrictions ontransborder data flows for the purpose of pro-tecting the privacy of their citizens, for exam-ple, prohibiting transmission of name-linkedinformation to countries with less stringentprivacy laws.

The United States has data protection lawsdesigned to restrict the uses of name-linkeddata and assure access to the data by personsreferenced in them. These laws do not, how-ever, address the “front-end’ issue of how orwhere information may be entered into elec-tronic databases. Nor does U.S. law restrictthe flow of data across international borders.

It is not clear that privacy protection is nec-essarily a good motivation for U.S. regulationof off-shore offices. Even if it were, the enact-ment of privacy protection laws governingtransborder data flows would affect other in-dustries, such as banking, and the internal

228 ● Automation of America’s Offices

operation of many multinational corporations,as well as off-shore keyers.

A more direct approach to discouragingestablishment of off-shore offices is to simplydesignate data entry as a phase of processingthat U.S. companies must, in virtually all cir-cumstances, carry out within our own bordersif the data is destined for eventual sale. Thiswould, in effect, constitute a local content re-quirement.

Because such a requirement implies that thedata being entered is a commodity, this typeof restriction may not be applicable to certaintypes of data—e.g., revenue, personnel, pay-roll information, and the like-reserved for theexclusive use of a business, and not meant tobe sold. “Buy national” requirements couldfill this gap by mandating that off-shore dataentry could not be resorted to unless domes-tic alternatives were unavailable. Brazil andCanada for example, have imposed regulationsthat require certain phases of data processingto be conducted within their own borders.66

If viewed in a broad context, however, im-position of such regulations may serve to stim-ulate reciprocal actions by other countries.Thus, more harm could be done to the U.S.data processing industry than could be coun-ter-balanced by benefits of restricting a par-ticular phase of data processing to our ownshores.

Restrictions on Hardware and Software

In lieu of limiting the kinds of data that couldbe entered off-shore or requiring that data en-try be carried out domestically, requirementsthat U.S. equipment be used could be imposed.In essence, this would constitute another “buynational’ requirement. This might effectivelypreclude the establishment of keying opera-tions in some countries, since, as previouslymentioned, foreign communications author-ities often monopolize telecommunication equip-ment markets and require that their locallymanufactured equipment be used. However,many countries do not even have a computer

“Joan E. Spero, “Barriers to International InformationFlows, ” Telecommunications, November 1983, p. 68.

industry, and U.S. computers and modems arealready usually the equipment of choice foroff-shore firms.

Taxation Alternatives

In theory, duties could be imposed on thedata that is keyed off-shore and subsequentlyimported into the United States by physicalor electronic means; the data could be treatedas a commodity or primary good imported forconsumption. Alternatives might be to levyduties on the labor value added to data keyedoff-shore, or to impose a trigger price tariffthat would keep the price of off-shore keyingabove domestic levels.

In practice, however, levying any such tariffswould be fraught with difficulty. First, thisshotgun approach to regulation would prob-ably affect all data importers, of which off-shore keyers area very small minority. In addi-tion, a method for determining the value ofdata would have to be developed. Value mightbe related to proposed end use or might bebased simply on the basis of the volume ofdata imported (e.g., a duty might be levied forevery kilobyte—one thousand characters-ofdata). The latter seems inherently inequitable,since some kinds of data are much more valu-able then others. The former seems nearly im-possible to enforce, unless customs officialsare going to play back and analyze every com-puter tape.

Imposing duties on data imported via tele-communication presents even more oneroustechnical and political problems. The sheer vol-ume of transmissions to the United States andthe many routes they may follow present lo-gistical problems of inestimable proportionsfor monitoring. In the future, the increaseduse of direct satellite links between off-shoreinstallations and domestic offices will makethe imposition of border controls on data flowsextremely difficult, if not impossible.67

In any case, it seems clear that on-site mon-itoring by government authorities and/or wire-tapping on a grand scale would be necessary

“-Ibid.


to police electronic data flows. Even if this weretechnically feasible, it is doubtful that reve-nues accrued by a government could justifythe efforts made to collect them.

Putting technical and economic considera-tions aside, moves toward monitoring dataflows in the United States would undoubtedlyencounter many political obstacles. The prac-tice would cast a clear shadow of authoritari-anism, and have a very inhibitive effect on busi-ness and communications in general. A fargreater purpose than stifling a minor indus-try would obviously be in order if the practicewere adopted. In sum, while the objective tocurtailing off-shore keying could readily be at-tained through tariff legislation, a more tightlyfocused approach wouldpriate.

seem more appro-

Restrictions on DedicatedTelecommunication Lines

Limiting the availability of leased privatetelecommunication lines to off-shore keyingoperations or prohibiting their use for this pur-pose would unquestionably deter the estab-lishment of such operations, because it woulddirectly effect one of the lifelines of the indus-try. Since leased lines appear to be the mostcost effective way to transmit large volumesof data across international borders, off-shorekeyers relying predominantly on telecommu-nication capabilities to operate would be acute-ly effected by any such restrictions.

Regulations of this sort could, of course, beapplied only to the U.S. side of any communi-cation link (e.g., the down-link from a satellitesending data to the United States, a terres-trial cable in U.S. territory, etc.), since the for-eign ends of such links are out of Americanjurisdiction. Nonetheless, this strategy couldbe effective since the regulations could be ap-plied specifically to off-shore data-entry firmswithout impinging on the rest of the data proc-essing industry.

Restricting access to dedicated lines mightbe accomplished by specifying a limitation onthe number of lines available to off-shore key-ers in different regions. Implicit limitations

might be achieved by imposing stiff tax penal-ties or surcharges on data-entry firms leasingsuch lines.

Several countries already use this strategyto protect their internal data processing in-dustry and it is quite effective in curtailingundesired activities. In Japan, the Ministryof Posts and Telecommunications, through theinternational telecommunication authority,KDD, kept two large U.S. data processingfirms out of the country’s market by first deny-ing them dedicated lines, and then restrictingtheir use so that the firms could not marketall of their services.” The Deutsche Bundepostin West Germany requires users of leased linesto use the public-data network. In 1982, theauthority declared that it would permit theuse of international leased lines only if somephase of data processing were conducted inGermany before data was transmitted out ofthe country.69 Brazil has enacted many restric-tions on the use of leased lines. For instance,firms may not use them to access databaseslocated outside the country.’”

Short of limiting access or prohibiting off-shore data-entry companies from using leasedlines, legislation could require telecommuni-cation carriers to impose usage-sensitive rateson these firms. A number of foreign govern-ments have expressed interest in usage-sen-sitive rates, since they fear the loss of reve-nues that could result from reduced use of theirpublic networks.” One international data proc-essing service estimated that the introductionof usage-sensitive rates would raise its oper-ating costs by 700 percent.72 In the face of suchcost increases, many off-shore data-entry firmswould probably have to close up shop.

Regulations on leased lines could, therefore,offer a relatively “clean” approach toward dis-couraging off-shore keying; impeding othertypes of data flows could be avoided becauserestrictions could be tightly focused. To be

—‘‘Spero, op. cit., p. 68.‘ ‘Ibid.Ibid.,Jussawal]a and Cheah, op. cit.. p. 292.Spero. op. ci~., p. 68.

230 ● Automation of America’s Offices

truly effective, however, such restrictions wouldprobably have to go hand-in-hand with someform of customs regulations so that controlcould be extended over firms who import datarecorded on magnetic media.

Encourage or Do Nothing AboutOff-Shore Office Work

Encouraging off-shore offices is discussedin the same section as a “do nothing alterna-tive” because the current status of telecom-

—

munication and customs regulation already fa-vor the growth of this industry. Inaction willundoubtedly assure the continued export ofdata processing work for so long as the mar-ketplace provides the needed incentives.

Further encouragement might be achievedthrough increased activity of international de-velopment agencies. For example, the Over-seas Private Investment Corporation couldmake more loans available and otherwise stepup efforts to help U.S. firms find suitable loca-tions and establish keying operations off-shore.