Outsourcing is a double-edged sword for Irish jobs

By Tom Sullivan in Delhi

11 March 2007

In a week when almost 1,000 job losses were announced in Ireland , there seemed no end in sight to the flight of jobs from Ireland to lower cost locations.

Two of the cutbacks announced - Motorola in Cork and Thompson Scientific in Limerick - will lead to jobs being transferred to India as part of a growing trend which experts say is set to continue to hit lower skilled sectors of the economy.

‘‘This is going to continue to happen as India makes itself more accessible to business,” said Gabriel McCarrick , head of Enterprise Ireland 's office in Delhi .

‘‘There will be job losses but the only way to keep a business sustainable is by moving parts of it to the most economic cost base,” he said, adding that some Irish companies would go out of business if they were unable to outsource work to India.

An increasing number of Irish firms moving operations to India are doing so to ensure their survival, he said.

‘‘The idea is that high value work that can be done in a high-cost base should stay in Ireland while the lower value elements are outsourced. Otherwise you won't be able to compete with companies in Germany or the UK outsourcing to the cheapest locations,” he said.

In a recent overseas investment drive more than half the queries received by McCarrick from Irish companies related to outsourcing - for manufactured items such as brass fittings or machine components made for a fraction of the cost in India where industrial wages are as low as €4 per day.

Dublin-based firm Marco, which makes coffee machines for the catering industry and employs 40 staff at its factory in Sandyford , contracts out part of its manufacturing to a steel making firm in southern India. ‘‘We couldn't afford to get this work done in Europe,” said the company's director Drewry Pearson, adding that outsourcing business to India allows him to compete against bigger producers in the US.

By getting components made for less than two thirds of the cost in Europe , Pearson said his company could afford to expand and recruit 50 per cent more staff in Dublin , mostly in high-end design and sales positions.

According to McCarrick , a lack of Irish graduates in certain sectors is driving firms to shift part of their production abroad. ‘‘In certain areas of the IT industry we're not producing enough graduates.

Companies get squeezed because the demand for a product is there and they have to get it made somewhere,” said McCarrick . ‘‘That's pushing them out to places like Bangalore , Pune and Hyderabad .”

Audit Diagnostics, a Cork-based medical equipment company, has grown by almost 40 per cent since signing a deal early last year with an Indian company producing specialist laboratory instruments.

‘‘If we didn't get this particular instrument made in India we couldn't compete in an important market,” said the company's chief executive Micheal O'Donovan, adding that the deal had led to six new jobs in Cork and opened up greater opportunities to sell his products in the Indian market.

Dublin-based Astec , a former Eircom subsidiary with sales of just over €2 million and 60 contract staff, bought a 15 per cent stake last year in a firm to which it outsources business in Bangalore .

‘‘The drivers for outsourcing are clear. There can be other benefits such as access to technology or expertise that are not easily found in Ireland but at the end of the day it's the money,” said Astec director Cliff Anderson, adding that IT firms can save up to 50 per cent if they outsource lower end tasks.

‘‘What we should be doing in Ireland - and not just in the IT industry - is focusing on the design and customer facing aspects of business and getting people in India to do the other work.”