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Industry Research : Outsourcing Trend ‘Should Be a Wake-up Call’
Bermuda’s troubling outsourcing trend is set to continue as companies fight high labour costs, work permit issues and now the prospect of health insurance contributions based on income.
Employer organisations spoke out about the growing export of jobs by re/insurers, financial services companies, law firms, and even telecoms providers, saying while Bermuda may not be able to compete with cheaper labour costs in South Asia, we can halt jobs moving to cities in Europe and North America.
They said the kind of large-scale outsourcing we’ve seen in Bermuda recently should be a wake-up call to Government and the community.
"Other jurisdictions are rolling out the red carpet to create jobs," said Douglas Soares, partner in employment firm Expertise Ltd. "Our vision is passive and our pace of change too slow."
Chamber of Commerce officials said Government’s tough work permit policy has hurt hiring in Bermuda.
"Even before the current recession gripped Bermuda, there were cases of businesses actually relocating entire departments away from the Island when they could not get a permit renewal for a manager here," said Diane Newman, co-chair of the Chamber’s Economics Advisory Committee.
"This may even have started the outsourcing ball rolling, as companies then discovered other jurisdictions which could offer lower office rents and high-quality local employees for less money — with the added attraction of compelling tax incentives, such as those offered in Nova Scotia."
Chamber of Commerce president Ronnie Viera said the more that companies move jobs out of Bermuda, the more difficult it will be for us to recover from recession.
"I suggest that it will not be a very nice place to live if the only people able to find employment are the professionals or others whose jobs have to be in Bermuda in order to operate."
Bermuda Employers Council president Keith Jensen said for years the Island has benefited from business and jobs flowing into the Island.
"Now we have the opposite, jobs flowing out of the Island, not only because of the recession that compounds the effects of the poor economy pushing up unemployment. Those jobs lost are the result of outsourcing and offices moving elsewhere by local and international businesses."
Many of the jobs cut by companies in Bermuda in the past few years were due to companies moving mainly IT and back office/administrative work overseas.
But worryingly, Conyers Dill & Pearman last week laid off six marketing, public relations and administrative employees only to advertise for four marketing positions in Canada the same week. Conyers, like Appleby, has offices around the world in any event.
And earlier this year CellOne made four redundancies as it moved its customer call centre to the US.
BF&M, which has more than 100 employees in Bermuda, continues to base IT functions in Halifax, Canada, which the company has said is a prime location to find highly technology professionals.
HSBC Bermuda’s call centre is in South Asia, and many companies including Bermuda-based reinsurers moved accounting and administrative positions overseas.
And in the past year and a half Bermuda saw a dramatic exodus of employees from hedge fund administrator/manager firms to Canadian and US branches.
Bank of NY Mellon Alternative Investment Services made 20 accounting positions redundant in January in what it said was a "consolidation of its accounting functions" in Orlando.
Jupiter Asset Management laid off 11 and closed its office after more than 40 years.
Citco Fund Services cut more than 15 jobs last October in what the company said was a "reorganisation" of its Bermuda office. A month later Citi Hedge Fund Services relocated 105 jobs from Bermuda to North America, while CACEIS Investor Services (Bermuda) Ltd moved the majority of its staff out of Bermuda.
Even those local employers who haven’t outsourced yet, don’t rule it out one day.
Freisenbruch-Meyer Insurance president Michael Freisenbruch said the company’s business was in Bermuda. "We completely support Bermudian employment and seek ways to hire Bermudians and keep and support the employment scene here in Bermuda," he said.
"However, having said that, if there were opportunities to outsource to achieve economies of scale, we in all honesty would have to look at it."
He added: "Employment of Bermudians is number one. But one has to run a business and run it successfully and be able to reinvest in it, and reinvestment is done through surplus."
He said Government and the community must work to find ways to keep costs down, including payroll tax, in an increasingly competitive global market.
Employer organisations said a turning point for outsourcing appeared to be 2010 when the Government increased payroll tax, recently labelled a "rupture of trust", since the move was made without the expected consultation, by XL Group CEO Mike McGavick. In talks after the two-percentage point tax rise, industry leaders told Government that it would lead to a "silent exodus" of jobs from the Island, Mr McGavick said earlier this month.
"The export of jobs is rarely driven by a single factor," Mr Soares said.
"Often it is combination of reasons contribute to an employer’s decision to move jobs out of Bermuda. Cost is one factor. The cost of labour in Bermuda is high and rising whereas the cost of technology and bandwidth is always decreasing.
"So over the past few years we have seen a shift towards Bermuda companies outsourcing jobs to countries like India and the Philippines which have deep pools of qualified professionals at relatively low cost, and employees there are willing to work unsociable hours to service our time zone.
"There is not much we can do about this trend because the cost advantages of operating in places like India are out of our control.
"But there is something we can do about the jobs that are leaving Bermuda for places like London, Zurich, Dublin, New York and Toronto. These are jurisdictions where the cost of doing business is comparable to Bermuda so, more often than not, jobs are leaving for reasons related to Bermuda Government policy and a feeling that Bermuda is unfriendly towards foreign labour.
"For example, the 2010 decision to increase payroll tax without consultation or warning really shook the confidence of many Bermudian entrepreneurs as well as international business executives.
"Another serious cause for concern for employers is the National Health Scheme proposal for health insurance premiums to be paid as proportion of salary. The plan of the Bermuda Government to continue to increase the Government debt to cover budget deficits until the recession ends also has many businesses worried because employers know that the burden of government debt means higher taxes in the future.
"When all of these factors are summed and combined with problems relating to obtaining work permits and retaining key employees due to term limits, many employers are naturally inclined to move jobs out of Bermuda. All of these problems are within our control to solve".
Mr Viera said he was concerned about the impact on the economy from outsourcing.
Commenting on CD&P job cuts, Mr Viera said: "It is concerning to hear that yet again, more jobs are being moved from Bermuda to another jurisdiction. It means there are more people looking for work in a difficult economy who are now less able to support our member businesses such as retailers, restaurants, florists, grocers, travel agencies etc.
"I understand that in some circumstances it makes sense and is unavoidable, but Bermuda’s low tax regime allows companies to operate here without a tax on their revenues and in order for this situation to be sustainable, support for the local economy, specifically hiring of local people, is critical.
"I know it has been happening for several years now given that technology allows for many types of jobs to be done remotely from anywhere in the world, but where will it end?
"Yes, Bermuda is an expensive place in which to live and do business, but that includes professional services. The Chamber has run a ‘Buy Bermuda’ and now a ‘Go Local’ campaign for several years now to encourage the population at large to support local businesses and the same appeal extends to business operating here."
Mr Jensen said to stem the out flow and improve the economy: "Members of the BEC expressed the need for a more welcoming business environment by changing the term limits policy, reviewing work permit policies with growth of the economy and enhancing our international competiveness as objectives.
"Government has made some headway incorporating the right principles in the 10-year work permit policy and the Incentives for Job Creators Act; but the details such as the fees and the criteria for a successful application may inhibit significant uptake.
Mr Jensen added: "Costs for local and international businesses are an issue. As Bermuda’s costs in some areas-- rent, salaries, payroll taxes for retail/hotels/restaurants and the suspensions of pension contributions-- have improved our competiveness and in some cases maintained employment, other countries’ cost structures have also declined improving their ability to compete. The difference is our competitors react more quickly and meet international investor’s needs with flexibility. "
Premier and Finance Minister Paula Cox is travelling but Government plans to comment on the outsourcing issue for a further article to run tomorrow.
Posted by Veronica Silva Cusi, news correspondent
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Published: Monday, July 9, 2012