Tuesday, May 06, 2008

Outsourcing - The Hide & Seek Game ..!

Outsourcing - The hottest cake in the platter and mystery for the mysterious.

What happens in the global job market bcoz of outsourcing and what will happen of cutting down its scale? Who will suffer and who gain by this? Let’s play the Hide and Seek game to find out the truth behind the mystery word 'Outsourcing'.

Stock market crash, recession, inflation, economic crisis etc etc all happens in U.S which leads to one more term called scaling down the Outsourcing..!

When you go back on calendar to 1995, the president of Information Technology Association of America, Harris N. Miller said “The result (of outsourcing) is more American jobs, higher wages and a faster growing economy overall... Global sourcing continues to be a net positive for American workers and the US economy" - so in 2005.

Look at the contradiction now. What the 2009 presidential candidates Obama and Clinton had to say about outsourcing recently, "Number one, we still provide tax breaks to companies that are sending jobs overseas. Let's put an end to that practice. We may not be able to stop a company from moving, but we can stop from providing him incentives to move"! This is what I call the heights of ignorance.

First of all US companies are NOT doing any favor to India by outsourcing their jobs here. It’s a straightforward business compulsion which every company has to face due to the increased competition as a result of globalization.

Its strange to observe that on the one hand the US doesn’t wants developing economies like India, china to provide any subsidies to their farmers (to face US competition), it wants India to open up its markets even wider for American companies, and at the same time they want to discourage American companies from outsourcing their jobs to India! Come on guys, you cant have it both ways, can you? :). See how the US politicians have poor knowledge about outsourcing and economic strategy..!

The allegation against outsourcing in America and Europe is that it results in a job loss in the outsourcing countries with the jobs moving into the outsourced countries.Yes of course, that’s the very basic definition of outsourcing.

Does outsourcing result in a net job loss? Of course not. The jobs that are outsourced from US to India indeed come back to US in a bigger magnitude.


Look at this simple example. Initially when the computers came to India in the 1980s people protested saying, if computers start doing stuff like accounting, automated data entry etc, then the Indians will be losing millions of jobs as India is a nation which rely on huge manpower. Did they lose? Yes. But at the same time alternate jobs got created in the form of computer programmers, hardware industry, software industry, computer operators, IT divisions, computer training institutes, computer lecturers etc!! So there was no real truth in the allegation that computers would create a massive job loss. Just the nature of the jobs changed, that was it.
Similarly, when it comes to US and European outsourcing to India, outsourcing enables the American companies to reduce their manufacturing costs. Reduced costs mean less expensive products and services at the same quality, which in turn means ability to enter even bigger growing markets like that of India.

Because of outsourcing more jobs were created in India, in turn this created a booming economy and an increased buying power in India, and this not only reduced manufacturing costs for American companies but also gave them access to a bigger market inside India since even Indians started buying American products because of their increased purchasing power! This in turn created more job opportunities within US too! A study conducted by Global Insight showed that in 2005 alone 257,042 net new jobs were created in US due to outsourcing! Look at the growing presence of american companies in the Indian market today.

Those who want to stop outsourcing should also stop their companies from entering the markets of India. Can they? :) While the entire American population is just over 300 million, in India just the number of youth who are below the age of 25 is over 550 million, and the country is growing younger day by day! Who is benefiting from the widening buyer base of this Indian youth? Of course companies from all over the world including US and Europe which are entering this market. Look at the growing number of American companies that are entering India every day. Automobiles, mobiles, retail, hardware, software, soft drinks, fast food, you name the sector and there are multinational companies in India in that sector. Doesn’t this simply mean more jobs in America and Europe too?

In a more positive slant, 28 percent of the surveyed companies said offshoring had allowed them to create new and better types of jobs in the U.S. According to a Wharton School participant in the study, job displacement related to offshoring accounts for a “relatively small proportion” of annual U.S. job turnover. So literally U.S citizens are not losing any of their jobs. It’s just the hot topic for the politicians to claim more votes.

Outsourcing doesn’t meant that going for cheaper rates. Well, there is a difference between being cheap and inexpensive. For instance, Chinese toys are cheap, but Indian IT services are inexpensive. When its cheap, the quality suffers, and when it is inexpensive it doesn’t. Obviously when Yahoo or Google outsource to India, they don’t want the quality of their products/services to suffer! Isn’t it?

Now we have another story rising that Bush started complaining (literally crying) about increase in food price is bcoz of Indian’s consuming healthy and nutritious food. It’s surprising that all the U.S presidents are always dumb fellows who doesn’t know about silly things and is not aware of all these facts, and this is same in the case of new presidential candidates too! For if you don’t understand the basics of today's global economy, then you are bound to spell disaster on your own economy. Imagine Indian general public starting to say that they want US companies out of Indian markets!

Let’s come back to the job opportunities created directly by Indian companies in US. The Tata Group, Ranbaxy, Mahindra USA, Bharat Forge, ITC Kitchens, HCL America - all Indian companies, have created thousands of jobs in America! Tata Group alone employs over 5000 Americans! Ranbaxy is creating jobs in North Carolina, New Jersey and Florida. From Illinois alone the exports to India have more than doubled in the last four years creating more job opportunities in that state.

American firns like Federal Forge, Eight O'Clock Coffee etc that were on the verge of bankruptcy were saved by the Indian firms which acquired and revived them. What about these saved jobs by the Indian firms?

San Francisco-based McKinsey Global Institute, an independent research group with McKinsey & Co. reported that in 2002 alone, for every dollar spent on offshoring, US derived a value of $1.47. The report also said that "For every dollar of spend offshored, offshore service providers buy an additional five cents worth of goods and services from the US economy".

"If you deprive yourself of outsourcing and your competitors do not, you're putting yourself out of business." Just imagine that if US companies do not outsource, then their costs will be higher than that of companies from other countries which do outsourcing, which in turn means reduced market share for American companies, and then these other companies will also enter US and offer services and products at rates inexpensive compared to their American counterparts, and so finally even within America the American companies will be unable to compete. And then finally, along with an existing cry against outsourcing to India, there will also be a cry in US against allowing foreign companies into US market. In other words, a demand for total international isolation in terms of doing business!

So "What do you think would the American companies would opt for when the profits they earn by outsourcing to India is 20 times more than the profits earned by the tax breaks offered to them by the US government for not outsourcing to India? And also, where does the US government get the money from, to offer those tax breaks? Already US is the world's larger debtor with about $30000 per head on every American citizen!"

Similarly does the US policy of reducing the scale of outsourcing leads to job loss for Indian professionals? I say No again. The current situation seems like we are losing jobs. Wait for couple of months or a year and we'll rock again. If somebody thinks that today Indians are scared of losing jobs if outsourcing is stopped, well not really, for we have both our own big companies as well as bigger market. It’s the American and European companies that need access to the Indian markets. Already Indian companies are slowly reducing their dependency on american clients, so as to shield themselves from any possible US economic slowdown. U.S. companies account for three-quarters of India’s outsourcing business, leading Indian companies like Infosys and Wipro to expand their presence in other parts of the world as slowing economic conditions cause some U.S. clients to delay major IT projects. So either way scaling down of outsourcing or the recession in U.S doesn’t bother Indian firms over a large period of time.

So by this second, stick to the same firm and forgot about switchover, no matter you get only single digit hike or your project manager is arrogant or no good looking girls in the team :-)

I wonder why everyone is so much concerned, directly or indirectly about outsourcing and businesses from US. This is a chance for India to do something that it doesn’t ever need to depend on US economy to boost ours!

Let us imagine there is NO U.S....that’s it. Only those who think that we cant live without US business are concerned about it... Others simply don’t care now, because we know that its they who need us, and we have other multiple options too. Compared to the size of Indian population US is a very small market, they only consume like hell killing all natural resources and the planet along with it.