Grow together

By Mitali Kalita | 13 Jun 2003


Chennai: Outsourcing non-core jobs to developing nations, especially India, started more than a decade ago. Back then, nobody visualised that the concept would shake the world's richest countries.

Outsourcing has grown to such proportions that companies in the US and the UK look up to it as the most viable option of getting the best quality job at the cheapest rates. But the recent protests by numerous workers' unions in the US and the UK against outsourcing jobs to other countries have raised a hullabaloo among the world IT fraternity.

Though reports say 1.7-million US jobs may be lost to other countries, particularly to India, and American workers may lose $120 billion in wages by 2015, the National Association of Software and Services Companies (Nasscom), a leading software body of India, estimates that the US economy could save $10-11 billion by outsourcing work to India in 2003-04.

According to Deloitte Consulting, three-quarters of leading financial institutions and investment banks will allocate tasks to developing countries, with India at the top of the list, in the next five years.

It also says that global financial institutions will invest $350 billion in India for outsourcing projects and the world's top 100 financial institutions can save up to $138 billion (£88 billion) annually in the next five-to-six years by shifting operations to cheaper offshore locations like India, the Philippines and China.

Though India will dominate the outsourcing industry as the most-favoured offshore destination, South Africa, China, Malaysia, Ghana, Mexico, Australia and Ireland are also moving up the scale.

A smart option
The recent oppositions against outsourcing in the US and the UK have become hot news today, but many believe that this is only a transient phase. Records say during the 1970s and 1980s, a hue and cry was raised when most computer and semiconductor manufacturing operations shifted their base from the US to other economical locations such as Taiwan and Southeast Asia. But that didn't impact the tech community, as the factory jobs were soon replaced by engineering, marketing and other management positions.

Nasdaq vice-chairman David Weild IV in a recent Indian report said stern pressure from market watchdog Securities Exchanges Commission to separate research from market activities, might compel the US financial groups to look up to India as their favourite outsourcing destination for equity research, which will save $24,000 from $100,000 per analysts per annum.

Thus, we can say that moving to India for outsourcing jobs by the vast US financial institutions is inevitable due to the following factors:

  • An estimation by Reuters, Capco, and TowerGroup that financial institutions will have to spend more than $19 billion over the next four years to meet the Straight-Through-Processing and T+1 deadline by 2005.
  • The slow growth and the sluggish economic recession especially after the 9/11 tragedy and the Iraq war.
  • The Basel Committee's guidelines to banks to set aside approximately 20 per cent of their regulatory funds against unexpected disasters.
  • The difference in wages of workers between the US and India being more than 70-80 per cent.
  • The huge difference in the time zone, enabling operations in multiple shifts, thus initiating round-the-clock (24x7) attention.
  • World-class and high-quality productive services at a quarter of the cost.
  • Highly educated staff accompanied by state-of-the-art processes to handle outsourcing jobs efficiently.
  • Analytical ability, business understanding, English proficiency, a huge pool of IT resources and sound infrastructure.

A few tips
Nasscom is hopeful that large US companies like GE, Microsoft, Intel, Bank of America, HSBC, Citibank, JP Morgan and Dell, which are benefiting from the cost-saving concept, will raise their voice as they have the ability to influence their domestic policies.

Critics also argue that restricting overseas employees from working on state contracts in the US might violate World Trade Organization laws and if such legislation is passed, it will send a wrong signal to the rest of the world during the globalisation of the free-trade concept.

The measures to map some future strategies for a peaceful solution to the whole debate are:

  • Maintenance and testing jobs must be moved offshore, while advanced development work should be kept onshore.
  • Rather than restricting foreign labour, policymakers must find a way to reinvest the savings achieved through lower cost global labour to create higher paying jobs in the US.
  • To convince the US and the UK that such steps will tarnish their competitive work spirit. Though they may be able to save a few jobs, they will lose to other countries in offering world-class services.
  • India and the rest of the outsourcing destinations must try to brand themselves as partners for high-class service at a low cost instead of being a cheap-labour destination.
  • India and other outsourcing locations must look for businesses from European and other Asian countries apart from the US.
  • The world community must try not to hurt each other's sentiment and instead engage in dialogues for a peaceful solution.
  • Experts suggest that India and the US must try to negotiate a free-trade agreement that could become a model for other nations.

In today's economy, globalisation of trade has erased geographical boundaries. But the unavoidable slow economy since the last three-four years has forced multinational firms in the US economy to outsource their jobs to the developing nations.

Unless the US economy gears up, migration of jobs overseas is inevitable, as Jagdish N Bhagwati, a professor at Columbia, said in his report, 'You really can't outlaw outsourcing; Outsourcing is just trade.'

Today, America is the primary market constituting 70 per cent of the IT exports to India, whereas India remains the top outsourcing destination for the former. As such, it's like a symbiotic relationship, where none can exist without the other.

In such a situation, it is practical to strengthen the bond with a common and viable business strategy, as a US Congressman rightly said: "India and the US have a lot more in common and we have to grow together."

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