Monday, April 7, 2008

Outsourcing…It’s not all that bad, or is it?

“The future of outsourcing is to take the work from any part of the world and do it in any part of the world.”
-Ashok Vemuri, Senior Vice President at Infosys

The mere term “outsourcing” has a negative connotation – a way of cutting labor costs by employing people in other parts of the world. Some estimates claim that over three million jobs in the United States will be lost to this trend by 2015. People fear that with the increase in globalization and as more and more companies broaden their boundaries, individuals will continue to loose their jobs to workers in India, Mexico, China, etc. who can get the work done for half the cost.

But, there has been a dramatic increase in the world’s nations to outsource everything from their military to their postal services that, if executed correctly, can revolutionize what defines a country and bring in tremendous amounts of revenue. For instance, Jordan recently entered a five-year contract worth nearly $4.2 billion to attract investors to manage the kingdom’s ports, postal services, and public transport. Our own government just recently re-signed with private security contractors Unity Resources Group and Blackwater to help our troops fight the war in Iraq. In the UK, the British Telecom Group manages the military’s telecommunications services and members of the government have noted an increase in multi-directional communication that has positively impacted the military’s productivity.

Outsourcing has played an integral role in India over the last fifteen years, as the country has become the hub for corporate call centers. India has become the “preferred outsourcing location” because the call centers offer a wide variety of advantages. One website notes the following advantages:

1. Large and educated workforce
2. Specialized call center outsourcing services
3. Time Zone advantages

4. Latest Technology and High-end infrastructure
5. Cost-effective

Not only are big businesses profiting when outsourcing production or service jobs to India, but the companies in India that offer such services are generating extraordinary profit margins too. Infosys Technologies Limited is an Indian based company that has provided outsourcing services to companies throughout the world, employing over 88,000 professionals and bringing in annual revenues close to $3.1 billion in U.S. dollars in its fiscal year. The company manages communication networks for Bank of America and Goldman Sachs…you get the picture yet?

The flip side to all of this is that outsourcing can have a negative impact on businesses in the United States. Outsourcing reduces our skilled labor force while producing jobs specific to the service sector, which do not pay as much as manufacturing jobs, do not create as much national wealth, and often lack the innovation necessary to foster growth and development. The local markets loose out to the multi-national competitors and as a result, our economy seems to take a hit. However much we continue to globalize and outsource everything from call centers to military services, we must keep in mind that what matters is at home and we must try and find a way to grapple with outsourcing so that we manage to protect our local markets in order to stay true to who we are as Americans.


Daniel Tola said...

outsourcing, no matter how you look at it, is never good for the US. It's not true that the jobs lost are being replaced with better ones. The factory ones being replaced with managerial positions are few and far between. Additionally, only college educated people can take those jobs, so what do the thousands of laid-off factory workers do? Outsourcing might allow us to buy $00.72 socks at walmart, but the social costs don't justify it.

evanomics said...

I don't think outsourcing is totally good or bad. Though it definitely poses some problems for the United States, it may hold promise for the development of other countries. Perhaps in this case we should do what's best for the many(the rest of the world), and work on globalizing to a point where we've actually reached the point where location is no longer an issue.