Outsourcing Benefits in US and India
There are plenty of definitions for outsourcing. For many people, headlines such as these define offshore outsourcing - an ill wind that 'hollows out' America by taking away dollars, jobs, skills, and experience to foreign shores. This is an unfair perception and unnecessarily spreads hysteria about a much misunderstood marketing tool. And find out the real meaning of outsourcing.
Offshore Jobs
The outsourcing by US companies is likely to increase by 30 to 40 percent over the next five years and this will result in the loss of about 200,000 jobs a year in services over the next decade. However, these figures must be viewed in perspective. A June 2004 report by the US Department of Labor states that in the first quarter of 2004, less than 2 per cent of job losses in the non-farm private sector were due to outsourcing.
Better for the financial system
Outsourcing delivers tangible and significant benefits in the following ways:
Reduced capital costs
Increased efficiency
Reduced labor costs
Quicker project starts
Focus on your core business
Level playing field
Reduced risk
Far from being bad for the US, McKinsey finds that outsourcing creates additional net value for the US economy that did not exist before. When $1 of labor cost is outsourced from the US, the total value created globally is $1.45 to $1.47. Out of this, the receiving country, India in this case, captures just 33 cents. The remaining $1.12 to $1.14 is captured by the US in terms of new revenues (the receiving country buys goods and services from the US), repatriated earnings, and redeployed labor.
New jobs and Growing economy
According to a Global Insight study sponsored by the ITAA (Information Technology Association of America), the benefits of offshore IT outsourcing added $33.6 billion to real gross domestic product in the United States in 2003. By 2008, real GDP is expected to be $124.2 billion higher than it would be in an environment without IT software and services offshore outsourcing. It is cold comfort to a programmer whose job just got 'Bangalored', that his company benefited from that fact.
Over the last 10 years, the economy has created an average of 3.5 million new jobs a year, and the vast majority of displaced workers are re-employed within six months. But a rise in corporate profits is good for the US economy as a whole. Traditionally, the US economy has been a huge job creating machine.
This has been true even during times of great change. McKinsey estimates that between 1983 and 2003, two million manufacturing jobs were lost in the US. But 36 million new jobs were created in services. Many of these were jobs that people didn't know even existed before.
Despite the present lull in the job market, researchers expect that trend of innovation and job creation to continue. Forrester estimates that despite the headlines on offshore outsourcing, IT jobs in the US grew in 2003 and will continue to grow at three per cent from 2004 to 2008.
Many of the industry associations and economists have reacted skeptically to these estimates. They argue that it is dangerous to assume that the US has better trained, harder working or more innovative workers capable of higher value added work than its foreign competitors. True. Workers elsewhere can be as smart, as hard working, and as innovative. But the US has more opportunities than its competitors. The fallacy is to assume that there are only a fixed number of jobs in the economy and when a job is sent offshore, a US worker is rendered permanently jobless.
Technology and medicine are expected to be major drivers for job creation. Over a 10 year period from 2000-2010, McKinsey expects that while two million service jobs will be lost through offshore outsourcing, 22 million new jobs will be created. US workers have more opportunities because their economy is growing and new and fresh jobs are being created to more than replace the ones that have gone away. They have more opportunities than anyone else to acquire new skills, and more opportunities for acquiring the jobs that accompany the growth in the economy.
There are calls for a sustained push to improve worker retraining and student enrolments in specialized technology courses so that future generations of Americans are adequately prepared for the high-tech jobs of tomorrow. Already, there are intense debates within the US about ways to manage the transition of workers to the new jobs and to insure them against distress in the interim.
Lot of debates on whether the government should provide a safety net to displaced workers or whether corporations should fund this with a part of their profits from outsourcing. While there are no clear answers yet, what is clear is that reason and logic are beginning to replace the paranoia of the outsourcing debate.
