Barrack Obama: on outsourcing

Barrack Obama: on outsourcing

President Barrack Obama's views on 'outsourcing', articulated in the run up to the US presidential elections, is a real cause for concern for the $60-billion Indian IT and ITES industry, which has grown rapidly on US orders, in the last over a decade. Obama had spelt out his views against outsourcing and is opposed to companies shipping jobs overseas.

However, one hopes pragmatism will replace the rhetoric, now that he is the US President and that he will see the mutually beneficial, 'win-win' strategic advantages of outsourcing. A closer look at outsourcing will, in fact, reveal that the game now is not just irreversible, but any adverse action against it will be mutually harmful. First of all, outsourcing in IT and ITES industries is no different from the larger trend of outsourced 'contract manufacturing' in the manufacturing sector and hence it should not be looked at with disdain.

In the past, US lost jobs in textiles and garments, shoe and toy making, and in other low-stuff industries, first to Japan, then to South Korea and later to China and other low-cost countries. Even in computer hardware, Intel ceded the low-cost advantage in chip making to companies in South Korea and Taiwan. Dell and IBM did the same in desktop computers and laptops.

Today, the ground reality is that US no longer has the capability and infrastructure to manufacture such low-cost products. The trend is the same in the IT and ITES sector and it is not an exaggeration to say that US has no (ready built) infrastructure left to enter and compete in low-end IT products and services. Indian IT industry may have grown exponentially, but mostly the work 'outsourced' is what some people call as 'coolies' jobs.

It is only recently that Indian giants, such as TCS, Infosys and Wipro are offering some competition to US biggies IBM and HP in the services contracts. But, volumes and values fetched so far are negligible. Secondly, US companies have hugely benefited by outsourcing in general and in R&D activities in particular. Some higher-end jobs outsourced to India have created high value products at low costs and the US companies have been able to sell those products globally, including in India and obtain higher returns. In fact, money spent in India in such activities may ultimately be recovered from sale of such products here.

Thirdly, Indian IT companies have themselves been huge consumers of hardware products from the US companies. Generally, US-based IBM, HP and Sun Microsystems have been in the race to sell hardware in India. Networking companies like Cisco have also been selling hardware for the fixed phones, the wireless and for the internet.

Thus while Indian software coders write codes for US companies, US companies find readymade market for 'Made in US' hardware stuff. Fourthly, Indian IT and ITES companies are also huge consumers of 'Made in US' software. Not only the hardware giants, such as IBM, HP, Sun and Cisco sell their software services, others like Microsoft now have a huge market share in all types of industrial and consumer software.

Fifthly, the outsourcing has created indirect markets for US companies, as the overall computer literacy has risen by larger penetration of computers and computers softwares. For example, by adopting e-governance, the government sector has created a huge market for hardware and software.

Markets have expanded for products related to security, data-warehousing, etc. Thus benefits to the US companies by way of local demand for computer products in India may far exceed the presumed direct loss of a few thousand jobs in US. Sixthly, it should not be presumed that if the US companies were forced to do their work locally under some legal or other compulsion, the software coders' jobs would go to US citizens only. Sooner or later, companies will find a way out to work circumvent those compulsions.In nutshell, bad times call for adopting flexible and innovative strategies and serving the customers in a better manner, so that when the markets recover, Indian IT companies develop better competencies, products, services and the skill-sets necessary to serve the future markets.