The Hindu : Outsourcing IT? These are the real numbers...

Online edition of India's National Newspaper
Thursday, Feb 05, 2004

Business

Business

Outsourcing IT? These are the real numbers...

By Anand Parthasarathy

MUMBAI, FEB. 4. "Outsourcing is not a job issue; it's a value creation issue," says Diana Farrell, Director of the U.S.-based McKinsey Global Institute.

And to back her premise she offers the cold logic of numbers to show that knee-jerk congressional reactions notwithstanding, outsourcing information technology services to countries like India, will provide American companies, hard cash savings in the short term and actually trigger off vigorous growth in domestic jobs over the coming decade.

In a keynote address at the ongoing annual summit of the National Association of Software and Service Companies (Nasscom), Ms. Farrell shared results of detailed studies undertaken by the Institute — the thinktank of the well known industry trend watcher — which showed that for every dollar of outsourced IT spending, one third was delivered as value to the outsourcing partner in places like India, while the remaining 67 cents accrued as savings in the U.S.

This was shared as 58 cents of savings for the American investor and customer; 5 cents by way of import of U.S. services and products in India and 4 cents as the U.S. share of profits made by the Indian outfit.

While these elements provided the direct and tangible benefit to the U.S. company, the redeployment of American labour added another 45 cents of indirect value — in effect giving companies a total value of $1.12 to $1.14 in exchange of every outsourced dollar.

The emotive question of potential job losses in the U.S. — characterised by scary headlines like "America's pain is India's gain!" and "Is your job next" — can also be answered by the U.S. government's own numbers — provided in the Bureau of Labour Statistics' job market projections for the decade 2000-10, added Ms. Farrell. While two lakh U.S. jobs a year — or two million across the decade — are likely to be lost to outsourcing, the occupational job growth is likely to create new jobs to the tune of over ten times this number — or 22 million.

Technical and medical jobs will witness the most vigorous growth with trades like software engineering, software support, networking, desk top publishing and data base managements leading in opportunities.

The other factor that belies the job loss bogie is the gradual `graying' of the American population: By 2015, the age group 25 to 54 — the most productive sector — will witness a 5 per cent dip equivalent to 15.6 million jobs, with a related increase in the "over 55s" from 28 to 34 per cent.

That makes it all the more imperative to rethink the whole business of job creation as part of an industry-wide restructuring exercise across frontiers, Ms. Farrell suggested.

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