The Hindu : Business : Outsourcing is here to stay

Online edition of India's National Newspaper
Tuesday, Apr 06, 2004

Business

Business

Outsourcing is here to stay

By Our Special Correspondent

NEW DELHI, APRIL 5. Despite intense debates in the U.S., outsourcing is here to stay, so the best way to beat the flak is to make the U.S. public see reason and buy globalisation as a win-win situation.

While that was the general consensus at a debate on outsourcing, organised by the Confederation of Indian Industry and the Asia Society, coinciding with the Williamsburg Conference, Carla Hills, Chairman & CEO, Hills & Company, U.S., defended the practice of outsourcing, but warned that outsourcing can create economic displacement in the short term but added that it was beneficial in the long run.

India, in order to reap the benefits of outsourcing, must open and modernise its markets in order to stave off Congressional action against India, she said while asking the country to reduce agricultural and industrial quotas and tariffs as these restrictions will inhibit India's growth and hamper foreign direct investment into India.

In describing the economic factors that have led to the rise in outsourcing, Ms. Hills mentioned that multinational companies in the U.S. are fragmented and not vertically integrated, and thus focused on narrow parts of manufacturing or services operations. As a result, she said, U.S. companies tend to outsource particular, or specific elements of their production and services.

Ms. Hills felt that the trend to outsource services abroad would continue, as far as America was concerned. She cited a recent study by Catherine Mann at the Institute for International Economics, who predicted that 3.3 million jobs would have moved to developing countries by the end of 2015. On the other hand, jobs in the U.S. increased by six million due to in sourcing in the U.S. from other countries.

She however noted that outsourcing was good for the U.S. economy in the long run. As an example, she referred to the IT industry, where trade liberalisation led to a consistent decline in prices of computer equipment, which in turn resulted in significant savings for all U.S. businesses. Likewise, the boom in sale of IT products resulted in increased demand for highly trained experts in computer science, she added. Once technology filters down to consumers and smaller businesses, the economy creates many new highly skilled jobs, she concluded. The problem, Ms. Hills said, was that the economic restructuring due to outsourcing and other practices, often occurred in cycles and takes time. The immediate pain of job loss from outsourcing or other developments attracts intense political scrutiny and public outcry. The benefits of outsourcing, however, are not readily apparent, she commented.

Advocating outsourcing, Norman Ornstein, Resident Scholar, American Enterprise Institute, said that outsourcing has to be seen in terms of the overall process of globalisation. He said that the general public in the U.S. has to realise that there is no alternative to globalisation and there is an opportunity for India to explain that globalisation is a win-win game.

Mr. Ornstein observed that the major part of the anti-sourcing talk in the U.S. is political rhetoric in an election year, however, these issues will continue to crop even after the elections. An upside to the raging outsourcing debate in the U.S. is that the new Government would have to come up with an economic and social response to mitigate the impact of outsourcing on U.S. workforce, he said.

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