By Simi Mehta
Outsourcing in very crude terms is a process of division and specialization of labour for a particular enterprise. It means contracting of work to a business entity to perform a set of tasks with the larger aim of profit. As the work is performed by specially trained professionals, and is competitive, the whole process of contracting out or outsourcing becomes cost-effective. As a result, this becomes the best option especially for the information technology and business process outsourcing companies in the developed industrialized countries of the West, particularly the United States to outsource businesses in the emerging countries like India and China, where they get cheap but well-qualified work-force and the benefits of tax-waivers.
Outsourcing has allowed companies to split service and manufacturing activities into components which can be subcontracted and performed in the most efficient and cost-effective way, and this process has become easier with the mass distribution of fiber optic cables during the introduction of the world wide web.
Indias major strength lies in its phenomenal meritocracy and the research and development expertise. This is the prime reason for a more than a hundred Fortune 500 companies have opted to set up their installations in India. While there was a wave of employment opportunities in India arising out of outsourcing from the US in the beginning of the 21st century, there has been a counter wave in the US due to an increase in public policy concerns about retrenchment of jobs forced by the recession in the global economy starting from 2007-08, where countries are still struggling to revive their economies and ensure the unemployment rates to decline. Particular anxieties have prevailed because of the inadequacy of existing programs to help unemployed workers adjust to the changing mix of jobs located in the United States so they can find new positions. The notion that offshoring and outsourcing depresses job growth in the US appears to underlie support among some policymakers in the US Congress for measures meant to encourage US firms to expand employment domestically rather than abroad. It has even been voiced by some that India is a land of call centers and back offices that cost American jobs.
In view of the bilateral economic ties between the US and India, India has raised its concerns over the continuing discriminatory impact on the Indian job market, throwing thousands of young professionals out of jobs.
However, it needs to be argued that outsourcing and offshoring actually brings considerable benefits to the American economy. It creates value for individual American companies and frees US resources for
activities with more value addition. For example, firms pass cost savings on to consumers through lower prices and to investors through higher profits. Companies also get new sales from Indian firms that boost imports from the United States. If the US companies do not move jobs abroad, they will face great risks from global competition and not just from developed countries, but increasingly from companies in the developing world. This could ultimately all the more weaken the economy.
Hence, while a backlash over outsourced jobs is understandable, resorting to protectionism would be counter-productive, as it creates positive effects such as social improvements, creates jobs and an accelerated growth to both nations.
(The author is a Ph.D scholar in the American Studies Program at the Centre for Canadian, United States and Latin American Studies, School of International Studies, Jawaharlal Nehru University, New Delhi, and can be reached at simimehta.08@gmail.com).