Dr. P.V. Viswanath

pviswanath@pace.edu

Outsourcing a win-win arrangement: US report

Wednesday, September 22, 2004
http://www.siliconindia.com/shownewsdata.asp?newsno=25538&newscat=Technology

NEW YORK: Amid increasing political debate over outsourcing, an American research institute has released a report saying the practice benefits the US economy in the long and short run.

The Mackinac Centre for Public Policy, a non-partisan research and educational institute, calls outsourcing "a win-win arrangement", explaining that "foreign outsourcing allows US companies to dramatically cut the cost of certain information technology services.

"As a result, US companies become more competitive in what they do best, their core competencies. Better and more affordable services become available for consumers and taxpayers. Outsourcing allows companies to operate on an around-the-clock, 24/7 production cycle, further adding to productivity."

Speaking of the political benefits reaped from outsourcing, the report says: "As the United States seeks to win friends and influence events in South Asia and elsewhere, it would be hard to find a more naturally pro-American enclave than the Indian high-tech sector."

The case study report, "Outsourcing Benefits Michigan Economy and Taxpayers", says while most of the jobs outsourced from the US are on the lower end of the pay and status scale here, they are "among the best jobs available in India and other developing countries".

The report released this month credits outsourcing for enabling thousands of college graduates in cities like Bangalore, Kolkata and New Delhi to "reap the fruits of middle-class life" that Americans take for granted.

It adds that it would be "terribly short-sighted" to disrupt America's "growing, mutually beneficial trade and security relationship with the world's most populous democracy to save a relatively small number of jobs that are not among the more well-paying in the US".

As the rhetoric over job losses due to outsourcing heightens ahead of the November presidential elections in the US, the report says, "it appears that job losses catch the attention of politicians only if they can be blamed on a foreign bogeyman".

It points out that "far more Americans lose their jobs to technology, domestic competition, and changing consumer tastes than to foreign outsourcing or other forms of international competition. Think of all the former typists, telephone operators, and bank tellers whose work has been replaced by computers and other machines".

The Mackinac Centre explains that the recent job losses in IT have not been driven mainly by foreign outsourcing, adding that, "instead of blaming IT providers in India, displaced high-tech workers should blame the bursting of the dotcom and telecom bubbles in 2000, the subsequent plunge in the Nasdaq, the recession and decline of business investment in 2001, the Sep 11 terrorist attacks and the uncertainty that followed, corporate scandals, and slow growth abroad".

The report says the most frustrating part of the outsourcing debate is the lack of definite numbers. It adds that the "best estimates from the industry are that perhaps 300,000 to 400,000 jobs previously performed in the US are now done overseas through contractors".

The Mackinac Centre quotes a recent update of the 2002 study by Forrester Research, which predicts that "the number of US jobs outsourced abroad will increase from an estimated cumulative total of 315,000 in 2003 to 3.4 million by 2015. That would mean an average of 257,000 additional jobs outsourced each year".

However, the centre describes these losses as "just a few drops in the big bucket of a $11 trillion economy that employs 138 million people and creates and destroys millions of jobs every month".

It emphasises that if "the US, its companies and its workers are to remain leaders in the global economy, offshoring must remain a tool available to our corporations".