Outsourcing

Corporate restructuring, downsizing and layoffs have led to fundamental changes at the work place on a global basis. Senior executives and corporate leaders around the world agree that outsourcing is good for the world economy. These executives also realize that outsourcing can deliver more than just labor cost savings (Daga & Kaka, 2006). While in all markets executives think outsourcing is better for the world economy rather their own markets, the issue has become politically sensitive in America (P&P, 2004). The issue has become highly emotional because of two dramatically different effects - while some claim that it will result in layoffs and dislocation for many US workers, most economists believe that it will ultimately strengthen the US economy (Otterman, 2004). Outsourcing should not be restricted as it will be good for the US economy in the long run.

With the US economy still recovering from recession, some economists feel that this is not the right time to send jobs overseas. High technology companies have been contracting out many of their software development projects to overseas software companies, particularly to India. Outsourcing has always been a part of the American economic regime. Gradually outsourcing is being done in more and more sectors. It is fueled by a combination of quality services at affordable prices both by the service providers and the consumers. The developed countries could venture into outsourcing as the developing countries have demonstrated the required skills and upgraded the technology in communications (Sourirajan, 2004).

Despite claims of job losses no one really knows how many service jobs have been outsourced overseas as companies are not required to maintain such statistics. According to a Forrester Report, US will export 3.3 million US jobs by 2010 and most will be in the IT software development sector (Sourirajan, 2004). By 2015, Forrester predicts, roughly 3.3 million service jobs will have moved offshore, including 1.7 million "back office" jobs such as payroll processing and accounting, and 473,000 jobs in the information technology industry (Otterman).

This according to economists is a very low figure as the United States employs some 130 million non-farm workers. Despite the recent economic downturn, according to a McKinsey Analysis, the U. S. economy created an average of 3.5 million new jobs in the private sector per year (Otterman). Outsourcing helps to stimulate the economy, argue some economists. The loss of jobs can be attributed to other factors like the bursting of the tech bubble and its effects on Wall Street, the consolidation of retailing under giants like Wal-Mart, and the after math of September 11 and other events. Hence there is no evidence that outsourcing has caused the recession and there is no evidence that it is making it worse.

Outsourcing has been in the news recently because of the numerous debates and the view points that it has attracted. The Bush administration is convinced that shifting the white collar jobs to the developing countries might cause short term pain but is a part of the positive transformation that will enrich the US economy over time (Vieth & Chen, 2004). Outsourcing is not just a new way of doing international trade; it has also opened up new areas and products that can be traded. The Information Technology Association of America (ITAA) also agrees that while outsourcing while collar jobs may have throw some Americans out of jobs, it will ultimately lower the inflation, create jobs, and boost productivity (MSN Money, 2004). Venkatraman (2004) asserts that outsourcing business process at lower costs and without significant loss of quality is increasingly becoming viable. Though this has resulted in downward pressure on domestic salaries, companies should not feel guilty as offshoring is the key element in the next generation business model. The former labor Secretary under President Clinton too states that blocking jobs from moving overseas would amount to 1930s style protectionism and also make the companies less competitive (BusinessWeek, 2003).

Two decades ago when the high paying manufacturing jobs were outsourced, there were cries of hollowing out the US economy but strong economic and innovation created far more and better jobs (Businessweek, 2003). As the US economy evolves, it leads to more jobs. As low-skilled jobs move out of US, the world economy benefits as the living standards around the world rises. As the imports in US increase, the US citizens can buy goods cheaper than what they would cost if produced at home. As the third world countries are developing, even writing software code is not more the expertise of Americans. It thus makes sense for US firms to outsource such routine work which can be done at one third the cost it would require in US. Global realignment across different skills has always taken place. When the power of computer and communication technologies increased in the 1900s, reengineering in large corporations resulted in restructuring of middle management jobs (Venkatraman, 2004). The jobs that were lost were compensated by job creation due to internet revolution and supported by venture capital inflow. BusinessWeek however reports apprehensions whether the latest shift in jobs is qualitatively different from past offshore movements. Venkatraman further reports that in 1990s America needed to import high skilled labor to meet the shortage and a few years later we are crying about the need to protect jobs. At this point it is essential to exploit and recognize the emergent network of such competencies. It is important to exploit the power of the internet. This is third wave in the design and operations of the corporations have traveled beyond borders. Digitized business processes like order processing, billing, customer service and payroll processing, including insurance claim processing, can be carried without regards to physical location.

Cost has been a major driver for outsourcing business processes. According to NASSCOM, American banking, financial services and insurance (BFSI) companies have saved $6 billion in the last four years by offshoring to India (Bandi & Srinivasan, 2005). This has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%. Apart from this, The McKinsey Global Institute estimates cost savings on factor costs up to 45-50% and 30-40% savings on task and process level improvements. Overall outsourcing to India has led to savings of 25-60%. McKinsey & Co. estimates that every dollar of US cost assigned overseas will generate $1.12 to $1.14 in additional value for the American economy as good and services become cheaper and the companies become more competitive.

King (2005) states that low and mid level IT jobs would continue to migrate away from US but this scenario has positive