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Outsourcing: Striking the Right Balance

- Kavita Krishnamurthy

Picture this - You want to purchase something. You have two options - You can purchase it at a retail shop near your house OR You can purchase it from the wholesaler, from a place further away from your home at one-third the price. What would you do?

Well, it is evident that you would prefer to purchase from the retailer close to your house, as you might have to travel all the way to the wholesaler, which may also incur further expenses of travel. But suppose the wholesaler offers a value add, 'home delivery'! - This is exactly what has happened with Business Process Outsourcing! (BPO). Undersea fiber-optic cables have provided the requisite value-add by enabling cheap data transfer across various countries in the world. Thanks to the numerous Indians being educated in English, perhaps the after effect of the British occupation, a large chunk of companies prefer to outsource services from here. Cheap labour at a fraction of the cost and quality service being the other rewards!

Previously Information Technology Enabled Services (ITES) comprised data entry and medical transcription. But today, data management, customer service (call centers), pay-roll accounting, medical processes and even sales form a part of BPO! The BPO sector encompasses almost every activity in the service economy except in services where personal interaction is required. India has a reliable telecom infrastructure coupled with government built and supported technology parks, designed to meet international standards. With a large pool of skilled workforce and the government investing millions in IT infrastructure, India is attracting a lot of outsourcing.

The Indian BPO industry has been growing at a fast rate of 70% a year and is now approximately $1.6 billion, employing over 170,000 people. This figure is expected to touch $17 billion by 2008, with 1 million employees. So what is it that the companies gain through outsourcing?

The first thing that drives the companies to outsource is the cost as BPO offers cost effectiveness along with efficiency. Secondly, BPO allows a company to concentrate on its core business. Every company had limited human resources and these can be focused on product improvement and business development instead of grappling with day-to-day issues. This leads to a further benefit of world-class solutions, wherein the firm can influence the forming of top quality services, solutions and products with lesser investments as compared to creating, maintaining and developing it in-house. Thus BPO facilitates growth through the optimum utilisation of resources of a firm by giving it true value for money.

To ascertain this further, a US economist at the Institute for International Economics in Washington, has come up with a thesis that outsourcing by US companies of IT services to countries like India will enhance American productivity thus generate more value leading to higher paid technical jobs.

BPO also beneficial to the country to which the services are being offshored as it helps the country by giving it foreign exchange and increasing employment! For instance, in India, even people from an economically backward surrounding have opportunities to white-collar jobs and growth! What's more it makes them independent - students who cant afford to study, work in call centers (thanks to night shifts!) and go to college during the day.

On the flip side, while India BPO sector is rising, workers in the US are hit by recession and job loss. According to the Wall Street Journal the number of US service workers whose jobs have been outsourced is estimated to be in the range of 250,000 to 500,000. A media report from the World Economic Forum in Davos has posted a query as to whether the increasing global economy will produce as many high-wage jobs in rich countries as once projected. Furthermore, it has been found that for every dollar that India spends on imports from the US, it earns 3 dollars through its exports to the US! Obviously there are cries from the workers whose peril by offshore outsourcing is evident. In response to this, officials in several states in the US are considering protectionist laws to restrict offshore outsourcing. Outsourcing has certainly shaken the faith in globalization with various proposals made with an aim to curb offshore outsourcing.

Countries like India, China and Philippines are rising and the Americans have termed us as 'job-stealers' but the US companies are not left with much choice towards their own people. Even if they stop the outsourcing to India and the others, they themselves are losing their own competitive edge to the companies from other countries that do outsource. The result of this might again be job loss due to closure of these American companies due to incompetence.

So despite the opposition, many companies still continue to outsource by adopting different methods. For instance, a company in the US is known to have formulated its voice-response to offer two options - Press one for processing your loan application from India in one day. Press two to process your loan application from America in 2 -3 days.

According to NASSCOM, 185 of the Fortune 500 companies have outsourced at least some part of their software requirement to India. It has also been noticed that sectors requiring more outsourcing like financial services have seen growth despite a scenario of poor US employment. Though backlash is a genuine concern for an individual, anti-BPO laws are illogical as jobs may yet be lost due to shutting down of uncompetitive companies. The solution to this possibly lies in looking at it from a rational perspective rather than an emotional one. Should the US look at creating jobs to come out of the recession rather than try to protect the current jobs? Should India offset the job losses in the US by opening up its market?

The solution possibly lies in the US's perception of India as a value creator rather than a job stealer or cost reducer. The challenge is to strike the right balance!

As economic profitability will determine all the business activities of outsourcing, reducing cost and increasing profitability and add to the bottom-line, this possibly may be the only solution.

To read more on the elections click the links below:

http://autofeed.msn.co.in/pandoraV2/output/B7196453-0EBA-4D5C-B1FD-FD4EE1CF87D2.asp

http://www.rediff.com/money/2003/jun/14guest1.htm

http://www.financialexpress.com/fe_full_story.php?content_id=49947

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