The best kept secret about outsourcing…
April 8, 2009
With all this negative talk on “outsourcing” — one fact got conveniently overlooked. Mark Kobayashi-Hillary points it out in his post on Silicon.com. The director of the National Outsourcing Association and the author of ‘Who Moved My Job?’ assert that sending work offshore CAN results in a greater flow of capital back to the source country. I immediately began to Google for evidence.
My first discovery was that over 300 of the Fortune 500 companies today outsource some part of their technology and business processes to India. No wonder these are Fortune 500 companies! My next discovery was an interesting study by the McKinsey Global Institute (MGI) that suggests that when a US firm ships a $60-an-hour software job to a $6-an-hour code writer in India, the most obvious benefit of course goes to the Indian. However, simultaneously, the U.S. economy also receives at least two-thirds of the benefit, which is more than the third gained by the lower-wage countries receiving the jobs! Indeed, of the $1.45 – $1.47 dollars spend abroad, the U.S. economy captures $1.12 – $1.14 while the receiving country captures on average only 33 cents. In other words, the U.S. captures 78 percent of the total value of these outsourced jobs!
Is President Obama listening?
This also reminded me of my earlier post on the shrinking pipeline of H1B visas that cites a study by a Duke University professor, Vivek Wadhwa that discovers that immigrants once founded 52% of Silicon Valley startups and 25% nationwide! The economic value in outsourcing is captured through multiple channels in terms of reduced costs, creating new market in destination countries for US products (See Jonathan Weisman’s article carried in Washington Post, repatriated profits and redeployed labor.
One estimate is that between 1979 and 1999, 69% of US workers who lost their jobs to outsourcing have found new work within half a year and nearly a half, even found better-paying jobs. Even otherwise, when jobs move overseas, American firms and consumers enjoy reduced costs. Look at the pharma industry and the easy availability of generic drugs to US patients.
Would any of this have been possible without the “outsourcing trend”?
Both outsourcing and globalization is unstoppable and irreversible.
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Companies make Outsourcing decisions based on various factors, it is bad bashing Indian outsource vendors. See the news IBM has been winning big outsource contracts from Indian companies.