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Outsourcing - What keeps it going - The pro's, con's and future

Analysis by: Nitish Grover
Analysis of: Going Away
Published at: www.cfoasia.com

Summary
Outsourcing draws heated debates at different ends of the world. In the US, UK and western europe a sizable number view it as a loss of jobs to their home country. In countries like India it is seen as a panacea for poverty alleviation and a way to catch up with the developed world in terms of economic prosperity. What makes outsourcing tick however is not emotions but plain economics. In this analysis I look at the outsourcing phenomenon, where it is heading and what to expect - in plain simple profitability considerations.

Analysis
1. The referred article is an excellent set of case studies on what keeps outsourcing going. What it really brings up is the fact that outsourcing is looked at by corporates as just any other business process without the emotional hyperbole which has come to surround the concept in debates in India, the United States and Britain.

2. Countries like India are turning expensive for manpower. Outsourcing to India had started as a simple process of outsourcing repetitive jobs including voice based services. It was these voice based services where quality was really not upto the mark that saw the initial backlash to outsourcing of work to India and other countries.

3. If one reads The World is Flat by Friedman one can get a fairly good idea how outsourcing really started gaining strength at the beginning of this century. It was in essence the reduced cost of communication through the internet which saw the coming into being of a global world. Just as the steamship and the railroad in earlier centuries gave birth to increased world commerce and activity (including outsourcing in another sense) it is the internet today which has brought about the current outsourcing of processes phenomenon.

4. If one reads Alvin Toffler (Future Shock, Power Shift) one can see that the shift towards a knowledge economy is virtually unstoppable with the emphasis being on the proper utilization of knowledge resources.

Outsourcing - Where are We Heading
1. If one reads the current political debates in the US then one can be fairly certain that outsourcing will very soon be laid to rest or at the least stymied in its infancy.

2. However all commercial organizations are concerned with cost reduction, improved profitability, increased wealth for shareholders and a positive contribution to their home country. On all these counts outsourcing will continue to gain strength.

3. The referred article speaks of how companies are keeping a small highly skilled technical center closer home and outsourcing processes which can be properly monitored in keeping with their overall business philosophy.

4. It is in this context that I feel that outsourcing will continue.

5.The geographical span will spread beyond India for the simple reason that manpower and realty costs in India are rising at an astronomical rate and as per some reports are currently 75% of those in the US.

6.Therefore companies will perforce look to other regions to outsource including increased outsourcing in the US itself - especially in those areas where manufacturing jobs are on the decline and manpower is easily available.

7.Where India will continue to attract outsourced work and processes is in the area of skilled jobs where a young workforce is required and the value added to final product output is high.