A Momentary Lapse of Reason

"What

protests?" asked the visitor from Silicon Valley. I’d asked him how

big the protests were in his area, against outsourcing tech jobs to places like

India.

Maybe he was an exception. But I did find, on a recent trip to New York, that

the Indian media had been making a much bigger deal of this "backlash"

than the US media had. Most people I spoke to recalled much bigger protests in

the US when manufacturing had started moving to the Far East. Then, economic

realities and competition had their way, and now, every second product on US

shelves is Made in China. That’s a lot of jobs going offshore. But the West

reconciled.

Outsourcing in inevitable in an increasingly globalized, competitive,

freemarket world economy. It lets companies grow and change rapidly, focus on

core competencies, maintain flexible costs, and fill in for labor shortages. IDC

projects 9% growth in IS outsourcing spending, to $177 billion by 2004. Gartner

projects the global BPO market at $543 billion by 2004.

So many companies have outsourced to Indians, or set up captive units –

Amex, GE, BA, Dell, Citi, StanChart – that the process is irreversible.

And the job crunch is temporary. US Bureau of Labor Statistics project 168

million jobs in 2010, with a shortage of 10 million. While much of the shortage

is in industrial engineers, doctors and nurses, and government managerial cadres

(all of whom India can supply in plenty!), ICT will pick up again, reversing the

‘oversupply’ scenario.

Apart from sensationalism in the mass media, these jitters in India also

outline the fragility of our software exports industry, one built upon wage

arbitrage.

On one hand, with the state of the US economy, the pressure on billing rates

and margins is so severe and our resistance so weak, that we let customers

dictate pricing, an odd situation for a segment where we control a big chunk of

the supply and are heading for ‘superpower status’.

On the other, with an almost insignificant base of Indian-owned IPRs and

products, the long term stability of our tech industry, and its likely ‘superpower

status’, is in question. Would we have been as jittery, or our margins so slim

today, if a third of our revenues were coming from products? Would we have let

customers dictate product pricing?

A few, from Iflex and Infosys (banking) to smaller players like Eastern

Software Systems (ERP for SMEs) have shown that it can be done. But it’s for

the rest of the big boys to now invest into products and IPRs. Giving up after a

few years, as TCS did with E-X, isn’t quite the way. This is a long-haul

drive.

Prasanto K Roy