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Challenges and Opportunities of Global Offshoring

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DQI Bureau
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An interesting Fortune magazine article on the Indian outsourcing movement

makes this wonderful comment, "That is what the world has come to. An

ambitious young woman from a nation that spent the first four decades of its

independence floundering in a semi-socialist economic miasma is lecturing

Americans on capitalism in the language of a cheesy American business

bestseller. And she’s doing it at a slick night spot on a road named after the

saintly ascetic who won India its freedom. Isn’t it magnificent?" For

those of you who have not read the article, this is about a young IT

professional being interviewed in a pub on Bangalore’s MG Road.

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More important, this is the great Indian paradox that might confuse the

Western observer but is all so typical of the way all of us live and work. One

may carp that India is popular because of its low cost as compared to the US and

most BPOs are doing "bums on seats" call center work rather than truly

migrating business processes to India, but there is no gainsaying the fact that

what we have achieved so far has caught the attention of the entire world and

the war of who will become the offshore back office for all the world’s

services is there for us to win or lose.

“While the estimated software and services exports to the US will be over $8 billion in the current financial year, the savings to the US economy by offshoring to India is itself going to be over $10 billion”

Ganesh

Natarajan

A lot of people have asked the question—is this Indian dream run

sustainable? There is no reason why not, since the purchasing parity with the US

is still at a healthy one to five ratio, the government has done a good job of

controlling inflation and interest rates between the ministries and with the

industry is the order of the day. And as more and more IT Services and BPO firms

move to smaller towns like Nashik in Maharashtra, Gwalior in MP, Kochi in Kerala

or even Ranchi in Jharkhand, the availability of manpower at lower wage

expectancy levels in these towns will enable us to sustain the economic value

proposition over this decade without any problem.

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Does this mean that the US economy will suffer as a result of this movement

of services jobs to India? Far from it, as a recent study by NASSCOM shows.

While the estimated software and services exports to the US will be over $8

billion in the current financial year, the savings to the US economy by

offshoring to India is itself going to be over $10 billion. Add to that the

spending, social security and income tax payments by the industry’s onsite

professionals in the US and imports at an estimated $3 billion of hi-tech

equipment from the US and the math is encouraging—the benefits to the US are

double the Indian export figure to that country.

And if the numbers aren't enough, look at the list of qualitative benefits

that US companies continue to enjoy by working with Indian firms—higher

productivity, improved operational efficiencies, multi-skilling and catering to

peaks and troughs in demand for resources and of course the plethora of

commercial models—time and materials, volume discounting,

build-operate-transfer options etc—all these add up to significant gains for

US corporations helping them to stay far ahead of their counterparts around the

world.

Back to numbers and a study by the Mckinsey Global Institute reveals that

every dollar offshored to India delivers thirty three cents of value to India,

brings savings of fifty-eight cents to the offshoring company and nine cents of

additional benefit through venture profits and sale of goods and services.

Finally, new value to the extent of forty-five cents is created by re-employment

of US labor in other tasks thereby adding up to a global pie of a dollar and

forty-five cents—there can be no better motivation to continue and increase

the pace of offshoring.

Did somebody say—where are the opportunities for re-employment for American

workers? In education, healthcare, professional and business services, trade,

transportation, utilities, leisure, hospitality and of course traditional

construction and manufacturing activity, where a large portion of jobs cannot

and will not move offshore. The point to be noted is that the global offshoring

model has some limited short term impact but very substantial long term

sustainability.

Ganesh

Natarajan




The author is deputy chairman & managing director of Zensar Technologies

and chairman of Nasscom’s SME Forum for Western India

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