By: Hari Sud
harisud@hotmail.com
March 09, 2004

This is Part 2 of the report on the subject
Part 1: BPO Backlash in USA & UK and Elections Year Politics 

India must say to America - Thank you for your confidence in India and the skills of its young men and women, who 24/7, are providing you not only the IT services but are maintaining your back offices also. It all began in 1996 with the looming Y2K crisis when need for additional IT programmers was felt. These bright young men and women headed America’s call and came to its shores to address the issue. They worked closely with the industrious American work force and remedied the situation. America compensated them well and sent them back home (a few stayed back). Hardly could they imagine that the expertise they have acquired, while on the job in America is going to serve them well, later. Corporate America wished that while in their home country, could they undertake a few mundane & repetitive tasks for which immense amounts of monies are spent every year? American corporate leaders and President Bush’s Economic Advisors, forced by the 2001-03 bad economic climate, 9/11 and war in Afghanistan & Gulf, were looking for ways and means to cut costs. They found their answer in India. The winning formula was, to have these tasks done in India where labor costs are a third of the costs in America and quality is as good as any. Hence the BPO Boom was born. 

Europe is doing the same. In their infinite wisdom, the Europeans are following in the footsteps of the Americans and are getting their back office tasks done round the clock in India. 

Well Done India!!! 

Are Out sourcing Fears are Misplaced? 

Yes, these are! 

Global semiconductor major ST Microelectronics president Pasquale Pistorio also believes that these fears are misplaced. So do other business leaders in America. Companies must be able to grow outside and inside. They should be capable of combining all the opportunities in all the environments they operate in. Mr. Pasquale also believes that innovation should be the driving force behind outsourcing, which is possible only thru innovative and skilled workforce.  

Federal Reserves Chief Alan Greenspan has come in defense of outsourcing including free trade. He has warned that protectionist sentiments presently advanced by the media and the politicians to deal with country’s job insecurities will worsen the free trade environment. He has advanced the well-treaded path of job retraining to displace the old jobs with new one. 

Comprehensive studies by various organizations have concluded that outsourcing delivered significant benefits both to corporate America, worker and economy on the whole. They have even advanced the theory of strategic advancement of corporate interest, which combines multi-location, multi-vendor and both in-house as well as outsourced solutions for IT and business processing. So this is win-win situation. 

Some are calling this Boom as Exporting Jobs, Is this truth or Hogwash? 

I am inclined to say hogwash. 

Outsourcing is not exporting jobs. It is simply re-adjusting your working environment, taking into account the new and revised labor situation. Economists are saying it time and again that it is for the greater good of America that these tasks are done elsewhere at a lower cost. These cost savings become higher profits and higher profits become new investment. The latter create more and higher paying jobs.  

Hence, why is there so much noise in the media that politicians have been drawn into the debate?  

Partly, it is lack of understanding by the media of the dynamics of changing labor economics. They have taken a very short-term view of the situation. Yes, there is a temporarily job loss. But the American worker is smart. He or she is to be retrained. With retraining, he or she will step into a potentially better job.  

If you do not believe me, then look at the economic statistics of the nineties. America exported close to 10 million manufacturing jobs to China or the East Asian countries in nineties alone. Yet the unemployment rate with so many workers unemployed stayed at 4%. This was the lowest recorded unemployment rate in 30 years. The American GDP grew at a staggering rate of 4% annually and stock market hit the roof. Did anybody complain about millions of unemployed then?  The answer is No.  Reasons – America was retraining its redundant manufacturing labor force into better paying service jobs. The service sector was the shining example of success. President Clinton’s economic theory worked. Everybody was happy, including the media.  

Hence, take the good advice and quit taking the myopic view of exporting America. Think long range and look at the benefits American economy is going to get. 

Trade, and more specifically Trade in Service Sector. 

American merchandising trade deficit has gone thru the proof. Reasons are too many to count. They include higher dollar, wars and using China as a hub for American manufacturing etc. The bright spot is service sector exports. It has recorded a surplus. The point is that better trained American workers are turning out services needed by the rest of the world in greater numbers. This is possible because working in smoke stack industries of fifties, sixties and seventies in no longer in vogue. People wish to take better jobs, which is possible only if they are retrained. This forgoing happened only 10 years back. It will happen again in the immediate future. Job retraining is the stepping-stone.   

In the end, America provides the world with high-end services, China becomes the manufacturing hub and India maintains their back office. 

The merchandising trade deficit, which America has suffered in last thirty years with Canada, Europe and Asia, is serious. Addressing it will require a better and more prolific service sector, political will to force a change and better-trained labor force. 

Technology is making it Happen 

Twenty years back, when desktop and laptop computers had not been abundant use and Internet together with high-speed communications was still a dream, the BPO was not possible. Technology made it possible and technology is going to move it forward. It is the wave of the future. With the technological revolution, currently underway, costs will continue to tumble. Savvy operators will see the advantages early on and latch on to it. Reduced costs, higher profits will drive the engine of economic growth all over the world. Again to quote Mr. Pasquale – It is the innovation, which is driving the outsourcing today.  

Take this Issue Out of the Political Agenda 

The present Democratic Party presidential candidates have made the outsourcing as an election year issue. Pushed too far, President Bush has started to panic a bit. His economic advisor was made to retract his earlier statement on outsourcing. All this points to a major debate on the issue in this election year. India, China, Mexico etc. have become their favorite whipping boys. Although their own studies and their own economists are favoring outsourcing, yet the media keeps the subject front and center. The latter is only concentrating on the short range. The bigger picture is missed. Should America decide not to outsource, chances are that in this age, global competition with lower cost will kill them and then America will be at a greater disadvantage. 

Hence, take this issue out of the political agenda and let the economics deal with the issue.

Continued political debate is not good for anybody. It will impede progress. Already 11 states have politicians excited about it. They have either passed laws or are debating various measures to prevent outsourcing. Are they helping Corporate America? No, as a matter of fact they are hurting the progress of business. They should be busy in schemes in job retraining, improved education etc., to improve the worker’s lot. Instead the easier way out has been taken. 

Don’t Blame on India Alone for Job Losses 

Today, the media & the Politicians (economists are an exception) have made India as the target of their anger. Nobody is thanking these men and women 10,000 miles away for keeping America’s back offices running inexpensively. Rather outsourcing and India are uttered in the same breath with a lot of disdain.  

But do not blame all of it on India alone. From 1980 to 2001, about 15 million American manufacturing jobs were lost to China, because their manufacturing base was more modern and their labor cost was cheap. Jobs, which are leaving for India, are a tiny percentage (3%) of what has already been lost to China. So why does media targets India in their discussions and not China? It is plain simple – China’s strategic importance as a counter weight for Russia is much greater than India. That alone dictates who is to be made a scapegoat. 

Thank you for your Confidence in India.   God Bless you, America 

India has to thank America for its benevolence for making it as its back office. India has gained about four hundred thousand jobs in last three years. This is too small a number to make any difference to the American economy. But it has transformed a slow moving Indian economy into a powerhouse. Strategic partnering has entered into the thinking process of both the nations. Soon it will transform into peace and prosperity for both the nations. India will become the bulwark of stability for the Indian Ocean littoral states. This peace and stability will ensure prosperity for India, good value for America and peace in the sea-lanes from Suez to Singapore for a generation. 

Hari Sud

(The author is a retired Vice President from C-I-L Inc. and has lived in Canada for the past 34 years. A graduate of Punjab University and University of Missouri; Rolla, USA, the author is a former investment strategies analyst and international relations manager. The Views expressed are his own. email- harisud@hotmail.com)