Back BPO: US must go beyond the knee-jerk response
Anil K. Kanungo
It definitely speaks of an insecurity crisis in the US and the dilution of its supremacy in a market-driven world. This somewhat insecure and nervous feeling was visible in the arguments of the US Trade Representative, Mr Robert Zoellick, during his visit to India some time ago, that outsourcing by the US to India for opening up the Indian market was unwarranted.
Outsourcing by the US is nothing new. In the 1970s and the 1980s, the practice was widespread, and helped the US retain its financial supremacy and technical edge over other countries.
Those were the days of a robust and strong manufacturing sector (as the services sector had not yet expanded and was not quite secure) and the US could easily exploit that by outsourcing to countries such as China, India, Taiwan and Brazil, mostly to their manufacturing sectors and at a much lower cost.
During that time, the proponents of free trade could not anticipate that this trend could harm them. They could not have envisaged then that globalisation would not be confined to manufacturing but include a gamut of business activities.
In today's competitive world, where profit assumes great importance in the management's scheme of things, outsourcing provides it all. Therefore, many influential global companies and MNC majors are resorting to outsourcing of manufacturing processes and components from cost-effective developing countries.
During these operations they have also realised the advantages of outsourcing business processes from cost-competitive destinations with skilled and educated manpower such as China and India. The continuous flow of such business activities to China and India has allowed these countries to emerge as new frontiers of Business Process Outsourcing (BPO) activity.
BPO is happening in a big way in the IT sector, where India's core competence is well known. MNCs all over the world realise that India's highly skilled software experts and English-speaking personnel available at a relatively lower cost are a boon to them and will help them break into many new markets. In turn, the proliferation of call centres has provided huge opportunities for the educated unemployed youth of the country.
Growth is only just happening in the BPO area, but the country's brain-power is already shaping Corporate America. Many see India's digital workers as the torchbearers of a new prosperity and India as a deserving ally of America Inc. What happened a couple of decades ago in manufacturing is now happening in services.
The services sector, the mainstay of the US economy in this technology-driven world, is slowly losing jobs to developing countries such as India and China. Propaganda such as interdependence, global networking and outsourcing are easy to sell as long they do not affect your workforce.
All these years the US' strategy held good because it always maintained the lead in the creation of new technologies. This lead is now getting eroded. The transfer of hi-tech jobs to India opens up the possibility that some of the next technological advances will be made here. Obviously, free trade did not expect such a fallout of globalisation. No wonder India is now at the centre of a storm in the US, where politicians have started viewing off-shoring and outsourcing as the root of joblessness in IT and IT-enabled services. But these are the same people who introduced the General Agreement in trade in Services (GATS) into the WTO framework and swore by the philosophy that movement of goods and services is the growth driver in the global economy.
The reality, however, is that the cost to the company of their own staff is much higher than that of workers in developing countries. When competitiveness is the sole guiding factor in today's world, it is but natural that the companies recruit people at lowercost.
Underlying such a social backlash against outsourcing are globalisation and the dynamics of competitive market economy. It is important for the US and other developed countries to understand the pros and cons of outsourcing and try to work out a mechanism for a lasting solution to the problem.
Bringing legislation to ban outsourcing will hamper the competitiveness of American companies and that would have a debilitating effect on its economy. As such, opinion on the matter is a divided house, with such stalwarts as Mr Alan Greenspan not being in favour of bringing in a legislation against outsourcing, which he feels is healthy for the growth of free trade.
No doubt the undercurrents of joblessness in America are pretty strong and the Bush administration is finding it difficult to play down the concerns, which have emerged a major issue in the election year.
Protectionism is not a solution to this problem. It will only fuel conflict among the nations with which the US wants to have profitable economic relations.
Further, with the job market shrinking and retirement age all over the world going up, the youth has started feeling the heat and this can lead to rising social tensions.
Ideally, the US should develop a knowledge management strategy. As the knowledge economy — essentially relating to services — holds the key to the future, the US must take quick initiatives to re-skill its workers and regain the lost ground.
(The author is on the Faculty of the Indian Institute of Foreign Trade, New Delhi.)
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