Outsourcing 101

Why do companies outsource? It’s a valid question, given the controversy. A simple answer is cost-effectiveness. Companies ask themselves, “If someone does it cheaper at almost the same quality, why pay more?”

In Rethinking The Future, Philip Kotler (a professor at Northwestern University) sums it up, “All companies that want to be globally competitive must practice outsourcing. Always buy the supplies you need from the source that can give you the best value for the money.”

It’s key to remember that outsourcing companies are not giving away their core competencies, the things that they excel in. The core competencies, which are the revenue generators, remain in the U.S. Almost all the innovation, the new stuff, takes place there.

Is it okay till the desk jobs go?

We also forget that outsourcing has been going on for quite a while. Decades ago, the large American auto firms outsourced much of their manufacturing to plants in Mexico and Canada for cost-effectiveness. Clothes, shoes, and general manufacturing, are some of the industries that have benefited from outsourcing.

My Adidas sneakers have a “Made In China” tag, my favorite Ohio State Buckeye T-shirt was assembled in Honduras, and my Gap T-shirt was made in Tunisia.

It’s really the flight of some white-collar jobs out of the U.S. that is causing some people to sit up and take notice now.

Welcome but weird work for Indians

There’s no doubt that outsourcing has benefited India. The most visible face of outsourcing in India is the call centers. Call center companies have sprouted everywhere and fresh graduates with good English skills are lapped up by these companies.

The catch is that most call center jobs require you to work long hours at night and sleep during the day. Thus, myriad health problems and high turnover plagues the industry. And God alone knows about the cultural impact and “split personality factor” of night work in Bangalore speaking in an American accent with an American name.

U.S. companies have also outsourced their back-office jobs like accounting and medical transcription to India. Some companies (like Hewlett Packard) are setting up offices in India to handle their own “back-office” operations. Hospitals are outsourcing MRIs to India, so that doctors here study the MRIs then send the report back to the hospital in the U.S.

The human face

Despite the complications, it all helps—I’ve seen it. One of my cousins worked in a call center for a year before quitting and another has joined a call center recently. She’s got an opportunity that she probably never would have five years ago. It sure beats sitting at home without a job.

Outsourcing has created thousands of jobs and opportunities in India, and in a nation of 1.3 billion people all of these are welcome. Outsourcing may not have eradicated the poverty in India, but it has unquestionably helped thousands of people make better lives.

Of course, outsourcing is cost-driven, so it’s possible that other countries might catch up and offer less expensive alternatives. Today it’s a person in India, tomorrow it could be someone in the Philippines or Vietnam.

Global capitalism
Because of globalization and the internet, it’s become imperative for companies to get the best value for money for whatever they buy—goods or services. And outsourcing has become the way that companies become cost-effective. In the short term, one country gains and another country loses out.

Some say the U.S. is losing out now, though even this is not clear. And India could be next when more cost-effective alternatives are found. It’s what you get with global market capitalism—a near free-for-all, where the playing field is slowly getting level. (Maybe too slowly for the poorest countries.)

It’s both a blessing and a curse, and ultimately it does no good to pit one nation against another. We’re all in this together.