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Home » Articles » Outsourcing » Macroeconomics of outsourcing

Macroeconomics of Outsourcing

In one of his visits to India, President Bush defended outsourcing calling it the reality of the global economy. The migration and deprivation of jobs in the US is indeed a serious concern. But in the larger interest, opposing outsourcing is against the natural trend of the economy.

Globalization has set the world economy on a momentum wherein protectionist national policies cannot prevail.

It is high time we accept that outsourcing is not all that bad.

Why is Outsourcing the Way of the Economy?

Cost savings and technological expertise are the most luring aspects of outsourcing. Deloitte & Touche studies say that by 2006 the expected cost savings of the top 100 global financial-services firms will be more than $700 million.

The following are the observations of NOA/NelsonHall analysis:

  • 80% of companies claim that outsourcing has increased their competitiveness
  • 87% of companies say that outsourcing services have helped in improving the quality of their internal processes
  • 77% of companies say they could see a significant drop in their process cost by outsourcing

From being an activity intended to get rid of routine work, outsourcing is evolving into a genuine business opportunity. IDC says that the US IT offshoring market will show a compounded annual growth rate of 14.4% and will double to $14.7 billion by 2009.

And it is not just about the US. The economy is seeing a balance between the East and the West. Moreover, there is an undeniable inter-connectedness between the nations which, as Thomas Friedman says, has shrunk the world from size small to size tiny.

What are the Major Reasons for Corporates to Favor Outsourcing?

"Substantial cost benefits" - is this not enough of a reason? There are enough and more reasons which are persuading corporates to find an offshore partner. Let's see some of them:

macroeco

How do we Address the Job Loss Issue?

You definitely cannot turn a blind eye towards job loss and other risk factors. But the positives out-weigh the negatives. While jobs are being lost on the one hand, more are being created on the other. Information Week says that offshore outsourcing will create more than 337,000 jobs by 2010.

The Vice President of NASSCOM, India says, "If IBM is able to lower its cost structure, the U.S. economy benefits as a whole". It is all about the overall mutual benefits rather than individual gain.

Is Outsourcing Here to Stay?

Meta Group studies say that the offshore outsourcing market will continue to grow nearly 20% annually through 2008. 26% of those companies who are already using outsourcing services are expected to double their spending in the coming years.

Unless and until there are some forceful checks on outsourcing, the economy will continue to favor outsourcing. And it does not seem that insightful nations will resist outsourcing. The current trend shows a positive incline with India and China being the major players.