BPOnama

In the past few months leading up to the U.S. presidential election, there has been a huge outcry in the U.S. over outsourcing.

India has been a major beneficiary of this phenomenon and, understandably, there has been growing concern in India over the backlash on outsourcing in the U.S. Post 1991 reforms, India benefited immensely from the revenue generated by the Business Process Outsourcing (BPO) with increasing numbers of American and non-American companies outsourcing services to India.

Things fell in place toward the end of the millennium, as there were several factors creating favorable conditions for BPO businesses to thrive in India. Some of the major reasons are listed as follows:

a) Technological advancement- The 90s saw the advent of the telecom revolution in the country. Private players were, for the first time, allowed to compete with the state owned telecom giants.

At the same time, there was an impetus toward computerization and the penetration of computers was on the rise. India was waking up to the digital age.

b) ‘Brand India’- At the same time, Brand India was being recognized by the world at large. Indian products were breaking new ground and were finding new markets all over the developed and the developing world.

c) If there is one industry where India can boast of being one of the world leaders, it is the information technology (IT) industry. Indian software exports have grown manifold since early 90s and future prospects look good. Many software giants like Microsoft set up research facilities in India and the acumen of the Indian software professional has achieved global renown.

d) Another reason that had a positive bearing on the Indian BPO sector was the drive toward disinvestment and privatization carried out by successive regimes since it was first undertaken by the Rao government in 1991.

The aforementioned factors led to an almost exponential growth in the industry. Since the early 90s, the BPO industry in India has been growing at a phenomenal rate of 60-70 percent annually. It took the IT industry 15-20 years to establish itself firmly in India; the BPO sector has done that in five years flat.

If one looks at the figures of the last five years, it would become clear that the revenue from the BPO sector has grown from U.S. $565 million IN 1999-2000 to U.S. $2400 million in 02-03. The projected growth for 2005-06 is US $1.2 billion.

The industry today employs 200,000 people and if industry watchers are right, one million people would be employed in the BPO sector in the next five years. But India’s share is still less than one percent of the global market which is U.S. $150 billion strong.

One major advantage that the developed world sees in India is the relatively low input costs. Input costs such as infrastructural expenses, labor wages and overheads are lower by as much as 40-60 percent in India as compared to most of the developed world.

The Indian workforce is fluent in English and a graduate in India can be hired for a pittance compared with a person of similar education in the developed world. Contrary to popular belief, the BOP industry in India is not a new phenomenon.

This industry has been around since the 1960s with companies exporting engineering services from India. This trend gained momentum in the 80s and 90s. It was post the liberalization in 1991 that companies like British Airways, AFS and Datamatrix came in, and with their advent came a world of employment opportunities.

So what is the hysteria being whipped up in the U.S. regarding the outsourcing all about, and what impact will it have on the fledgling BPO industry in India?

Why are Americans, the proponents of globalization and free market, suddenly edgy about outsourcing which is an outcome of the free market ideology? The answer to the above question is best summarized by Sushma Ramachandran of “The Hindu” where she notes, “The flag bearers of globalization and free trade have found their creed coming back to haunt them.”

Suddenly these votaries of free trade are worried about employment export, an aspect that has not concerned them much in the past.

The issue has achieved such mammoth proportions that it has become an election issue in the upcoming U.S. presidential elections. The white collar American is suddenly jittery as he sees his desk job being snatched from right under his nose.

Even George W. Bush has done an about-face. Last year, when certain American states considered banning outsourcing, Bush stood his ground. In fact, assurances were given to India at the governmental level in this regard. However, as elections drew closer, the U.S. Administration reversed its position and even passed legislation banning outsourcing of government contracts to foreign countries.

This reversal has everything to do with politics and makes absolutely no economic sense. The U.S. job losses are largely a result of the price sensitive market forces that heavily favor India and China, as these countries offer services at a fraction of what it takes in the U.S. Available data indicates that the actual loss of jobs in the U.S. is around 2.3 million, out of which only about 200,000 have gone overseas (2001 figures), thus indicating that reduced employment in the U.S. is largely due to a host of other mostly internal factors. But the outsourcing issue has simply been put on the political pedestal as it is helpful in obscuring facts.

Industry watchers and analysts believe that the legislation that has come into effect in America will have little if any ramifications on the Indian industry. They say that the U.S. government outsourced only a small fraction of the total business outsourced to India and this will have some bearing in the short period only.

In the longer run, experts feel that the share of outsourcing by the private sector would increase. Also, the UK and other European nations would outsource more to India, and these gains would more that make good the losses.

It’s high time that Americans wake up to the reality that outsourcing merely means that countries like India and China have a competitive edge. Price competitiveness is the knife-edge on which the forces in a free market economy operate and protectionism, in the longer run may prove detrimental.