Outsourcing is here to stay

* Employees and companies should take advantage of outsourcing to remain competitive

Jack Welch, retired GE CEO, recently responded to a question about outsourcing in his weekly column Winning. The question: How can we change things in the United States so we don't have to outsource to India and other countries anymore? His response was a simple - we can't and we shouldn't.

He goes on to explain that the real question should be, "How do we use outsourcing to enhance competitiveness in what is, and forever will be, a global marketplace?"

Welch acknowledges that outsourcing has caused its share of pain with the resulting layoffs in certain markets, but that it is ultimately good for the economy. Driven by consumer demands for low price and high quality, companies have had to look around the world for cost advantages, which has led to offshore outsourcing. Welch points to the 20% growth in the U.S. economy since mid-2003 as evidence that the outsourcing trend has been positive overall for the United States.

I agree with him on several fronts. First of all, it is inevitable. You couldn't stop it if you wanted to. Enabling technologies have fueled the growth of the global marketplace for both labor and goods. Companies that do not take full advantage of this will lose out as their competitors become stronger and more efficient. While there are perils for outsourcing done poorly, done right it is a powerful advantage. And outsourcing can have benefits for the entire economy.

The benefits are often hard to see when the immediate impact is on local jobs. As the labor-force is affected, outsourcing can be seen as a problem to be solved rather than an opportunity for efficiency and growth. As the economy in India has been a major beneficiary of offshore outsourcing from the United Kingdom and United States, you would think India would be one place where outsourcing would be easily embraced. However, with a ready supply of cost effective local talent, Indian companies have been slow to outsource. This may be changing, at least for the banking industry.

Proposed changes to banking laws in India could change the voting rights for shareholders making foreign investment in Indian banks more attractive. Currently, no shareholder in an Indian bank can control more than 10% of voting regardless of actual ownership. It is thought that this has limited the attractiveness for private and foreign investors. State run banks dominate the banking and insurance sector. But with a more equitable voting structure, banks in India could be a very attractive investment for private and foreign investors. So what does this have to do with outsourcing?

Well, it is thought that if private and foreign investors are attracted to Indian banks and can vote equal to their ownership, then management will be pressured to outsource to improve profits. This could include outsourcing of functions such as check clearing operations. But here's the rub: bank employee unions in India are organizing a one-day strike for July 28 to protest the change in banking laws. These workers fear job losses if the law is changed.

I guess things are the same all over, and maybe that is the biggest indicator of the maturing global economy. Protectionist attitudes prevail when changes threaten local jobs, while the economics behind the trends will ultimately win out regardless of attempts to stop it. I do find it interesting that, in an economy such as India that has benefited so greatly from the outsourcing trend, there are still negative attitudes and resistance to the changes that we in the United States have come to accept as inevitable. And as I have written many times before, management must take advantage of outsourcing to stay competitive and workers must retrain and adapt to stay relevant.

Copyright © 2006 IDG Communications, Inc.

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