The Hindu Business Line : US economy to benefit from offshoring: McKinsey report

EVEN as many policymakers in the US try to check outsourcing services to countries such as India through legislation, a McKinsey report says the American economy stands to benefit immensely from offshoring.

The report says that for every dollar of spending that is offshored, offshore service providers buy an additional five cents worth of goods and services from the US, thereby generating more exports and revenue to the American economy.

"Providers in low-wage countries require US computers, telecommunication equipment, other hardware and software. In addition, they also procure legal, financial and marketing services from the US," the report, prepared by McKinsey Global Institute, says.

It points out that Indian imports from the US have already grown to $3.8 billion from less than $2.5 billion in 1990. In recent months, a number of states in the US saw senators introducing Bills that seek to restrict outsourcing of jobs to low cost destinations such as India. Many American politicians blame outsourcing as the main reason for job cuts and unemployment in that country.

However, McKinsey says that a number of offshore service providers who are incorporated in the US, actually repatriate their earning back, resulting in an additional revenue of four cents for every dollar of spending offshore.

Also, offshoring of low value-added services to overseas destinations would let US workers take up other jobs.

"If redeployment continues at the rate it has over the past two decades, then for every dollar of spend offshored, the economy will capture an additional 45 to 47 cents per dollar of offshoring from the new jobs that are generated," the report says, while it points out that service workers find employment more quickly than manufacturing workers do.

Offshoring, in effect, creates a net additional value of 12-14 cents for every dollar offshored for the US economy.

"Indeed, of the full $1.45 to $1.47 of value created globally from offshoring $1 of the US labour cost, the US captures $1.12 to $1.14 while the receiving country captures, on average, just 33 cents," the report says.

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