The Hindu Business Line : Keeping outsourcing blues out of US election politics

To remain globally competitive, the American firms willy-nilly will have to outsource their jobs. However, It would be in their interests that this sensitive issue is kept out of electoral politics.

BEING the election year in the US, there is a shrill tone in the voices on outsourcing, mostly from the Democrats, to gain political mileage. John Edwards, the vice-presidential candidate, expectedly thundered during the recent Democratic Party convention held in Boston that: "We are going to get rid of tax cuts for companies which are outsourcing jobs".

On his part, the presidential nominee, Mr John Kerry, decried the practice of sending jobs overseas and promised suitable incentives for the companies that retain the jobs within American shores. He has pledged that he will create 10 million new jobs in the US in four years by fighting against outsourcing. The Republicans too, not to lose out on this issue, are making supportive noises.

Outsourcing is an emotive issue that is sure to strike a sympathetic chord with the average American citizen. He already has vague fears — especially when he hears incomprehensible, alien voices from call-centres abroad in response to his telephone calls — that American jobs are all being taken away to distant lands. The fear of pink slips being handed down is always looming large in his mind. It was perhaps this factor that influenced the enactment of law prohibiting outsourcing of federal jobs.

There is a genuine fear among the white-collared workers in US, when he reads about transfer of routine jobs such as data processing, accounting and pay-roll management, software publishing, telephone call centres, computer system designs and medical transcription. He is alarmed that that outsourcing is sucking up all jobs and rendering people jobless.

As if to play upon this sentiment, there are a number of studies warning of heavy loss of jobs in the US if the trend is not arrested. Instead of discounting such inflated figures and consequent alarmist views, the politicians, aware of the vote potential of this scare, actually magnify it. The political parties instead of explaining the benefits of outsourcing to the economy, stress only on the negative aspects. They are no doubt aware that the wages in India and other countries in East Asia are very low in comparison to theirs and that their companies take advantage of the lower costs by shipping jobs that could be easily done elsewhere thanks to the revolution in the internet and telecommunication.

The politicians know that the trend of outsourcing has come to stay and is getting the attention of all the big and medium companies to avail of the immense cost benefits it offers. To remain globally competitive, the American firms willy-nilly will have to outsource their jobs. They are fully alive to the fact that this relocation of some simple and routine processes and function to other destinations of low cost and trained skill actually leaves higher profits in the hands of outsourcing companies to be invested in creating more facilities and jobs within the country. But the high value-added jobs in education, health, sales and marketing, research, tourism and other industries continue to remain in the US and actually grow in numbers.

Those specific jobs that require proximity, fast-changing requirements and customer contact are kept out of bounds for outsourcing. Nevertheless there is pressure on them both socially and politically to retain all jobs at home. They inevitably play upon the hidden costs of chasing cheap labour and the risks involved where the jobs are transferred to an incompetent vendor.

But reality is not as bad as is described. It appears that 60 per cent of Fortune 1000 companies are still not outsourcing. There is also outsourcing to other parts of America like rural mid west where the labour is plenty and wages cheaper It appears from an article in Newsweek by Robert Samuelson that the global employment of American multinationals in the the US was 78 per cent twenty-five years back as against 73 per cent today.

It is significant to note that 77 per cent of the US multinational output is in the US compared to 75 per cent 25 years ago. The scene for multinationals has not changed much in the intervening period. The loss of a few low skilled jobs is amply compensated by large number of new jobs coming in to service clients in the US from many IT companies in India.

In a recent article in Hanson Investment Management Inc, the author has pointed out that outsourcing has led to big increases in foreign purchases of the US services. As against 152,000 jobs on offshore work in India in 2000, there has been a five-fold increase to 505,000 so far in 2004.

But there is also a corresponding increase of export of private US services to India from $1 billion in 1992 to about $3 billion in 2002. It is not a one-way street as is being made out. It is no doubt little comfort to the actual American in low-end job who is displaced by such outsourcing. Possibly, the hardship would be reduced if the workers who lose jobs are trained for new jobs and retained for the training period.

The market for outsourcing is expected to grow by 40 per cent in Europe and the market for off shoring ITES mainly to India, will be around $140 million in 2008. This would signify that the American companies can get their jobs done at much cheaper rates, reflected in higher profits and better financial health, expansion of businesses and creation of high-value-added jobs.

It would also bring the benefit of lower prices to American consumers and higher returns to shareholders not to speak of the immense benefits accruing to the countries where the work is outsourced. It would be in the long-term interests of the US that this sensitive issue is kept out of electoral politics.

(The author is a Chennai-based freelance writer currently in the US.)

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