Submitted by vishy on Sun, 06/29/2008 - 22:17.
Job outsourcing is the buzz word today among corporates. Companies are in a pressure to reduce costs and increase profits. Naturally, when they know that there is an alternative way to get the same job done at roughly 1/3rd cost, they would do that. Thus started outsourcing, most notably in this decade. Conspicuously, corporates benefited a lot due to the outsourcing. But this trend left a irreversible dent on the economies of developed as well as developing nations.
It is easy to understand the fact the economies of developed countries were affected due to outsourcing, because it is very straightforward - Jobs moved elsewhere, so citizens were left jobless. So the tax collection reduced and at the same time governments expenses increased due to the need to support jobless citizens.
But, how is it possible that economies of developing countries got affected due to the same job migration? After all jobs were moving there, and the economy should have improved?
To understand this trend, let us take two countries into our study - USA, at the developed country side and India, at the developing country side. Of course, the industry which we can study is Technology(IT), where the outsourcing is most common.
Roughly a decade ago, Technology (IT) jobs were mostly USA centric. US companies were developing technology for alomost 70% of the world. This resulted in hundreds of thousands of jobs and open positions in USA. Mostly locals were employed in the beginning, but when a shortage arose, they could employ foreign students that studied in USA and even when did not suffice, they used a technology centric employee resourcing visa called H1 to bring qualified people from abroad (In our example, read India). This trend was mutually beneficial to both US and India. Because, US companies were able to fill up the employee shortage, and migrant Indians sent back forex to India. Also, US was still able to collect income tax from these people, and they also contributed to US economy because they had to live in US and spent there. Back in India, this trend, did not have a major impact on the economy. It is just that a section of the people were able make $5000 or so per month by living in USA, whereas the president of India himself earned $1000 or so per month. Moving to USA meant, a path to richness. Even though $5000 was not a huge salary in USA, when the dollars were sent back to India, the equivalent rupee (local currency) value is very huge. Only people in big businesses could earn clsoe to $5000 a month in India.
So the conclusion to the first half of the story is that, the situation a decade ago was beneficial to US economy, and neutral (but close to GOOD) to Indian economy.
Then slowly the outsourcing trend started. Why? Companies got to know that in countries like India, a qualified engineer can be hired for roughly $800-$1000 per month, whereas an equivalent person would cost minimum $5000 or more in USA (even immigrant employees). This is when the companies started proving that they will go to any extend to save costs to the company. Hundreds of thousands of jobs started moving towards India.
The impact on USA economy is very obvious. Unemployment became a big issue there. Tax collection reduced due to the above. Once signs of recessions start, people would stop spending, and this added further problems to the economy, because this will further impact the economy, as reasonable spending is very essential for a stable economy. The latest crisis in this in subprime mortgage - people who could afford to pay monthly installments are no longer able to pay back, as they are no longer in a stable job.
Back in India, the situation became more complex. When 90% of the employees (average age 35) were working for a monthly salary of $100-$200, all of a sudden, a new community (called IT or software community in India) formed in India, with an average age of 28 and earning $1000 and above per month. This severely beat the ego of the people working in traditional industries. Just as an example, a banker with an experience of 20 years would draw $500 per month, and all of a sudden he would notice that some 20% of the banks customers are earning $1000 or so and their average age is only 26!
While salaried people were immediately not able to fight this trend, businessmen immediately realized the arise of such a community and modified their business tactics. Needless to say, with the help of politicians, they were able to play all tactics like artificial shortage, hype and as such and started playing with prices. In the last 3 years, real estate prices in India grew by 1000% or more, education expenses grew by 1000% or more, and pretty much the same in others.
When the average salary in India is still $200 or so, some 10% the community (read, software community) earn $1500 and businessmen have already increased the prices of products and services to match the salary of the software community.
This means, 90% of the salaried community in India can no longer afford to buy a home, or send their kids to good schools! They can not buy enough groceries to meet their needs!
This month, inflation in India touched a historic high of 11.5%. The central government (currently run by congress party and partners) has lost peoples wishes, and they are less likely to come back to power again. Stock markets crashed, and the stocks are today sold at prices which were prevailing two years ago. Many apartments in Bangalore are unoccupied, because the rates are too high to afford.
How can someone tell that outsourcing benefited India? Outsourcing has resulted in a lopsided economy in India, where businessmen are enjoying the benefits, and the entire salaried community, including the once elite software community is struggling to live.
To conclude, outsourcing has resulted in malfunctioning of economies of both USA and India. Perhaps, corporates are enjoying the benefits, but the overall economy of the countries are in tantrum and likely to meet a major crash.
