Outsourcing – in a spin

It was supposed to be the new order of doing business. It delivered what it promised and much more. 3 decades after it changed the landscape of world business and the lives of billions of people, it is on the path of self destruction. This is about the life and times of outsourcing.

It all started when the world was firmly divided into three categories, developed, developing and poor countries. That was the time when the developed world was blooming in prosperity and opportunities in business and jobs were available in plenty. In the early 80s, China opened it’s market to the world albeit with a lot of caution. The developed world saw a vast pool of Chinese workers and came up with the idea of moving manufacturing to China to lower their operating costs. This is how outsourcing truly started. But they grossly underestimated the business acumen of Chinese people. During my MBA program in Shanghai, I read plenty of case studies about how entrepreneurship developed in China because of truly enterprising minds. One of the requirements to outsource work to China was to transfer technology as well and the developed world duly agreed, without having the vision to understand the long term consequences. Chinese entrepreneurs jumped into the fray and took pains to invest in new businesses they had no idea about. Indigenous products took over Chinese market, gained momentum and started pushing brands from developed countries out of China. Now Chinese products have a lion’s share of the markets around the globe. Apple continues to manufacture iPhones in China, but take a stroll through the streets of Shanghai and you will find people walking up to you and asking if you want to buy an iPhone. You have to know enough to make out the differences between the real and the fake ones.

Outsourcing reached the shores of India in the form of IT. It was first proposed to start the IT parks in the state (Kerala) I belong to, but the ruling state communist party rejected it (for reasons they only know). That’s how Bangalore got to grab it all. Most of the IT parks now stand on lands that were paddy fields not so long ago. And what did it do to the city? Bangalore was a pristine place and a honeymoon location with a summer temperature of 17-18 degrees. Now there are hardly any trees, summer temperatures have doubled, real estate prices are unreal and the city is struggling with a burgeoning population. IT outsourcing had it’s most profound influence on Indian education system. There was a time when IT was the only way forward no matter what people’s educational background was. And what work was getting outsourced? Government projects need security clearence so they cannot be outsourced, R&D projects need the right facilities so they cannot be outsourced, then there is work that companies do not want to outsource. So what gets outsourced eventually is work that local people wouldn’t want to do and companies can get the work done by paying a 5th of what they would have to pay locally. The scenario has changed completely, post 2008. Every time a company faces trouble, it’s IT they paralyze first. When all of the western economies went down in a heap, new work trickled and came to a stop. Indian IT companies continue to make a windfall with revenues, but that’s only because of faltering Indian economy and currency. Now, to stabilize western markets and create jobs, reverse sourcing of jobs has started. Big Indian IT companies had the opportunity to invest in India and develop the Indian market, but they chose to remain dependent on the inflow of foreign currency which is going to wane and trickle down with time.

Outsourcing has had it’s positive impact on the world. It has torn down the gap between developed and developing countries considerably. From the time when China was the main supplier of workers for manufacturing western goods, today China has bought the largest number of US treasury bonds. IT has brought a diverse India closer and fuelled development across the country. But along the way, outsourcing did lose it’s relevance. Outsourcing was about cutting cost when it started off and that thought never changed or evolved with time. People who worked on outsourced projects became skilled workers with time, by learning new technologies, by following standard processes and procedures and by improving their communication skills. A large pool of talent got created, but I am yet to see a company that projects it’s people as it’s true strength more than it’s ability to cut costs for the clients. Industry says people switch companies for money or they change companies to change their managers, but I believe the truth is that people do not get the value or the appreciation they deserve and all they can find solace is in seeking more money. Companies have always sought to use outsourcing as a tool to cut costs and now companies are having to reverse source just to create jobs in their homelands, even though the local employees may not be as skilled as the people who were working through the outsourcing companies.

Too much has been outsourced for it to be culled completely. But outsourcing has definitely lost it’s sheen and shine and is fast losing relevance in the face of a world that is rearranging itself post 2008. Outsourcing has spread to other south east asian countries. Bangalore is still the Silicon valley of the East, but it is no longer the womb where all outsourced work comes to life. Companies are increasingly choosing to retain their corporate office in Bangalore and spread execution of work to second tier cities across India. The eastern side of China has developed significantly and is as good as any developed country. Now development is rapidly expanding to other parts of the country. So China will no longer will be a preferred destination for outsourcing in the coming years. I believe outsourcing has to evolve from a cost cutting to a quality seeking venture, to stay relevant, especially when the arena for business duels is the whole world and no longer countries or continents. Businesses do not need to cut cost on everything and outsourcing can be used as a great way to show how spending can be optimized. Changing laws of governments, evolving needs of people, dynamic and unpredictable nature of business environment, all adds to the complexity and here is where outsourcing will rise up again or go down eventually.