Outsourcing, Ohio, Obama and Offshoring | Sherpas in Blue Shirts

Posted On November 18, 2010

Anti-offshoring sentiment in the U.S. – fuelled by uninformed press, the Ohio ruling banning outsourcing, visa issues restricting human capital mobility, the chop-shop metaphor by a senior politician in the senate, and the real or perceived belief by U.S workers that they had lost their jobs to India – has been rampant for years.

However, the protectionist (and in cases even jingoistic and xenophobic) tide seemed to turn, at least at the highest level of the U.S. government, during President Obama’s recent visit to India. The President, changing his messaging from previous years, presented his view of offshoring as part of international trade. Citing that 20 just-signed trade deals with India would create 50,000 jobs for the U.S., he said, “…And that’s why we shouldn’t be resorting to protectionist measures; we shouldn’t be thinking that it’s just a one-way street. I want both the citizens in the United States and citizens in India to understand the benefits of commercial ties between the two countries.”

India Prime Minister Manmohan Singh added, saying, “India is not in the business of stealing jobs from the United States of America. Our outsourcing industry I believe has helped to improve the productive capacity and productivity of American industry.” And Som Mittal, president of NASSCOM, after citing that GE’s and UT’s chairmen said they are winning export deals from the world over and creating jobs in the U.S. because they are able to do design work in India and shorten the product cycle, stated, “We also hope that the U.S. Congress will understand our industry’s business model. It is a different matter that those job losses happened to be in manufacturing, retail and construction. In fact, there is net hiring going on in the services if we go by the U.S. labour statistics.”

Touché to all these leaders for painting the proper picture. The reality is that offshoring and nearshoring – to China, the Philippines, Egypt, South America, Canada, Mexico, or anywhere, even India, which has been singled out as the ultimate “villain,” with offshoring often equated to being “Bangalored” – will not go away. Nor should it.

Rather, the long-term trend will be driven by models that provide buyers with the most optimal cost-value equilibrium, which is essentially a trade-off balance they must strike between what they believe is most important to their business and what they are willing to pay for it. For example, while an organization may place premium value on having an IT staff located down the hall, it may not be willing to pay the associated premium price. Rather, it may opt to offshore IT help desk services to a provider with 24-hour operations.

The cost-value equilibrium is also closely linked to competitiveness. For example, offshoring engineering design work to a provider with around-the-clock staff speeds time-to-market, resulting in competitive advantage.

Although every buyer organization’s cost-value equilibrium is unique, the quest to attain it will continue to play-out with enterprises willing to pay more as long as their perception of value continues to increase.

At the end of the day, global sourcing is an irreversible phenomenon. While the nature and models will continue to evolve, services will never go back in-toto to high cost onshore locations.

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