Future of outsourcing as the world gets ready for economic Tsunami in 2005
Harish Baliga, Special Correspondent
December 31, 2004

Many in India especially in Southern India (Bangalore, Hyderabad) are dancing right now with unbelievable amount of outsourcing contracts from America and Europe. While people are having difficulty in finding new jobs, BPO and IT companies in India are having a bonanza. 

What is the future of this industry? When I asked this question to ten different largest IT and Call Center operators, their CEOs avoided the question and went on saying – the American companies never used to talk to us, today they are eager to keep us busy. It is a bonanza of money and contracts for the Indian companies.

The recent model is obvious. The basic innovation and implementation will be in America, Europe and Japan. The commercial manufacturing will take place primarily in China but also in Eastern Europe, India and some other countries. The back office and customer support will be handed over to India.

No matter what the International business model is, what really is the future of outsourcing?

India is a popular destination for outsourcing contracts because it has a tremendous number of cheap qualified educated English-speaking intelligent work forces. The Western companies have started using this talent pool to make sure they can reduce the cost of their goods and services in a deflation dominated world where lack of pricing power makes it difficult to expand and stay in business.

However, the work that is outsourced to India are those that can be replaced by automated programs, are repetitive in nature and less strategic for the Businesses.

Given this backdrop, if after three years of semi-satisfactory upswing in Business cycle, the world faces another economic downturn; it can be killer for the outsourcing world.

India has recently expanded relentlessly to accommodate the outsourcing mania of Western Corporations to cut cost by any means. This relentless cost cutting has provided extra cash to boost the tax-free dividends in America. But it also has created a fundamentally productivity driven weaker economy where the new style is not to hire, and if needed get the work done from India for pennies on the dollar.

The net outcome can be horrific. For example, the lack of high paying jobs in USA has forced car companies to provide excessive incentives to sell cars. Now those incentives have stopped working also. The debt level is so high and savings rate so low in America that a mild downturn can propagate into major recession.

In that case the deflation will show its teeth again. The Western companies will be forced to cut cost further and lower the price. This time tough they will look for eliminating outsourcing from India with Web based and other productivity enhanced automation to save even the pennies on the dollar.

That will be the killer economic Tsunami wave for India. China will be less effected as it will still be the hub for cheap manufacturing. China will get effected though when cheap Chinese semi-skilled labor is replaced with intelligent and even more disciplined Robots.

The killer economic Tsunami will cause a sever effect on Indian private sector.

The scenario may work out in 2005 or it may happen any time within next five years.