Outsourcing has become a most controversial issue and highly debated
subject in the world today. In this article we will look at outsourcing
from evolutionary angle and analyze if this is really taking us in the
right direction.
Two major categories of jobs that are getting outsourced are bluecollar
and white-collar jobs. The outsourced blue-collar jobs include
all manufacturing jobs. The outsourced white-collar jobs include all
skilled jobs related to Information Technology, telecommunication,
biotechnology research, financial analysts, architectural drafters,
telemarketers, accountants, medical billing, medical transcriptions,
claims adjusters, home loan processors and so on. The list of jobs keeps
changing as the factors responsible for outsourcing changes.
There are three factors responsible for outsourcing – labor Cost,
skill Availability and the Speed of Information Technology (CAS
for short). Each one of these CAS factors will boost the pace of
outsourcing and also continually transform the outsourcing market.
If a country offers skilled, low cost labor and Information Technology
is sophisticated enough for fast communication, then outsourcing
happens seamlessly.
Let us discuss both blue and while-collar categories and examine their
affect on our economy.

Effect of Blue-Collar Outs ourcing:
Blue-collar outsourcing has both positive and negative effects on our
economy. Let us look at an example and see how it affects the local
businesses. Say a private company manufacturing shoes with local
workers sells a shoe for $50. If that company outsourced its jobs to
another country, the cost of a shoe might be cut to $20 or less.

The negative impact is partial or complete layoffs depending on the
extent of the outsourcing. The price reduction will put pressure on
other shoe manufacturers to outsource their jobs as well, increasing the
number of layoffs. The employees who lost their jobs will need to be
retrained to be able to join the work force, either in the same company
at a different level or in a different company altogether. They will have
an opportunity to change their career, if they were able to adapt. If the
laid off employees were older, then the transition will be more difficult.

The positive impact of outsourcing is the increased market size because
of the price reduction. Even poor people will be able to afford shoes at
this price level. More sales mean more economic activity.
This impact is from just one product. As more and more low cost
products come into the market, the market size will expand, and the
transportation industry will become busier. The international shipping
industry will become busy and the domestic transportation system will
improve. These expanded industries will hire more workers. Increased
sales will bring more shopping malls and expand existing malls, offering
construction and maintenance jobs to many workers. The expanded
shopping complexes will hire sales employees and support other services
like food courts, creating a ripple effect in other business sectors.
Increased sales will affect the credit card industry as well, with more
transactions and as a result, more revenue. This industry will hire
more people as their operations expanded. Banks will open more ATM
machines, as the need for cash to make purchases increases. Banks will
hire employees for various operations.
This seemingly small act of reducing the price of goods and services will
have endless ramifications for every other tentacle of the marketplace.
So simply to say, “No,” to outsourcing is to blindly stem the tide of
industry growth. A few jobs lost in one sector might lead to more—
and better—jobs in another sector.
Every other industry will benefit to some extent by a reduction in
prices and increased sales. Price reductions help poor people, too, as
even they begin to shop as a result of their improved standard of living.
Reduction in price does not mean people will buy more, but it means
more people will be able to afford those products and services. We
would see a bigger crowd in the shopping malls.
Regular buyers may not spend more but may buy more for the same
price. For the same weekly or monthly fixed budget, they will take
home more products than before. However, what we should notice
is the market size will be much greater than when prices were high
which means the revenue earned by the companies will be substantially
higher. Governments will collect more tax revenue and be able to offer
a better infrastructure to its citizens.
Lower prices substantially increase the living standard of people. For
example, shoppers who used to buy two pair of shoes for $100 will
now buy five pairs or more on the same $100 budget. For arguments
sake, instead of buying one hundred products for $1,000, shoppers
will be able to buy three hundred to four hundred products for the
same amount. This increases their standard of living substantially.
Again, it is not just products but also an entire ripple effect that will
branch out across multiple industries and income streams. In fact,
this is equivalent to seeing three hundred to four hundred shops open
in place of one hundred shops, leading to more activity in all other
services discussed above. We may lose some jobs during outsourcing,
however, once prices fall, every other local industry will expand and
hire more employees. In effect, outsourcing produces more jobs locally
than otherwise.
This is just one side of the coin. When market size increases, global
businesses have to produce more. Higher mass production leads to
further reduction in price. The price falls until it reaches the lowest
the outsourced country can afford to offer. The competition to capture
a bigger market by price reduction forces businesses to look for low
cost labor in other countries as well. The search for low cost labor is an
ongoing battle critical to the success of business. Every time the prices
fall, the local economy grows that much bigger. The local market
benefits from these outsourcing efforts.
When underdeveloped countries are transformed into developing
countries, they in turn became customers in the global market.
Their increased standard of living and market size affects many other
countries around the world, increasing the global market’s overall
size.
Imagine the impact of more countries developing. What will be the
size of that global economy? Global industries will be very busy to
cater to such a demand. Looking beyond outsourcing and into future
effects of outsourcing, we see amazing growth and a world full of
opportunities.

Today, outsourcing has become so common new companies consider
outsourcing from day one. Part of their organizational blueprint
includes the costs – and savings – of outsourcing key positions,
particularly blue-collar labor. Businesses may not even open their
fabrication units in developed countries. The good news is nearly
70 percent of the jobs are hard to outsource and they fall under “local
service jobs” category. Only 30 percent of the jobs have the potential
to get outsourced.

Effect of White -Collar Job Outsourcing:
Over the past few years, skilled labor has also been outsourced.
Some research skills, which require PhD degrees, are so rare even
in developed countries it is necessary to outsource them to other
developing countries for faster research and development.
Other skills, including Information Technology that does not need
doctoral degrees, are outsourced for both skill and cost reasons. These
jobs are moving from country to country depending on low cost and
skill availability.
None of these skilled jobs has any national borders. In this digital age,
the employee can be in any country and join the work force. With such
global availability of labor and easy access via computer networks, it is
relatively easy to set up a global organization. The headquarters can be
in one country and its branches spread to several other countries. This
kind of organizational structure brings in the best available skill at a
low cost and helps grow the global market even larger.

We get a much better understanding of these white-collar jobs looking
at the outsourcing from the evolutionary point of view. Consider the
example of Information Technology (IT) outsourcing. It appears to
threaten local job markets in developed countries. However, the reality
is much different.

When IT jobs are outsourced, the company’s capability increases. It
can produce more and better software for the same investment. For
instance, in place of one video game, the company now can produce
three or four games for the same cost. This is because, the company
can hire as many as four to five employees for the salary of one that is
paid in a developed country like the United States or Europe. Instead
of one version of software produced every two years, the outsourcing
company may produce a new version every three months. A GPS may
get updated maps every month instead of once every year or two.

More products fetch more revenue for the company and as costs come
down, market size increases. To satisfy bigger markets, production has
to go up making the company hire more employees overseas. More
employees are also needed locally to manage the outsourced projects.
This is how the positive feedback loop begins to take effect in all
outsourced businesses.
Other competing companies outsource, too, and their capability
increases. Because of increased market size, many new companies
emerge and we see more employment opportunities both in overseas
and local markets. A company producing ten software products a
year with ten employees before outsourcing, could now produce fifty
software products or more with the capabilities of outsourcing. As the
market size increases, they now need more than ten employees locally
and several hundred people overseas. This positive feedback loop keeps
creating more jobs both locally and overseas. The number of jobs
created locally will soon exceed the jobs lost. While this is just one side
of the effect, there could be ripple effects on other industries.
With more jobs outsourced, there will be a tremendous need for
infrastructure and networking in outsourced countries. With millions
of people needing access via the network, the telecommunication
and networking industries in developed countries will get a boost
as they expand their capacity and hire local people to expand the
telecommunication networks.
What is the impact on international shipping and travel? The ships and
airlines will get their share as more goods are transported and more
people travel all over the world for business meetings, demonstrations,
contract jobs and so on. We see job opportunities here too. What is the
impact on international banking? With so many transactions going
on in the world, the banks will need more people. Growth of just one
industry will have a substantial effect on other dependent industries. It is
sad we are not able to relate these developments to outsourcing.
If we look back and see how we evolved all these centuries, these kinds
of developments take time. However, with outsourcing, the pace is so
high that we are seeing all these effects in our lifetime.

In the future, a underdeveloped countries advance, it will be hard to say which country is outsourcing to which. The skill level being outsourced eventually will become “mutual outsourcing” spread all over the world.
World keep growing continuously and the demand for skilled labor never
slow down until we feel that the 6.5 billion people are not big enough
and we need more people! When we look at the outsourcing crisis from
evolutionary eyes, we see the future world with abundant job opportunities, however, most of them are skilled jobs, with skill level increasing as time progresses. Technological sophistication and skill level are inter-related. What kind of jobs can we expect in the future? Can we say "skilled jobs and nothing but skilled jobs?" Outsourcing is just the beginning of that massive development.

- R.S. Amblee
Author The Art of Looking Into the Future: The Five Principles of Technological Evolution