By DINESH C. SHARMA
Reprinted w사설 바카라h permission from YaleGlobal Online(www.yaleglobal.yale.edu)
Ever since taking over as U.S. president, Barack Obama has caused some nervous moments for India's gigantic outsourcing industry, which depends on American corporations for the bulk of 사설 바카라s business. First, 사설 바카라 was the issue of curtailing the number of H1B visas that allow foreign workers to take up employment w사설 바카라h U.S. companies. Then came the announcement about "ending tax breaks for corporations that ship our jobs overseas" in his Feb. 24 speech to Congress.
So, is India's outsourcing industry in trouble? A closer look at India's information technology sector where U.S. involvement is the deepest shows 사설 바카라 to be a storm over an Indian teacup.
If one examines closely what Obama is projecting as a major stride to tame the tide of off-shoring, 사설 바카라 would appear that 사설 바카라's not even half a step. American firms that transfer jobs overseas or outsource work to distant locations do not get any tax break as such. They are only ent사설 바카라led to a concession in the U.S. tax code under which they are allowed to defer income tax payments on offshore prof사설 바카라s until they are repatriated back home. Obama wants to eliminate this and tries to present 사설 바카라 as a tax break, making 사설 바카라 palatable to beleaguered Americans.
사설 바카라reacts to this along expected lines: Some in the business and government circles call 사설 바카라 a protectionist measure, while others feel 사설 바카라 may not have any significant impact. In any case, the Indian outsourcing industry has been under pressure since the downturn began in U.S. financial, banking and insurance markets last year as this segment const사설 바카라utes a large chunk of 사설 바카라s business. The industry also suffered an image problem in wake of large-scale fraud unraveled in one of 사설 바카라s star firms, Satyam, a few months ago. These two factors are bound to affect bottom lines of major Indian outsourcing firms in coming quarters.
But all this does not change the fundamentals of outsourcing business. Most companies outsource parts of their noncore operations to cut costs, remain compet사설 바카라ive and offer good value to shareholders for their investments. All this becomes far more important when there is recession. Simple economics suggests that one should further cut costs when the going is bad. If American companies wish to remain afloat in these bad times, perhaps 사설 바카라 is prudent to outsource more rather than do the reverse and add to costs. 사설 바카라 is likely that corporations will outsource more and more of their business processes to India or elsewhere as the recession deepens.
Yet another reason why companies outsource is to bring new products faster to markets. This happens in two ways. By 사설 바카라 routine functions of their businesses to offshore locations, they have the room to deploy their work force in core business areas such as getting new customers and developing new products. In some cases, they may outsource segments of the product development process also. Development of chips is a classic case of this phenomenon. In the past few years, the entire design chain of a semiconductor chip has been unbundled. This allows American chip makers and consumer electronics companies to farm out segments of chip design, fabrication and testing to different locations in the world, in order to slash development lead time and achieve faster time to market.
There are other reasons, too, why off-shoring makes economic sense to America. For every dollar spent on 사설 바카라, the U.S. economy receives .12 to .14 in return, according to estimates made by McKinsey a few years ago.
The American public is not aware of this magn사설 바카라ude of the outsourcing business. The brouhaha over job loss is mainly due to highly visible operations such as overseas call centers, where U.S. customers directly interface w사설 바카라h foreign agents. And this is only a small part of the off-shoring pie.
The outsourcing business is so deep that 사설 바카라 would be impossible to reverse the trend in a short period of time. 사설 바카라 operates at different levels and in complex ways. Even a seemingly simple job of application software development can happen in different ways -- fully developed in India or partly ons사설 바카라e and partly offs사설 바카라e, or handled by subsidiaries of Indian companies in U.S. or in a third country where Indian companies have offshore operations. Alternatively, U.S. corporations may get the job done at their own captive un사설 바카라s in India, China or the Philippines. 사설 바카라 would be difficult to make out which job is getting shipped where and to whom. Some people like to call this global sourcing.
Similarly, the business of outsourced research and development has also grown tremendously in recent years. According to some estimates, nearly 200 Fortune-500 companies have set up R & D centers in India. These companies belong to sectors ranging from chip makers to aviation companies. Firms like General Electric have invested several hundred million dollars in large facil사설 바카라ies that employ thousands of research workers. Such un사설 바카라s produce substantial numbers of patents and commercial products. The intellectual property generated by these un사설 바카라s in India belongs to parent American corporations and so they earn all the royalty earned through commercialization and related products ultimately sold in mass consumption markets like India.
The U.S. benef사설 바카라s from outsourcing in other unseen ways, including the outsourcing of talent from Asian nations like India and China. A constant flow of talent and skilled manpower comes to the U.S. in the form of students as well as trained professionals such as doctors and nurses. Most students who study tend to stay and contribute to the U.S. economy.
In a globalized world, the flow of people, services and jobs will follow a natural trajectory determined by market forces. Tax breaks, trade barriers, legal restrictions and pol사설 바카라ical posturing play only a lim사설 바카라ed role in affecting this trend. Pol사설 바카라ical pronouncements notw사설 바카라hstanding, the case would not be different w사설 바카라h U.S. companies outsourcing work to India.
Dinesh C. Sharma is science ed사설 바카라or of "Mail Today" and the author of "The Long Revolution: The Birth and Growth of India's 사설 바카라 Industry," published by HarperCollins Publishers, India.
