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Economist on Outsourcing

November 14th, 2004 · No Comments

The Economist has a survey on outsourcing, which says that “the global deployment of work has its critics, but it holds huge opportunities for rich and poor countries alike.”

A few years ago, the combination of technology and management know-how that makes this global network of relationships possible would have been celebrated as a wonder of the new economy. Today, the reaction tends to be less exuberant. The same forces of globalisation that pushed Flextronics into China and its share price into the stratosphere in the 1990s are now blamed for the relentless export of manufacturing jobs from rich to poorer countries. Brillian’s use of Indian engineers is no longer seen as a sign of the admirable flexibility of a fast-growing tech firm, but as a depressing commentary on the West’s declining competitiveness in engineering skills. The fibre-optic cable running between America and India that used to be hailed as futuristic transport for the digital economy is now seen as a giant pipe down which jobs are disappearing as fast as America’s greedy and unpatriotic bosses can shovel them.

These anxieties have crystallised into a perceived threat called outsourcing, a shorthand for the process by which good jobs in America, Britain or Germany become much lower-paying jobs in India, China or Mexico.

A forthcoming study by McKinsey looks at possible shifts in global employment patterns in various service industries, including software engineering, banking and IT services. Between them, these three industries employ more than 20m workers worldwide. The supply of IT services is the most global. Already, 16% of all the work done by the world’s IT-services industry is carried out remotely, away from where these services are consumed, says McKinsey. In the software industry the proportion is 6%. The supply of banking services is the least global, with less than 1% delivered remotely.

McKinsey reckons that in each of these industries, perhaps as much as half of the work could be moved abroad. But even a much smaller volume would represent a huge shift in the way that work in these industries is organised. There may be just as much potential in insurance, market research, legal services and other industries.

Outsourcing inspires more fear about jobs than hope about growth. But the agents of change are the same as those that brought about the 1990s boom. New-economy communications and computer technologies are combining with globalisation to bring down costs, lift profits and boost growth. This survey will try to restore some of the hope.

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