Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Outsourcing backlash: Would that hurt? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 4, 2004

    Outsourcing backlash: Would that hurt?

    "Globalisation is a fact of life. But we have underestimated its fragility," said someone. While business process outsourcing (BPO) has come to be one of the greatest benefits (and as a way of life) of globalisation to developing nations like India, the disturbance it has created at the origin, the US has now brought into light the 'fragility' factor. Loss of well-paid jobs of the Americans to relatively low-paid Indians has attracted much ire of the US government and of labour unions in that country, and the results can be seen in the increasing noises of backlash towards outsourcing of work from the US to India. In this regard, we conducted a poll on our website, asking our readers whether protectionism towards outsourcing is a big threat to the Indian information technology (IT) sector. The results have indicated a mixed feeling.

    The response
    While a majority (52%) of the respondents have negated the fear of a negative effect on the prospects of the Indian IT companies, a marginally lesser number (45%) feel that the backlash is likely to have real damaging consequences for these corporations. And why not? The choice of this latter group has been well fueled by daily reports emanating from the media about the increasing resistance in the US regarding outsourcing of jobs to India and other low-cost nations. This (outsourcing) has resulted into many Americans losing their jobs to their Indian counterparts, and has brought under question the ability of the US government to create more jobs, let alone save the existing ones.

    Our view
    While we do not deny that this backlash towards outsourcing has seeds of much larger resistance throughout the globe, we believe, in the longer term, economic sense would prevail as global corporations, in their aim of becoming globally more competitive, would outsource their non-core operations to low cost countries like Indian that also provide benefits of high quality.

    Let us look at some of the factors that drive the move towards outsourcing. The first and foremost is the cost savings for MNCs of around 35%-40%. This is at the root of these MNCs initiatives of becoming globally more cost competitive. While this factor of cost advantage has been on the forefront of the drive towards outsourcing, the long-term benefits for Indian service providers lie not in holding on to this advantage, but rather improve upon their domain competencies to provide higher-end outsourcing services to their clients. To prosper in the long-term, Indian companies have to move ahead of this 'commoditisation' of services. The second major factor that has helped the Indian BPO market to grow is the availability of quality manpower in the country. India has the maximum number of qualified personnel coming outs of its technical universities and this has aided the country's prospects further. Thirdly, the technology-ready infrastructure provided by Indian software companies acts at a major attraction for global companies looking to outsource their non-core activities to the country.

    According to NASSCOM estimates, over 50% of the Fortune 500 companies have incorporated offshore outsourcing into their strategies, and around 80% of these now use India as their development base. While the US government seems to be in a mood of putting greater restriction on federal government departments outsourcing their jobs to countries like India, this should not be a cause of concern for the Indian companies. This is because while the US government contributes to just around 2% of the Indian BPO revenues, the backlash is unlikely to have a contagion effect. This is because, over the long term, economic sense is likely to prevail over the negative effects of backlash that is more based on political considerations than economic.



    Equitymaster requests your view! Post a comment on "Outsourcing backlash: Would that hurt?". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT

    Aug 22, 2017 01:38 PM