Global Outsourcing Of Information Technology: Economic And Strategic Issues

The outsourcing of information technology gained momentum when large IT work force was to be hired to handle much speculated Y2K crisis as year 2000 approached. Though the globalization phenomenon had already knocked in early nineties.

In subsequent years developed countries realized that outsourcing of services was key to cost cutting in the highly competitive markets. Strong apprehensions were raised due to the fear of massive job losses and involved risk of information leak to satellite countries like Mexico, China, India and Philipines. As a result many US companies started outsourcing their services in developing countries.
Following table elaborates the trends.

Source: Business Week

Every new promise of advancement comes with associated risk elements and the remedy lies in exploring solutions rather than reversing the process.

As far as job loss factor is concerned, the outsourcing countries would save much more revenue to the extent of 25-40% thereby recharging the economy and strengthen competitiveness. The companies would be paying more dividends to their shareholders and part of the benefit can also be passed on in terms of tax benefits.
Salaries in the host countries are far less than compared to US resulting in major savings.

Of the approximately $ 1.45 - $ 1.47 of value derived from every dollar spent offshore, US firms receive $1.2 - $ 1.4, while foreign firms receive only 33 cents of the value1 . Further, if income tax paid by H1-B visa holders, and software and service imports by India are considered, outsourcing provides an aggregate benefit to the US economy of $ 6.8 billion.

The outsourcing countries also have the advantage of round the clock functioning availability of strong knowledge resource to speed up work and enhance competence. Moreover, “average age of the US working population is declining, and the US Census figures indicate that it will require an additional 15.6 million workers to maintain current working population in 2015.”

Outsourcing have had visible setbacks. “IBM after having maintained an unchallenged position in the IT until 1990s, it experienced a dramatic downturn due to competition from smaller, specialized, non-integrated firms. Several firms such as Sun Microsystems, Dell, Compaq etc grew into multi-billion companies within a short time span, partly due to a strategy of outsourcing non core activities. IBM withered, but has later staged a come back through a complete strategy change.”4 ( Trondsen, Tor Jarl, 2005 pp 5)

Outsourcing in the IT sector also opened up opportunities for smaller firms which became part of the networks of larger firms to the advantage of both the players. Larger firms formerly had monopoly over R & D and business in general are now having advantage of the collective competencies of smaller firms. Working partners also learn from each other’s expertise.

India and China alone comprise nearly thirty percent of the world population which is a huge consumer market for the products and services. The political and social cohesiveness created by outsourcing business benefits alliance would substantially benefit the developed countries.

Conclusion

To sum up the benefits of outsourcing in the information technology have resulted in gain for all the partners. India is an emerging economic power and a huge consumer market for US manufacturers. On the other hand Indian IT players like Infosys, TCS and Wipro have been trendsetters in IT business management. Today many professionals from US are engaged in jobs in Bangalore to have experience its unique work environment. The most common factor between India and the US is that both have democratic system of governments.

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