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Why Outsourcing?

With the rise of globalization, many companies are turning to offshoring, offshore outsourcing or Global Sourcing. Offshore outsourcing more and more takes the shape of Business Process Outsourcing, where whole business processes (such as support and development) are outsourced. The client is usually free to choose who provides the outsourced business processes, while stock markets press the company to do more for less. This requires that managers search out the cheapest sources they can find. In countries like India and China (primarily Bangalore in India), companies like IBM, Microsoft, Hewlett Packard, and Novell choose to get services from sub-contractors in these countries or move many development and support jobs there. Smaller businesses can also take advantage of freelancing on the Internet to get smaller projects done by offshore developers at minimum cost.

This practice became even more popular after the dot-com crash of the early 21st century. As many businesses struggled with cash-flow problems, many investors were leery of investing money in high-tech companies, which many felt were still vulnerable to the dot-com effect. Struggling to do more with less, companies looked for less expensive avenues of development and support. For the United States, India seemed like a perfect resource for these needs since most nationals spoke English�a side effect of several decades of British colonial rule. A company can hire an engineer in India, for example, for US$10,000 a year where an equally qualified engineer in the U.S. could cost $60,000-$90,000 a year.

One company said that the low cost of his Indian development team allows him to hire higher-paid American lead developers. Major companies doing outsourcing include Microsoft, Cisco Systems and IBM to name a few.

Outsourcing, especially BPO (Business Process Outsourcing), has long been a factor in American business, but the trend is beginning to reach Europe. More outsourcing deals were signed there last quarter than in any single quarter since 2000. According to a recent Zogby International poll, 71% of Americans feel that outsourcing is bad for the nation's economy. But most economists feel that it will inevitably remain a part of global trade.�

Local CEOs Weigh in on Outsourcing
By: Manav Tanneeru
Last Modified: 7/23/2004 3:47:08 PM

Executives of three Georgia firms that outsource work to India said the current backlash over outsourcing is temporary, politically driven, and will disappear as the economy improves.
�I am convinced that outsourcing is here to stay. The current backlash is more political than real,� said Ashok Thakkar, president and CEO of ITTI, LLC.The management firm, located in Roswell, handles processing work for CPA firms involving services such as book-keeping, tax preparation and income statements.
It has a strategic partnership with a company in India, which handles the Indian portion of the work and has outsourcing centers located in several Indian cities, including Mumbai, Pune and Surat.
�The current pains in the United States due to job losses are real,� Thakkar said. "The answer to the current pains is not a ban on outsourcing, it is innovation. If America fails to innovate, we will definitely suffer.�Thakkar said he was confident of a recovery in the technology sector due to its �history of innovation� and pointed to education and retraining as being fundamental. �What is required is retraining our workforce; creating affordable education opportunities, which would enable people to add on new skills rather quickly,� he said.Raj Shah of Universal VAT Services, located in Decatur, said his company has not felt any immediate effects of the outsourcing backlash due to the fact that it is a small and growing company. He, however, believes that the backlash may be somewhat misguided.
�On the surface, it may appear that jobs are being shipped to India, but if you take a macro view, outsourcing helps the U.S. economy as well because countries will buy high-tech equipment from U.S. companies like Dell, Hewlett-Packard, and others,� he said.Shah�s firm outsources certain back-office functions and filing of value added tax returns and goods and service tax returns to a company in Mumbai.�Outsourcing lowers the cost of operation and saves companies significant amount of money. It helps U.S. companies to be more lean and profitable and this has an overall positive impact on the economy,� he said.He also believes the backlash is politically driven and expects it to recede. �Once the job market and economy improves, the controversy, which is more political than economic, will subside,� he said.Dr. Narsi Narasimhan, co-founder and CEO of Palaam, Inc, located in Norcross, said he had mixed feelings about the backlash.
One the one hand, he said, the attention paid to the issue increases awareness of outsourcing services, thereby increasing the market for his company, but on the other, the social impact of the backlash is worrisome.
�I am actually happy when an anchor of financial TV show (that is Lou Dobbs) tells his audience how many American jobs have been outsourced, since it only strengthens the case for outsourcing in the minds of the CEO of a mid-tier firm,� Narasimhan said. �However, the negative spin put on outsourcing certainly is going to cause some negative feelings towards immigrants of India unfairly.�All three CEOS were, understandably, against legislation that would either ban or regulate outsourcing.A bill banning outsourcing of state functions passed the Georgia House, but failed to pass the state Senate earlier this year. Though the bill only focused on taxpayer-related outsourcing, many in the private sector were worried the legislation would have, at some point, been broadened to include regulation of private-sector outsourcing.
In the larger picture, at least 35 states have considered legislation curbing outsourcing.
�With an improving job market in the United States, I personally feel legislation will have difficulties in passing. In some states with heavy unemployment, legislation may pass,� Shah said.�Protectionism can benefit the status quo only for a short while. Eventually, when the rest of the world moves forward and leaves the protectionist economy behind, change is inevitable,� Narasimhan said.He continued, �The economy is already doing well. The GDP growth and the 5.6 percent or so unemployment rate indicate that our economy is doing well. By February of 2005, the fear of the unknown will be gone. Thus, these legislations will not have any supporters after the November elections.�
�Outsourcing is legal and fair business and our clients benefit, and we will continue to do so.�

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