wiredpakistan

So much has been written about outsourcing that it’s picked up a lot of hubris in people’s mind. The west calls it outsourcing and fears that they are hemorrhaging jobs out of their countries, while the countries doing the outsourced work look upon at it as some sort of manna from the heaven which will enable them to pull off a Cinderella story.

There is another word for outsourcing, and it’s the second oldest profession known to mankind - business. That’s all what outsourcing boils down to - doing business where ever it makes the most money. Back in the old day days, that would happen to be a place not far from where you were born. Sail and sea expanded the world, enabling businessmen and pirates to sail the world over, leading to the start of globalization. True outsourcing still had not really started - that waited for the industrial revolution and the many innovations which led to mass production techniques which enabled almost anything to be made anywhere by anyone. By the 18th century much of the pieces were in place, but it was the middle half of the 20th century after World War II when the economic devastation caused by the war forced many countries to open up their economies, liberalize regulations and lower trade barriers, that outsourcing really started to take off.

World War II had led to massive investments in technology, which directly led to the modern computer and the internet - technology which shrunk the world, and moved bits and pieces of it to all corners of the world - and that’s just the start. The interesting question is not outsourcing, but what led to the state of the world today, where parts are far more economically and technologically advanced than the rest. Given all the disparities which exist in today’s world, it was inevitable that once labour intensive production processes could be parcelled out to whereever they could be done cheapest, it would happen. It started of slowly, with bits and pieces of manufacturing, but today, the most visible form of outsourcing is in the IT business

This is a technology magazine, and technology is what has enabled outsourcing to truly take off. The most important technological innovation in recent years which has fuelled the outsourcing boom is not only the computer, which many of the readers of this article might think, considering this is a technology magazine, but the humble container. It drastically lowered the cost of transport and “by sharply cutting costs and enhancing reliability, container-based shipping enormously increased the volume of international trade and made complex supply chains possible.” Computers and the many other advances coming from Silicon Valley are increasingly becoming far more important, but for a few decades from the 60’s to the 80’s the container was what led to the massive growth in outsourcing to countries like China.

These were the old days, when outsourcing used to mean manufacturing something, generally part of a larger whole like a car seat for General Motors being made in China, and the seat covers in India - but today it means something else altogether. A local accounting firm is sent tax returns from the UK, which they process and send back there - replacing the same number of accountants in the UK at a fifth of their price. This is all done over the internet, of course.

For technological goods, especially service oriented ones like those in the software industry, the marginal cost of transferring the product anywhere in the world is in effect zero - whether consulting online with a client in Lahore or in London, the costs are the same. This key factor is why software firms are leading the world in outsourcing - two of the best examples are Tata Consultancy Services and Wipro, both based in Bangalore, India, but doing the back-end work for much of the world’s biggest corporations.

In a increasingly global village, we’ll stop thinking in terms of in and outsourcing, and instead it terms of what is possible where and when, and concentrate on the how of doing it.

There are many critics of outsourcing, especially those blaming gigantic multinationals for exploiting the poor in third-world countries around the world to line their capitalistic pockets, but their arguments are based on a poor understanding of reality, economics and human nature. The East India Company notwithstanding, outsourcing has led to a massive growth uplift in the lives of millions - China, Pakistan, India, South Korea - there are many examples.

Sadly, the high cost of doing business in Pakistan means we are lagging far behind regional competitors like India and China when it comes to outsourcing integrated business, technology and process solutions despite out relative cost advantage as compared to high cost Western nations in this technological field.

Further Reading

The World is Flat 2nd edition - Thomas Freidman