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Editorial: The inevitability of outsourcing

Published by The Straits Times, Singapore on 2004-10-23

IN George Orwell's celebrated novel Animal Farm, Boxer the Horse advises his fellow "workers" to work harder and smarter. One is tempted to offer similar counsel to the increasingly shrill chorus of politicians and labour-union leaders in the United States who are railing against the outsourcing of relatively low-level jobs to call centres and accounting offices in developing countries. Outsourcing - or, to use the more technically term, business process outsourcing (BPO) - has certainly gone from being political shorthand for perceived unfair international trade practices on the part of US companies to a full-flown issue in the current US presidential campaign. The number of opponents of outsourcing is, in fact, growing faster than the 12,000 or so jobs that American corporations reportedly move to overseas locations every month. The Boston-based consultancy, Forrester Research, has estimated that fewer than 500,000 US jobs have been exported to places such as India, the Philippines and China, the current leading recipients of US outsourcing since the current phenomenon began when major US companies such as American Express, AT&T, General Electric, Hewlett-Packard, IBM, Unisys and Lockheed Martin began restructuring and reforming their work forces to cope with the economic recession triggered by the bursting of the technology bubble. Developing countries with skilled but increasingly unemployed labour were in a position to offer low-cost services to these companies. They are now competing among themselves to obtain even more business from US and other Western firms.

Notwithstanding the political propaganda, outsourcing hasn't cost the US any substantial numbers of manufacturing jobs. Indeed, between 1983 and 1999, some two million manufacturing jobs were created overseas by US companies as they expanded operations in this age of growing globalisation, which implies growing international competition for US behemoths from companies in Europe, Japan and elsewhere. What opponents of outsourcing seem incapable of accepting is that if American companies do not outsource where it is to their advantage to do so, they'll be beaten in the game by the Japanese, Europeans - and, in time to come, the Chinese, Indians and others, who are steadily expanding their own international commercial operations. That's the reality of global competition.

It would be reckless not to accept this reality, especially at a time of sluggish growth of the world's US$31 trillion economy. The International Monetary Fund says that worldwide growth in 2005 would be less than the current rate of five percent. That's a far more ominous prospect than the outsourcing of small numbers of jobs from industrialised countries. Indeed, more jobs need to be created to accelerate global growth, especially in developing countries where the numbers of the educated young are rising, along with their economic aspirations. This is not to say that in places such as the US and Europe - where unemployment rates have also been troubling - manufacturers and service industry leaders shouldn't be paying more attention to job retraining, and expanding domestic operations. But the economies of the world are integrating rapidly, and this isn't the time for economic parochialism. Orwell's Boxer the Horse gave sound advice.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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