I have been avidly reading about the type of coverage IT gets in the newspaper. On an average business papers carry at least six to seven stories on IT in a day. The frequency of such stories in the national dailies may be less but more than what they cover about the manufacturing sector. What makes IT stories click? Does it have wider reading? Does it motivate more number of people to advertise in the newspaper? I do not want to probe further on this issue since I am not a media analyst or a person privy to media economics. Nor is that the topic of my essay this month.
I did reminisce about the subject since I read an article about off shoring vs. near shoring in one of the dailies. Pundits say that near shoring is catching up because many of the companies outsourcing their business process operations prefer companies that are geographically proximate to them. A US based company would like to outsource its works to a BPO outfit operating out of Mexico or Latin America. A West European firm may opt for outsourcing to a company in Poland or Slovenia. The rationale is that it is convenient and easier to manage the outsourcing requirements such as visiting the site, working within the time zone for a company, which is geographically closer. I really do not know how many US companies have farmed out their works to the Mexican or Latin American BPOs. There may be a few of them. But I am sure a larger number of West European companies are preferring to outsource works to Polish firms. Similarly, a large number of Chinese companies are grabbing IT works in Japan and vice versa. Japanese have made a formidable presence in China in IT related operations for the Beijing Olympics.
It is important to introspect on these paradigms. What is the dynamics of these outsourcing works? Is it because of geographical proximity, labor arbitrage or presence of highly skilled knowledge workers? It is a fact that the East European bloc has a strong presence of technically skilled persons. Their stress on technical education was unparalleled. That has created a vast reservoir of technically qualified people who can grapple with cerebral and logical issues like software development, design engineering and drawings. Taking advantage of this abundant supply of technical work force, labor arbitrage and of course geographical proximity, West European countries have turned towards the East European countries. Mere geographical proximity or cultural affinity would not have bonded the corporates in both the countries. The overriding reason is the availability of the right skills and labor advantage.
Does it impact India’s campaign as the IT superpower and the most sought out destination for sourcing knowledge driven works? I cannot offer an answer in yes or no. I would qualify my response with several conditionality. The upshot among them is the imminent free movement of natural persons in Europe, once East European countries become full-fledged members of the EU. I can foresee the now abundant labor supply in Poland and similarly placed countries moving freely to more developed countries in Europe like Germany, the Netherlands etc in search of more lucrative jobs. This will lead to overheating of the wages and no longer than can enjoy the type of labor arbitrage, which they presently have. Secondly, I believe India is in a trajectory, which will continue as a source for abundant supply of technical labor in the years to come juxtaposed with labor arbitrage. Our policy framework should address these issues in a continuous manner. One such measure should be decentralizing IT growth. We have to carve out new growth areas for IT and should proliferate them in second and third tier cities and towns to ward off the possible over-heating of wage structure.
The third reason, which I perceive, will work in favor of India is the focus on value addition and the creation of research infrastructure that facilitate value addition. Such fundamental research would enable India to maintain the lead in segments like outsourcing of value engineering, designs, manufacturing processes such as designs and drawings. Last but not the least is the expanding nature of business process outsourcing. It is growing, though may be halted occasionally because of political fallouts such as elections. But that will be in the short cycles, which the industry has already started weathering. But the potent condition is the effort India makes to improve its grade vis-à-vis with other countries as an ideal outsourcing destination. The recent pull out of a few companies from India should not be treated a rare occurrence. It can turn out to be a spoilsport and spread to other segments also. The media hyped data theft and other unscrupulous practices among the BPOs and their employees can send strong signals against us. That is why all of us-entrepreneurs, employees, business associations and outsourcing agencies- should introspect not only for nurturing this segment but to build into this expanding industry a strong dose of ethics, sanity and accountability. That could be the mantra that we can collectively develop to circumvent the threat of near –shoring.
