Magazine article International Trade Forum

From Outsourcing to Worldsourcing

Magazine article International Trade Forum

From Outsourcing to Worldsourcing

Article excerpt

"Worldsourcing" - global outsourcing - is benefiting a number of developing and transition economies. It is also fundamentally changing the structure of firms.

Some developing and transition economies have recorded local improvements in living standards by supplying the industrial world with products and services that are no longer profitable in highcost labour economies. Current trends are for firms in industrial countries to move from outsourcing to "offshoring", even to "worldsourcing".

Outsourcing refers to the transfer of in-house jobs to an outside firm to reduce costs, take advantage of others' expertise and focus on what the contracting company does best. It is not new and takes place all over the world. Offshoring is the new term for closing operations in one country and transferring them to another. Offshoring has typically been seen as a strategy to reduce labour costs, but is now being used by companies to get a foothold in emerging markets or take advantage of expertise centres, such as software development in India. Japan, for example, has regularly used offshoring to get into tight United States and European markets.

The business functions that can be taken offshore today range from call centres to back-office functions such as accounts and tax processing. They even include research and development. So far it's been a gradual process. But enabled by technology, both outsourcing and offshoring are expected to move at a faster pace in the future.

This trend is moving up the skill scale, from unskilled labourers to professional services.

Become an innovation "producer"

Don't count on worldsourcing being a permanent gain for a developing economy, unless your country gets on to the path of innovation for itself, say leading specialists and global business executives.

"What is being outsourced today will be replaced by technology tomorrow," predicts Michael Fleisher of the US-based consultancy, Gartner Inc.

His counterpart John Adams of Exult thinks that call centres - one of the major fields for high-tech outsourcing - may be displaced in a few years by "learning voice technology" currently in development. Soumitra Dutta, Professor and Dean of Executive Education at the Paris-based European Institute of Business Administration (INSEAD) says the question for the Indian software industry - one of the vaunted success stories in developing country competition at the high-tech level - is whether it can follow the lead of Japan's car industry and graduate from being simply a supplier of high-quality products to a producer of innovations in its own right.

Mixed views

Meanwhile, the growing shift of whitecollar jobs to developing countries breeds insecurity. Some Western business leaders call it "a turning point in history", or even the "redistribution of the middle class" from the rich world to the poor. Others fears are overblown. Stephen Kobrin, Professor of Multinational Management at the University of Pennsylvania (United States), quips: "The subject gets more attention when it starts affecting jobs for graduates of the Wharton School" - which is where he teaches. Nandan Nilekani of Infosys Technologies in India points out that the technology and processes used by Indian software firms all come from the West - this offshoring is the result of decisions in the West. For the Indian economy, the benefits are not just jobs and contracts for the lucky companies: "India was goaded by the West into becoming a free market," he jokes. Home-grown benefits can thus eventually lead to competitive products and services developed completely within India. …

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