Outsourcing is About People, Not Just Infrastructure
Recently I read an interview in businessweek with an IDC analyst saying that Chinese cities will compare and even overtake Indian cities by 2011 as outsourcing destinations. Among the reasons why it will do so include China’s superior infrastructure (no arguements about that), cheaper labour, political risk, and government incentives.
I agree with some of these reasons but not all. Cheaper labour in China does not mean the best. China will never be able to compete with the knowledge headstart that Indian technology and BPO industry has had.
By 2011, there would be abundant availability of Indian employees with process driven knowledge as well knowledge in cutting edge technology that will still attract largest number of outsourcers. Even if these employees are slightly more expensive, the productivity gains would offset that expense.
The reason why US and now Europe is seeing a surge in offshoring is because there is a lack of manpower availability with the required skill sets, particularly in legacy maintenance. Often it is a compulsion and not just about cost or strategic initiative.
Second, China’s political condition is not a positive as much as a negative. True, the Socialist government has been able to build world class infrastructure but it takes more than that to persuade a company to offshore its key processes to a country where there is no transparency in governance. Had infrastructure been a hurdle we would not have seen the rapid growth of the outsourcing industry in India. India’s growth story has been inspite of the infrastructure obstacles and not because of it.
I think I have to disagree with this entire article. First, as a US Citizen, you are saying the same stuff many had thought 15 years ago. “India, bah… we have a head start and they won’t catch up”. Eventually, China will catch up and will be able to compete against India in technology just as India competed aginst the US in technology. It will be no different. Why should the labor arbitrage that has been going on between the US and India not go on between India and other countries?
Second, I work for a firm that does outsourcing and even if your assesment of Chinese labor not being as qualified as Indian labor is accurate, price is king. Always remember that. Especially in business where every firm (US or otherwise ) is hell bent on reducing costs. The latest big business theme is “The bottom line is king, we need to get our stock price up no matter what, and short term results rule.” I live in an economy drowing in poorly constructed, dirt cheap products that come from China and it does not matter that these products are asbolute junk, as long as they are cheap. If my $29 DVD player breaks, I can buy another one. I am sure my employer feels the same way about overseas work because they keep sending it overseas but the quality is still sub-par. US firms send work overseas to various locations and many times the quality is less that what they would get locally but that does not seem to stop them. They are saving money (or at least they think they are) and that is their goal. Forget about the customer experience. I can’t tell you how many times I have called some overseas support center for some large US firm and have received incorrect information with respect to tech support for a printer I bought or called about various long distance plan options for a major local and long distance telecom company and received completely incorrect answers, to name a few. I am not alone either. I have seen commercials in the US from a lajor PC retailer and in the commercial one of their reasons fo rbuying their PC as opposed to someome elses was they have 100% North American based support. Now, North American could mean anything (Canada, Mexico…) but the fact this commercial even put this line in says volumes.
Lastly, the reasons you have seen an increase in offshoring by the US and European firms is not because there is a lack of talentend manpower here, it is because of cost. Plan and simple. (See my point 2 above… it’s all about costs) It is more accurate to say there is a lack of manpower here with the skills needed who will work for $10 a day that a US firm wants to pay them.