(Note from ResearchSEA Editors: This article is an unpublished opinion piece)
Author: Prof. Anand Agrawal
Faculty Member ICFAI Institute for Management Teachers,
ICFAI University, Hyderanad, INDIA
Many economists, academicians and social thinkers including politicians saw a dream:
“The economic progress of the two major developing Asian nations: China becomes the ‘factory’ of the world and India becomes the ‘Office’ of the world. And, they both become developed and economically independent nations to conquer the world.”
In fact, this dream will most probably remain just another dream for any developing nation like India or China if it keeps on relying primarily on the adopted/transferred technology, outsourced jobs and non R&D activities and depends on the patronage of the west. The view is in fact a paradox of what most of the economists otherwise believe, that is importance of investing in future capability of the workers and the employment of local scientists, engineers and technicians in R&D. Such an investment is considered to be a more pragmatic long term approach given the ephemeral nature of financial capital and the realization of the human capital as more realistic and dependable.
Now, with these paradigms, read the following:
According to the latest release from Gartner, worldwide Business Process Outsourcing (BPO) will reach $133.7bn in 2005. In India, BPO is employing 240000 people today and the NPO Industry growth rate is 50 % per annum. This rate shall double every two years, and by 2008, it will employ a million people.
BPO is the delegation of one or more IT intensive business process to an external provider, which in turn, owns, administers and manages the processes based on defined and measurable performance matrices.
The general feeling after going through the above facts and definition is of jubilance and pride in India shining due to spurt of growth in IT and ITES including BPO in India.
But, the paradigm we chose to take earlier provides the following issues:
The Long Term Strategy
In an article in Business Week -“Commentary: Outsourcing Jobs: Is It Bad?” Business Outlook Editor- Kathleen Madigan and Michael J. Mandel, Chief Economist in US justified that companies will always pursue the lowest-cost structure, moving out of “less skilled job” from US to other nations. Works like writing computer code and software-application maintenance were considered complex and were secure ways for aspiring Americans to make a living a decade ago. But now, it's considered "rote work," and companies such as Microsoft Corp. and Netscape Communications Corp. have it done everywhere from Ireland to India.
It means rote works which require low skills are generally outsourced to countries like India and Ireland, which have low labor cost. Ultimately, US will get rid of such jobs and will gradually shift to more skilled and innovative works which are more productive with the potential of making the economy more competitive and stronger.
To support the above argument lets have a view further in this article where the quote states:
"It would be foolish to stop companies from outsourcing," says Robert B. Reich, former Labor Secretary under President Bill Clinton. "It would make our companies less competitive."
These statements clearly describe the long term strategic thinking for US economy. But, such long term strategy is missing in India. India and also China which may be seemed as in preparation to follow the strategy of being ‘office’ of the world, are not in the driving seats and their success is dependant on the west only.
Ephemeral success
The sole logic of out sourcing (be it in manufacturing or services) is the productivity and cost reductions. Therefore, there is no guarantee that the outsourced jobs will not be retransferred to under-developed or other developing nations which will be more profitable to the west. In near future, countries like Nigeria, Egypt, Srilanka, Bangladesh, Namibia and many other similar countries will be at near the same capability as India or China for the outsourced jobs. And, these nations will have even lower labor costs. Under these circumstances, whatever achievement realized in BPO sector in India seems ephemeral.
Under-employment
There is a belief that BPO employment is not a real employment. It is a kind of underemployment where qualified engineers, chartered accountants, biologists, MBAs, economists, and even in some cases doctors with MBBS degrees are not doing what are they trained for during their degree education, but are doing what any graduate can do. Engineers answering to customer complaints; accountants and qualified finance professionals doing transaction processing; biologists and doctors doing medical transcriptions; MBAs solving customer’s queries or teleselling. Aren’t these drains of potential talent? Their counterparts in western nations are either entrepreneur or doing much more core productive jobs, where in India; they are supporting them or their clients, just because they are the part of cheap labor.
Really reducing unemployment?
The majority of the BPO employees are urban. There is hardly any rural employee there as the nature of work requires a good command over English language. It means outsourcing of service jobs accounts for only a small share of India's economy. It absorbs only about 100,000 of the roughly 2.4 million students who graduate from college in India each year. It has made little dent in national unemployment figures that remain stubbornly high. Moreover, over 70 per cent of the labor force in India in all sector combined (organized and unorganized) is either illiterate or educated below the primary level.
The Ireland argument
Ireland is often stated as an example of an economy that has got an impressive growth due to the growing BPO sector. But, Ireland and India can not be compared because a large economy has to be largely self-sufficient. It has to produce food, manufactures, and services domestically and it has to consume most of what it produces domestically as well. Only small economies can afford to specialize and survive through trade or industries like BPOs. And, India is not a small economy is a well established fact.
Other issues
Abuse against Indian Call Centre employees by US consumers, health concerns of the employees due to nature of the work, increase in consumerism due to increase in disposable income with the youth and relationship problems being faced by employees are other issues which are currently cited in many articles. The claims that developed nations are in fact, helping developing nations to increase standard of living through BPO is hard to be believed. In fact, developed nations have realized that they don’t need their manpower be engaged in low skilled and rote jobs and are trying to innovate to move up the ladder of economic development. They just have profit motivations. Well, there is no objection to that. But India has to be cautious here and should not take the “philanthropy” argument.
Moreover, India should also concentrate on the economic development activities and not just on the growth. It means, Indian manpower should not be utilized blindly on BPO jobs but they should be engaged on high skilled, productive and independent jobs. Indian companies and entrepreneurs which are now riding the wave of BPO should in fact concentrate more on innovations and establishing new manufacturing and services firms. It’s time to feel shame of India being regarded as “low labor cost nation.” India needs to plan properly for a long term strategy instead of blindly following the path of others and depending on the west for short term gains. The BPO jobs are suited for Indian economy for short term while we are exuberant about the GDP growth and increase in the living standards. There is no doubt about such advantages but we need to think about the long term strategy India should adopt now to be in the driving seat of the world economy.
