The Economist: External affairs
Old assumptions are being challenged as the outsourcing industry matures.
AT THE start of the decade anecdotes began to circulate about the perils of sending white-collar work abroad. One apocryphal tale centred on Indian workers who had been given the job of keying the results of the latest British census into a database. The work was done quickly. Everyone was satisfied until the entries were reviewed and it emerged that the most common surname in Britain was “Ditto”. But the initial amusement about offshoring soon gave way to fear. The threat that cheap labour in India and other low-wage countries posed to costlier workers in the developed world was a central theme of America's 2004 presidential campaign.
Three years on the politics of offshoring are still childish: last month a leaked memo from Barack Obama's research staff referred to the Illinois senator's main rival for the Democratic nomination as “Hillary Clinton (D-Punjab)”. Yet the outsourcing industry, the conduit for much offshored work, is maturing. (Outsourcing refers to work contracted to an outside firm; offshoring is the shift of work abroad.) And as it grows up, it is changing in many ways.
For a start, the industry is growing less rapidly than before. Offshore work is a component of most outsourcing contracts, but jobs no longer flow only from richer countries to poorer ones. Cost savings are still the principal motivation to outsource, but performance is becoming the main battleground between providers. Even the language is changing. Vendors refer to themselves as partners. Labour arbitrage is out; “intellectual arbitrage” is in. Some even recoil from the word “outsourcing” itself. “It gives the impression of just throwing something over the wall,” says Ross Perot Jr, chairman of Perot Systems, a computer-services firm based in Plano, Texas. …
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