Outsourcing to India gives the US the competitive edge, thereby benefiting the US economy:

In the late 1980s and early 90s it has seemed that Japan (and maybe even Germany) would overtake America with respect to per capita income. According to World Bank data, in 1992, US per capita income was $23,200 while Japan (which was rapidly catching up) had reached $20,300.But in 2002 the US economy, with a per captia income of $35,100 had surged ahead of Japan (and also Germany), which had incomes hovering around $26,000.

What caused this?
First, this was a period of excellent fiscal management in the US. Second, when an industrialized nation opens itself to economic interaction with a poor country the scope for gains are the greatest.

The unprecedented collaboration with India's information technology sector, in the form of both admitting computer scientists to Silicon Valley and outsourcing work to India, gave the US the competitive edge. It is this openness that the US has used time and again in its history to keep the lead.A recent NASSCOM study explains that BFSI outsourcing has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%.

Foreign companies would out-compete US companies if US companies stopped outsourcing. But by outsourcing US companies are able to maintain a competitive advantage over foreign firms.McKinsey Global Institute has estimated that for every dollar spent on outsourcing to India, the United States reaps between $1.12 and $1.14 in benefits. Thanks to outsourcing, U.S. firms save money and become more profitable, benefiting shareholders and increasing returns on investment. Foreign facilities boost demand for U.S. products, such as computers and telecommunications equipment, necessary for their outsourced function. And U.S. labor can be reallocated to more competitive, better-paying jobs; for example, although 70,000 computer programmers lost their jobs between 1999 and 2003, more than 115,000 computer software engineers found higher-paying jobs during that same period. Outsourcing thus enhances the competitiveness of the U.S. service sector.

If US companies stopped outsourcing they would not be able to remain competitive, experience growth and create new jobs in the US.
The data affirm this benefit. Catherine Mann of the Institute for International Economics conservatively estimates that the globalization of IT production has boosted U.S. GDP by $230 billion over the past seven years; the globalization of IT services should lead to a similar increase. As the price of IT services declines, sectors that have yet to exploit them to their fullest such as construction and health care, will begin to do so, thus lowering their cost of production and improving the quality of their output. (For example, cheaper IT could one day save lives by reducing the number of "adverse drug events." Mann estimates that adding bar codes to prescription drugs and instituting an electronic medical record system could reduce the annual number of such events by more than 80,000 in the United States alone.)

By outsourcing to lower cost operations, businesses are able to reduce their overhead costs, compress time-to-completion with around-the-clock operations, and focus on core, strategic investments and hiring. Many manufacturers, for example, are running leaner, more competitive operations as the result of outsourcing IT services, focusing their resources on the research, design and processes for improving their products.

A study conducted for the 2004 Index of Economic Freedom confirms a strong, positive relationship between economic freedom and per capita GDP. Countries that adopt policies antithetical to economic freedom, including trying to protect jobs of a few from outsourcing, tend to retard economic growth, which leads to fewer jobs.

Skill Shortage
A recent article in Business 2.0+, entitled “The Coming Job Boom,” even implies offshore outsourcing may prove critical to America in the face of a skilled worker shortage caused by the imminent retirement of baby boomers. This article cited research by labor economist Anthony Carnevale, former Chairman of President Clinton's National Commission for Employment Policy, who forecast that America will face a skilled worker gap that will grow to 5.3 million by 2010 and 14 million by 2020. Outsourcing is thus essential for it enables the US to remain competitive and the largest economy in the world.

Offshore outsourcing is not the bogeyman that critics say it is. Their arguments, however, must be persistently refuted. The results of measures to counter outsourcing or prohibit outsourcing will be disastrous: less growth, lower incomes -- and fewer jobs for American workers.