Cost reduction, increased productivity and greater competitiveness are synonymous with the term outsourcing. However, an often overlooked factor behind outsourcing is skill shortage or access to talent.
On her recent visit to India in August 2009, US Sectary of State Hilary Clinton lauded India’s technical education as one of the best in the world. In response to a question about India’s education system, Clinton responded, “You can look at the very best in Indian education, and it’s the best in the world. You can look at the technical education and it is to be envied. It is so effective.” Despite its Third World status, India has for decades been producing technical graduates of international caliber. And with its huge population, India not only has talent it has talent in immense numbers.
3.1 million students graduate from Indian universities annually, a number expected to double in the next few years. India’s reputation in software programming is that of a world leader; hence why half of Fortune 500 companies outsource their software operations to India.
With technical talent in reserve, outsourcing to India is often therefore as much about access to talent as about cost reduction. The fact quite simply is that often companies struggle to recruit domestically the appropriately qualified and experienced employees they require. 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. The skills shortage void is even more dire for a country such as Canada. Often victim to brain drain and a relatively small number of technical graduates, the outsourcing option must be pursued. The cost reduction which comes with outsourcing is therefore not always necessarily the motive for outsourcing but merely a complimentary bi-product.
SMEs (small to medium sized enterprises) are most likely to suffer at the hands of skill shortages. For a variety of reasons, MNCs have the pulling power which will always enable them to recruit the most qualified and skilled candidates, wherever their location. With small budgets, SMEs however often struggle to hire the employees they require. Additional factors such as location also work against SMEs. Whilst, MNCs have bases throughout the world’s leading cities, SMEs may be too remote to access domestically available talent. Outsourcing for SMEs in particular can thus be a life line and the only feasible option. SME outsourcing from the US to India alone is currently US$7 billion per year a figure expected to grow to $11 billion by March 2010.
For MNCs outsourcing enables companies to hire the best talent in the world. By not outsourcing MNCs invite foreign companies to out compete them by acquiring more talented employees.
Companies decide to outsource for a whole variety of reasons. One of the prominent reasons for outsourcing is however to access talent which is not available domestically. Outsourcing can hence be immeasurably valuable; it provides companies with a life line, where previously there was none. Were companies unable to outsource the repercussion could be grave. Any company will suffer from inefficiency and a lack of competitiveness if its staff does not reflect the ability it requires.