Why Companies Prefer to Outsource to Democratic Countries
Should you send jobs to a rouge and/or unstable nation, or to India that is a free market democracy? This is a question that companies considering where to outsource have asked themselves many a time.
The answer has always been in favor of democratic India. More than 400 of the Fortune 500 companies that ship their jobs and work to India have poured in billions of dollars during the last 10 years in India.
These companies see India as the fastest growing free market democracy which ensures a strong legal system, stable political environment, and a pluralistic society. It’s a democracy that allows market conditions to operate in a macro and micro economic environment which is smartly regulated. All these factors play a crucial role when companies decide where to outsource.
Not surprisingly, multinationals such as IBM, Microsoft, Dell, and Accenture, who send massive amounts of services-related work to India, do so due to its democracy, says NYT journalist Thomas Friedman.
The post-liberalization Indian generation, of which hundreds and thousands are into outsourcing, is a new breed with a zip iThe post-liberalization Indian generation, of which hundreds and thousands are into outsourcing, is a new breed with a zip in their step. “They’re hungry, they’re energetic. They’re demanding of their democratic government,” says Friedman.
He adds that India is a country that is very instinctively able to localize, take the best of the global world, and absorb it within its own culture – a very important facet of India’s secular democracy.
An unstable democracy, a communist regime, or a theocracy, can never compete with a secular democracy in reaping the benefits of outsourcing. Indian democracy allows itself a free flow of ideas and their execution without interference from a ‘party,’ ‘ideology,’ or an ‘autocrat.’
It’s only in a democracy such as India that a true market economy can be sustained in an open society. However, it is difficult to envisage the challenges of working from a country that is fighting internal tensions.
But one never knows the challenges one will face in a country, which is already rife with internal tensions.
China may have an upper hand in attributes such as per capita income, birth control, GDP growth, etc.; however, when it comes to freedom of entrepreneurship and achieving personal goals, India scores way ahead of China.
Today, as the world recovers from deep recession, the democratic fabric of the Indian business environment will be considered even more than ever before an advantage when outsourcing.
As the job shipping industry consolidates, India’s democracy has a competitive advantage that translates into long-term cost savings when traded off against market exit due to political threats.
Outsourcing to a “democratic mixed market economy” is the best safeguard against the vagaries of supply and demand; it could very well be the future buzz phrase in outsourcing.
Companies will prefer India over others :
Given the economic volatility that’s bound to plague the world economy in the future, India’s democratic set-up, as compared with other countries, offers stability for those who are interested in shipping jobs. China, India’s closest competitor, will always be considered with circumspection by those who want to offshore. The communist leadership’s stringent control over personal freedom will always be a negative in any business outsourcing SWOT analysis. Malaysia, although a democracy, is regarded politically unpredictable, with the possibility of becoming unstable – no way is this conducive for outsourcing. Personalities tied to underlying economic interests are a well-known story in Malaysia, presently, the third largest destination for outsourcing.
Malaysia has a troubled ruling party that resorts to racial discourse, has an untested opposition, a stalled economy, and a politicized judiciary. The situation will keep on discouraging companies from outsourcing to Malaysia. In the Philippines, incoming volume of outsourcing has suffered due to falling standards of English usage. Successive governments, again personality-led, decreased investment in education force companies to offshore work to some other country. Pakistan was considered an upcoming offshoring destination during the internet boom in 2002-04. But continuous clashes between civilian, military leadership, and militant extremists reversed the flow of companies who wanted to ship jobs to that nation.
India’s balanced democracy :
Another important and positive feature of the Indian democracy is the clear demarcation between the political, judicial, and legislative aspects.
This ensures that job shipping firms and Indian vendors are not subjected to pressure of any kind from any of them. For instance, lobbyists or job shipping companies wanting to lobby for more favorable conditions for a particular sort of outsourced specialization will not be encouraged.
Unified mantra amongst government bodies:
Top services companies have chosen India as the destination to ship IT jobs and office-related services. This success, over time, has brought about synergy amongst government bodies to promote India as a preferred destination to send various complex operations.
Indian democracy ensures that there is synergy and not competition or brinkmanship between governmental departments and industry bodies over offshoring.
Political stability and maturity:
If a company wants to ship jobs to India, one of the conditions it expects is that governments last their full term. They don’t want to deal with a country, say like Pakistan, in which who will be in power, and when, is a million dollar question.
India’s deep-rooted democratic institutions have ensured political stability in multi-party democracy.
Therefore, organizations that send work to India don’t have to be uncertain about the Indian government’s stance.
So much so that democracy has enhanced India’s ‘reputation’ as a location that can be trusted to business and for those who want to offshore key operations.
Indian governments facilitate the process:
Government intervention in software industry has been minimal. In fact, successive governments have invested in education, especially in engineering, to create human capital and infrastructural clusters.
This single-mindedness has attracted companies who want to send business tasks to India. This, in turn, has generated intense rivalry among Indian software exporters and vendors.
Indian firms, therefore, have resorted to differentiate themselves from their competition in terms of quality. Of the 26 CMM level-5 companies in the world, 19 are in India. About 108 Indian software companies are ISO9000/1/2 certified. As a result, Fortune 500 companies ship cutting-edge R&D projects to India.
Indian democracy has produced entrepreneurs:
India has a much more vibrant private sector than China with more world-class home-grown companies from the private sector. Its entrepreneurs are a result of Indian democracy that allowed years of centralized economy to be transformed into a mixed market economy.
Corporate governance is another Indian forte, with Indian entrepreneurs and managers, including in the job shipping industry, being among the most highly respected in the world.
One would be hard pressed to find entrepreneurs such as Ratan Tata, Dhirubhai Ambani, Narayana Murthy, and Azim Premji in China.