US Firms Become Competitive at Home and Abroad when they Outsource
"It would be foolish to stop companies from outsourcing. It would make our companies less competitive," were the comments of Robert B. Reich, former Labor Secretary under President Bill Clinton on the outsource industry.
"Our competitors are doing it and we have to," says Tom Lynch Employee Relation Director IBM in reference to the outsource market.
One of the major reasons large US companies outsource is so that they can remain the most competitive and thus most dominant in the world. US companies which outsource, reduce cost, increase efficiency and thus beat the competition. But what would happen if US firms didn’t outsource? Or if the US government made it very difficult for US firms to outsource? What if the Indian government implemented protectionist policies to stop the outsource industry?
Let us, for example, consider the outsource IT industry; a sector dominated by firms such as Dell, Microsoft, IBM and Oracle, (all of whom outsource to India). If such companies stopped their outsource practices what, hypothetically, could happen?
Foreign competitors would outsource and out-compete US companies:
Due to India 's 1 billion population, India subsequently has the most technical, low cost talent in the world, (as evidenced by the outsource boom). India 's office work force has an advantage over the rest of the world in terms of numbers, talent and cost, hence why India is the number one outsource destination.
Accordingly, if US IT companies stopped their outsource strategies, this could spur the start up of many Indian/ foreign IT companies. Although companies such as IBM and Microsoft are billion dollar companies any start up/current Indian I.T company (or any other foreign company which would outsource to India) would have a clear advantage over the US IT firms that did not outsource. Any start up Indian company (or foreign company that would outsource to India) would have access to the most skilled, productive and cost-effective IT workforce in the world. If US firms ceased their outsource policies, this would encourage start up and current Indian companies to compete with US firms.
Could an Indian company “catch up” with multinational US companies that no longer engaged the outsource industry?
Unable to outsource, US firms would have much higher costs than their Indian equivalents. Accordingly an Indian company would be able to sell its products much cheaper than any US firm which did not outsource. Subsequently US firms could face serious competition from Indian firms (or any other foreign firm which would outsource to India). The possibility of Indian companies selling PCs, software and hardware to America and the rest of the World could become a real prospect. China has done it with the manufacturing of everyday goods and Japan has done it with cars and electrical goods. Could India dominate IT production and other knowledge processing services if the US didn't outsource?
But why do we not see this?...US companies Outsource:
We do not see this because no Indian company can “start up” let alone compete with Dell, Microsoft or IBM. Why? IBM, Dell, Microsoft and Oracle all outsource to India and thereby have access to India's highly skilled but low costing work force. US companies outsource to India and so any Indian company (or any other foreign company that wants to outsource to India) has no advantage over any US company. Dell, Microsoft, Oracle and IBM are the most competitive companies in the world because they outsource and thus have access to India’s low costing technical talent. Companies that outsource do not only remain competitive but they can also dominate the markets as a result of their outsource practices.
The effectiveness gained by companies which outsource is elaborately exemplified by the fact that US firms not only hold a dominant position in domestic markets but also in the Indian and other foreign markets. US companies which outsource are so competitive that they out-compete their Indian counterparts even in India. The outsource practice has enabled US firms to use India’s own workforce to produce the very product that is then sold back to them. The prospect of Indian firms dominating US markets is at this time unimaginable, because US firms outsource and are thus too competitive.
In conclusion US firms become competitive at home and abroad when they outsource and so the practice should be supported for it enables US companies to sell to the world. With US firms successful on a global scale this significantly benefits the US economy. If US companies did not outsource they risk losing their supremacy status.