How Outsourcing Turned Potential Competition Into Allies

TL;DR:

Offshoring didn’t destroy Western tech – it saved it. What could have been a cut-throat rivalry between low-cost Eastern talent and Western innovation evolved into partnership economics. Global outsourcing turned potential competition into collaboration, giving the U.S. its innovation edge while enabling India’s rise as a trusted ally in digital labor.

Key Takeaways

• The U.S.–India outsourcing relationship shows how global labor arbitrage can evolve into a long-term strategic partnership.
• Offshoring helped American companies survive economic shocks, while fueling India’s IT boom.
• Today’s model exemplifies “co-opetition” – competition turned cooperation through shared value creation.

Keep your enemy closer

When questioned on what was perceived to be lack of ruthlessness while dealing with his political opponents, Abraham Lincoln had said, “Do I not destroy my enemies when I make them my friends?”. Lincoln’s wartime cabinet has gone down in history as a rather unique cabinet, a cabinet made up of individuals who had been avowed opponents of Lincoln. And yet, by befriending his enemy, President Lincoln had ensured not just their loyalty but also turned them into his strengths. No one is a better example of this than Edwin Stanton. A bitter critic of Lincoln in his earlier days in Washington, Stanton went on to serve as the Secretary of War in Lincoln’s cabinet and transformed a department which had been hitherto in disarray and called a lunatic asylum by soldiers, into a well-oiled machine. Destroying potential competition is almost a prerequisite for success; however, turning a potential weakness into a strength is the hallmark of genius. Be it President Lincoln, Mughal Emperor Akbar or more recently Nelson Mandela; all these great leaders have employed this tactic to leave lasting legacies. In the world of business, this tactic has been used successfully to eliminate potential competition. And nowhere is it as apparent as in the case of offshore outsourcing.

Lessons learnt in Detroit

Surprised? I am sure you haven’t heard this one before. It’s true though. Imagine a world where Indian software companies are bidding for a project against American or European companies. With ridiculously cheap labor available domestically and a seemingly unending supply of human resources, these firms could have been in a position to outbid American firms almost every single time. The American firms would have been in a race that would be so patently unfair that they would pretty much have ended up running on one leg. Result? The Western IT sector could very much have gone the same way as the American car manufacturing industry. Instead of plush Palo Altos and Cupertinos, we could be dealing with several Detroits by now. And if it sounds far-fetched reading it now, remember how rapidly the auto industry, once kind of the poster boy of American progress and Americanism, declined in the 70s. Within just one decade, the titans of American auto industry, the so-called Big Three had been left far behind by Japanese auto makers. And the decline, alas, was terminal. Coupled with successive oil crises and engineering disasters which led to several recalls, the American auto makers incurred massive losses. A highly unionized workforce, which meant high wage costs and inability to adapt or adapt too late to changing conditions meant that the decay was always meant to be terminal. Contrast that to Japanese automakers who, in the face of the Voluntary Export Restriction of 1980, established assembly plants in US itself, but not in the traditionally favored North with well-entrenched labor unions. Instead, they looked at the Southern States which had Right to Work laws in place. Once the heart of industrial America, the region around Detroit is today called the rust belt.

A penny saved is a dollar earned

Offshoring is a child of its times. It is far from perfect, knows it, and is rather unapologetic about it. It basks securely in the knowledge that its qualities far outweigh its perceived vices, and the perils of ignoring it can be great. When offshoring as we know it today started, the idea behind it was less about profit maximization and more about self-preservation. Globalization had made the world smaller and markets accessible to everyone. Multiple financial crisis and intermittent recession that plagued the US and world economy in the period between mid-80s and the turn of the century meant that American corporations were struggling to keep their heads above water. The flipside of a deregulated market is that it can crash and burn in a whisper, especially when the economy is transitioning itself from a blue collar to a primarily white-collar economy. By offshoring a significant component of the services segment to much cheaper offshore destinations like India, American firms were able to save on a large amount of capital, which in turn allowed them to diversify and become more adept at taking the proverbial hit, which is bound to come every once in a while. The result? US firms were able to stay competitive, and today pretty much headlines the world of IT and IT related industries.

Savings that resulted from offshoring also allowed American companies to invest more, and in areas that had been hitherto neglected due to lack of money. Increased funding in research and development led to the birth of new technologies and products, which in turn led to the spawning of whole new domains and new age entrepreneurs who set up technology startups by the dozens in the US, especially around the San Francisco Bay Area which transformed the area completely. Many of these startups have gone on to become titanic organizations in their own right, often relying heavily on offshore setups to manage their day-to-day functions.

Turning a potential competitor into an ally

India, with an estimated 1.43 billion people (UN World Population Prospects 2024), now has a working-age population exceeding 950 million – larger than the combined U.S. and EU labor force. Employment-to-population ratios average around 60 % in the U.S. and 68 % across the EU (Eurostat 2024), in India that is a shade over 50%. That essentially means that for every job, there are technically 2 Indians, compared to a more balanced ratio in Western economies. This makes the Indian labor market extremely pliant. Unlike most other countries with a similar job-workforce ratio, India is also a very stable country, being the world’s largest democracy, where democratic norms are very deeply entrenched within its populace. It also has a massive aspirational and consumer-driven economy (offshoring accounts for just 1% of the Indian economy). That makes India a very safe and lucrative place for conducting business. India’s labor laws are far less complicated, with a much smaller percentage of the workforce in favor of unionization than either the US or EU, especially in white collar jobs. The number of English language speakers in India is second only to the US in sheer numbers. Indian technology firms have seemingly an unending pool of talent to dip into. Every year a steady stream of engineers graduate from its elite institutions and are snapped up by the highest bidders.

According to AICTE 2024 data, India produces around 1.5 million engineering graduates every year.

3-Step Framework: Turning Competitors into Partners1.

1. Identify Overlaps, Not Threats: Map skill or cost advantages that complement, not replicate, your core.
2. Codify Collaboration: Use service-level agreements, shared IP rights, and joint metrics to align incentives.
3. Invest in Cultural Parity: Cross-train teams, exchange leadership visits, and rotate management for trust continuity.

All this makes Indian technology firms potential competition for American firms. Yet, almost incredibly, thriving technology hubs like Bangalore, Mumbai and Hyderabad have yet to really compete with Palo Alto, San Diego and Cupertino. In fact, these Indian centers complement the ones in the US. Instead of making the waters murkier, Indian technology giants have helped make it clearer, helping US tech giants dominate this industry, all thanks to the cooperation that has been achieved through offshoring. As per Forbes Global 2000 (2024), TCS ranks #8 among global IT companies, Infosys #14, with U.S. firms occupying 7 of the top 10 positions. Yes, there are thousands of talented engineers and technology professionals graduating from top Indian universities. However, the cream of that talent heads west, scooped up by American firms, since there are few Indian companies willing to pay them as much. Neither do they need to as Indian firms are happy to sit back and follow the lead of their Western counterparts. It’s a win-win situation where; by attracting the best and the brightest, the US remains the engine driving innovation globally and Indian firms act primarily in a secondary support capacity. As long as this partnership thrives, Indian businesses and, by extension, the Indian economy have no cause to compete.

Quick Diagnostic Checklist: Are You Ready to Turn Competitors into Partners?

Use this short checklist to gauge whether your business is ready to transform potential competitors into strategic allies through outsourcing.

If you answered “No” to more than two questions, your organization is still operating from a competition mindset.

Begin by auditing your operational dependencies and exploring small, low-risk partnership pilots before scaling collaboration.

FAQs — Outsourcing & Collaboration

Q1.Why didn’t Indian tech firms directly compete with U.S. giants?

Answer-Because the partnership model created stable revenue through service contracts, while U.S. firms retained IP and product control.

Q2.How much does India’s IT-BPM sector contribute to GDP today?

Answer-Around 7.5 % of India’s GDP (NASSCOM 2025).

Q3. Has offshoring really benefited U.S. innovation?

Answer-Yes, it freed capital for R&D and enabled the startup ecosystem that drove AI and software growth post-2000s (Forbes 2024).

Q4. Is the U.S.–India tech relationship still balanced?

It’s mutually reinforcing: U.S. drives innovation IP; India drives execution and scale.

Q5.What can other countries learn from this model?

That offshoring is not a zero-sum game – it can turn cost advantage into co-innovation when values and governance align.

Sources (2024–25):

• United Nations World Population Prospects 2024
• Eurostat Labour Force Survey 2024
• NASSCOM Strategic Review 2025
• AICTE Engineering Education Statistics 2024
• Forbes Global 2000 Technology Ranking 2024

Reviewed & Updated: November 2025