Is Outsourcing Overseas a disadvantage for developing countries?

By Shaunvir Singh Aug 26, 2016

In this three-part series, I am looking at how these three factors – the US acquiring global talent, the H1B visa and outsourcing – are all interlinked.

In my last post, (Is Outsourcing just a reverse of the H1B visa for small companies?) I looked at the H1B visa and, in particular, Michio Kaku’s view that without the H1B visa the US’s technology and scientific prowess would collapse as, too, would the US economy.

Continuing on the theme of the H1B visa, in this post I’m looking at the views of Bill Gates, co-founder of Microsoft. When asked about limits on the H1B visa, Bill Gates gave a surprising answer. The limit, he said, on the H1B visa should be “infinite.” But what was more interesting was what he then went on to say after that, “Those great talents, particularly in engineering areas, the jobs are going to exist somewhere and the jobs around them are going to be created wherever those uniquely talented people are.”

Basically, what Bill Gates is saying in a roundabout way, is that if you don’t let that talent into the US, because that talent is so exceptional, one way or another, they are going to create jobs and industry in their home country. Now, whether Bill Gates meant they will create jobs via outsourcing or whether he meant that they will create an industry independently or by working for a domestic country, I am not sure. The point which Bill Gates made, however, and which I think is very pertinent, is that exceptionally talented people are going to create jobs around themselves and they are going to create industries around themselves, whether they stay in their home countries or come to the US. Exceptionally talented people drive science, drive innovation and drive economies. If that is what exceptionally talented people achieve, then “let’s let them into the US and have them do that for us,” is basically what Bill Gates’ point is.

However, as with my last post, does the same logic not also hold true for outsourcing? When US firms outsource to India and hire the most talented engineers and scientists in the country, isn’t that talent then going to attract jobs, drive industry and innovation for US corporations and the US economy as opposed to Indian firms? In a global economy, surely an Indian software development company has a huge competitive advantage over, say, Microsoft, namely that the former can hire equally talented software engineers but at a lower salary? But does outsourcing wipe away that competitive advantage, because by outsourcing, US companies hire talent at the same salaries as Indian software companies? To understand my train of thought, think of it this way. What if all the biggest corporations in Europe opened branch offices in the Silicon Valley and started hiring all the brightest American engineers, scientist and graduates? What if 90% of America’s brightest of the bright talent didn’t actually work for American companies? Would that be a good thing for the US economy?

Whether this is the case or not, I think the whole issue requires a lot more research and analysis. There are more variables that need to be taken into consideration before coming to a conclusion that outsourcing negatively hurts developing countries. To illustrate the point, domestic companies in India are traditionally stifled by red tape and, in the past, lacked government or private sector banking funding as well. So even if the talent was there, there weren’t many Indian software companies present to leverage that talent.

So whilst the question “does outsourcing hurt developing countries?” is undoubtedly a moot point for now and a very difficult one to answer, the answer to it will undoubtedly change over the course of time and depend on the economic position of a country at any given time. The reason I have harped on this point is to highlight that whilst outsourcing might not be a competitive disadvantage for developing countries at this point in time, in a truly global economy, outsourcing – without doubt – most definitely is a competitive advantage for western countries. This is why the negative views on outsourcing to India are so often unjustified.

In my third and last post of this series, I look at how the H1B visa is evidence that you can acquire talent when you outsource and get great results.

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