Outsourcing: Is India stealing U.S jobs?

Yeah I know. It has become such a clichéd topic that every tom, dick and harry (another cliché!) writes on it.

Just the other week Government of India has approved IA proposal to buy 43 planes from airbus at 2.2 billion USD when Blair came to Delhi. This comes on top of Air India plans for 50 jets from Boeing for $6.9 billion; private airlines like kingfisher and Spicejet plans worth one billion dollars each for Airbus and Boeing respectively; plus options for many more. This doesn’t relate to outsourcing. Or does it?

For the entire cry over India and low cost countries stealing jobs from the west, every jet Indian carriers buy creates hundreds of jobs in these countries. With airlines like Northwest and Delta airlines filing for chapter 11, others barely managing their existing fleet, the two majors had come under severe stress to stay in business; till the flood of orders from the land of Bangalore.

How true is the paranoia of outsourcing? AT Kearney estimates that for every dollar US put in India, it gets 1.12 dollars by cost savings and India gets 33 cents. The increased profitability means more money to be invested in new ventures, more returns for shareholders (70% of US households invest) and more employment generation.

During 1980s when Japanese were buying a lot of real estate in US, there was a great outcry. That fizzled out. Only now the threat is real, looking at the way the dragon is spreading its wings. The threat is both for India and US. What could be done?

It seems almost impossible to compete with china in low cost manufacturing. But India can compete in a different turf. Cheap brainpower. The auto ancillary industry, which involves designing and auto cad are demonstrating that they can more than match the dragon. Bharat forge’s recent US and European acquisitions are worthy of note.

Where does US come here? US has the technology, India with its engineering professionals represents cheap but skilled labour. It is easy to see one plus one is more than two.

The success of any economy lies in the ability of its companies in moving up the value chain. The pharma sector, which has long been thriving on reengineering and poor patent laws, has started putting a lot of money in R&D. So has software, which has moved from call centers to analysis and research. Proponents of outsourcing assume a zero sum game. India wins, US lose. The whole economics is based on scarcity.

Scarcity is not in the pie, it’s in our mind.