Wednesday, May 30, 2007

Outsourcing Versus Immigration


Outsourcing is not new, but its globalization is growing geometrically. In its first manifestation, it had been essentially a business strategy to lower the cost of labor; eventually, it became a way to move entire operations off-shore.

The nature of outsourcing has changed, and while cost is still central, it has now taken on added strategic needs--reliability, just-in-time performance, consistency and high quality. Another factor, security, has recently been added as a prime ingredient in the selection of an outsourcing partner.

As a concept, outsourcing is really little more than the reversal of an old-time process, as Tom Koulopoulos, author of Smartsourcing and a leading authority on the practice, points out. Whereas once workers moved to where work was, "now work moves to where the workers are," Koulopoulos says. Certainly, there are still low-end, unskilled jobs that cannot move, and these tasks are the ones that immigrants still arrive to fill. Outsourcing and immigration remain an economic mirror image of each other.

According to Sue Welch, CEO and founder of Tradestone and an expert on international trade, U.S. companies alone now outsource $4 trillion each year, and that figure is growing at a rate between 15% and 20% annually. Outsourcing is no longer a modest strategy but a central component of business practices. Moreover, the need to outsource is no longer confined to the United States or, indeed, to Western developed countries. Nations like India that benefited enormously as outsourcing destinations are suddenly themselves now becoming outsourcers.

Outsourcing came into its own as back-office work was sent to places like Ireland with its highly educated and English-speaking population. Call centers went off shore. Ireland's growing prosperity--and wage levels--dampened this process in time, and eventually, this work migrating further afield to India where, thanks to its British colonial history, English is a second language. But the 600-pound outsourcing gorilla of today is China, with its ever-increasing share of manufacturing world-class goods through outsourcing arrangements with the likes of Apple (nasdaq: AAPL - news - people ), Hewlett-Packard (nyse: HPQ - news - people ) and IBM (nyse: IBM - news - people ).

The shift in outsourcing is clearly away from simple manufacturing tasks to leading-edge computer hardware, software technology and programming business. The shift has made countries like India prime destinations for outsourcing. At the same time, however, entrepreneurs in India itself have begun seeking other, even cheaper, locations to outsource some of their jobs and processes.

The flip side for corporate leaders is the challenge of dealing with the less than adequate physical, electronic, industrial and communications infrastructure of many developing nations, which often remain primitive yet are winning vast outsourcing contracts.