The IT outsourcing relationship between India and the US has increasingly emerged as a key strategic tool in achieving cost reduction, quality and delivery improvement, cycle time reduction, and improved responsiveness to customer, competitive, and financial market demands. While cost savings has been the predominant motive for these outsourcing efforts, other strategic drivers have been access to superior quality of goods, services, and labor; improved flexibility with respect to ‘lean’ production cycles; quickness in response times; and the ability to focus on a core set of activities and increased responsiveness to market changes.
IT Outsourcing to India benefits US Economy
Contrary to common perception, information technology outsourcing to India benefits the US economy by increasing the number of US jobs, improving real wages for American workers, and pushing the US economy to perform at a higher level, according to a new study. "Global sourcing continues to be a net positive for American workers and the US economy," said Harris N. Miller, president of Information Technology Association of America, the leading trade association for the IT industry.
By driving down the costs associated with computer software and services and by opening more overseas markets to US competition, global sourcing sharpens America's competitive edge at home and abroad. The result is more American jobs, higher wages and a faster growing economy overall. The study, conducted by Global Insight, found that worldwide sourcing of IT services and software generated an additional 257,042 net new US jobs in 2005, a number that is expected to rise to 337,625 by 2010. With low inflation and high productivity, global sourcing also increased real hourly wages in the US by $0.06 in 2005.
The report added that worldwide sourcing contributed $68.7 billion in real US GDP.
Spending for global sourcing of computer software and services will grow at a compound annual rate of 20 per cent, from approximately $15.2 billion in 2005 to $38.2 billion in 2010.
The total cost savings from outsourcing of computer software and services will grow from $8.7 billion in 2005 to $20.4 billion in 2010, much of which will be reinvested in the US.
Global sourcing contributed $5.1 billion to US exports in 2005 and is expected to grow to $9.7 billion by 2010. The benefits of free trade clearly provide a boost to the US economy.
Using offshore resources creates additional jobs, increases efficiency, reduces costs, dampens inflation, lowers interest rates, and increases spending. The challenge is to help transition of displaced workers to other productive activities.
The study found that raising barriers to worldwide sourcing would adversely impact US workers and US firms. If all global sourcing of software and IT services terminated completely, the impact would slow the US economy and actually reduce the number of new jobs available to American workers.
There can be no doubt about India’s importance as an emerging center for outsourcing service type activities with a special emphasis on IT. A joint study conducted by McKinsey & Co. and Nasscom, an Indian software association, predicted that by 2008, India will generate $57 billion in revenues from IT work and other service related exports.
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