Page 83 - Introduction to Business

CHAPTER 2 The Environment of Business 57

Global Business

India: A Star Global Outsourcing Center

Unlike the United States, which is a cost, along with efficiencies associated with time dif-
service economy, India is an agrarian ference. Outsourcing to India has been a win-win sit-
economy with a solid manufacturing sector. Yet, uation for most global companies as well as for the
when one analyzes India’s balance of trade in goods Indian employees. Global competition is forcing an
and services, it becomes apparent that growth has increasing number of U.S. firms to pursue cost-
been most remarkable in its services exports. Most cutting strategies to boost profits, retain higher-level
notable among India’s services exports is software positions, and continue R&D investment at home.
and business process outsourcing (also called off- India is making the most of its competitive advantage
shoring)—Internet-driven outsourcing. In fact, India’s by winning a larger slice of the outsourcing pie.
Information Technology (IT)-enabled services grew by About half the number of companies in Financial
25 percent in 2001 to $10 billion, of which $8 billion Times 500’s World’s Largest Companies contract IT
was exported. Its IT revenues and exports have been and related services to India.
growing at that rate ever since. There is more to Now India’s outsourcing industry is moving
India’s IT than meets the eye. India’s strategic loca- upscale from software development to biotech
tion has made the linkage between service sectors in research to equity analysis for investment banks. The
the United States and India both complementary and latter is particularly timely given the intense pressure
competitive. Depending on the particular time zone U.S. investment banks currently face to separate
that one is in in the United States, India is roughly financial research from investment banking business.
one-half a day ahead of the United States. Just when Although cost savings are the key, increasingly it is
Americans get ready to leave their workplace to go the value added and efficiency that are gaining
home, Indians are getting ready to leave home for demand. Some of the most successful Indian out-
work. A large segment of India’s middle class (esti- sourcing companies include Wipro, Tata Consultancy,
mated to be between 250 and 300 million) is edu- and Infosys. Once global companies find outsourcing
cated and most speak English—a cultural heritage. to India’s IT firms reliable, foreign companies tend to
Furthermore, India’s higher education system churns continue the relationship for the long term. What
out several hundred thousand talented engineers, sci- does all this mean? It heralds a fundamental restruc-
entists, and software programmers each year, turing of rich-world economies. Like the globalization
thereby keeping their labor cost relatively stable and of manufacturing in the 1980s that affected blue-
at a fraction of U.S. levels. These factors have made collar workers, the rapid globalization of outsourcing
India a major outsourcing center for U.S.- and (trade in services) started in the 1990s and is having
Europe-based companies. For example, the time dif- its impact on white-collar workers in rich-world
ference enables U.S. companies to beam software countries who will need to find alternate jobs as they
and programming problems to India via satellite move up the technology ladder. Also, India is likely to
before the end of the U.S. workday. Indian software remain one of the few developing countries that will
engineers have a full workday to complete the project have a growing surplus in services balance exports
before beaming it back to the United States for deliv- without having its nationals leave the country.
ery to the U.S. customer the very next day. It is as if
the solution to the problem was worked on the whole
Questions
night in the U.S. itself. Similarly, in order to provide
U.S. consumers with 24-hour personal service (to 1. Identify two major issues that are responsible for
avoid listening to Beethoven or Mozart), customer the rapid growth of global outsourcing of service
service call centers have been established in India sector jobs.
(where Indians are trained to flatten their accents by 2. Explain why outsourcing to India is inevitable, fre-
religiously watching U.S. sitcoms!) along with med- quently makes business sense, and can even be
ical records transcription service and the like. All beneficial to multinational enterprises.
these services are provided at a fraction of the U.S.

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