Outsourcing Times

Schwarzenegger Vetoes Outsourcing Ban Legislation

California Governor Arnold Schwarzenegger on Wednesday vetoed a bill that would have barred state contractors or agencies from outsourcing jobs offshore.

According to Reuters:

"While this bill purports to be about saving jobs, it would actually be detrimental to our economy and the creation of new jobs in the state," he said in his veto message.

"The bill adds additional restrictions on state contractors, thereby resulting in less competition at the state and local levels and ultimately result in higher prices paid by governmental entities for goods and services."

Read more: Calif. Governor Vetoes Bill Barring Outsourcing

BPO Boom in India Causes Retail Surge

The booming BPO industry in India is causing other sectors to surge economically as well. The one that has benefitted the most has been the retail sector.

According to Sify.com:

Because of India's status as an outsourcing hub, more and more organisations in the US and Europe are relying on India not only for IT Infrastructure Management services but also for R&D, telecom, banking, diagnostic, pharmaceuticals and automotive outsourcing.

As such, young Indians, between 20 and 24 years, are finding jobs straight out of college. They have disposable income that's totally discretionary and about 20 to 30 per cent higher than prevailing wages.

Read more: Retailers cashing in on BPO boom

Outsourcing Improves Product Quality and Production

According to a survey by the Earth Institute at Columbia University, production of business processes outsourced increased by up to 25%. Also included was a finding that workers in Asia and India have better skills than their American counterparts and therefore the quality of the product is improved as well.

From Sify.com:

The institute said 82 per cent of the companies currently outsource jobs, and 70 per cent said production of the business processes they outsourced abroad was up 5 to 25 per cent. Sixty-two per cent were looking to outsource business processes to countries other than India, the report said.

"Companies, including offshore pioneers such as General Electric, Nortel Networks and Citibank, found that actual cost savings, which remain the primary reason for outsourcing, were achieved by 67 per cent of the companies to the tune of 5 to 50 per cent," said the report.

Read more: Outsourcing improves production by 25%

According to a Business Week report, the declining wage gap between the U.S. and Asia is diminishing the cost effectiveness of outsourcing.

From HindustanTimes.com:

The weekly says that the reports that General Electric (GE) plans to sell its entire business-processing operation in India for USD one billion raises the "interesting question of whether the offshoring phenomenon may be peaking."

Read more: Cost advantage of outsourcing diminishing: Report

Government Outsourcing Report Has Limited Data

The new report from the Government Accountability Office concludes that there is limited data on offshoring to make a firm conclusion on its impact on the U.S. economy.

According to CNET News.com:

In a report released Wednesday, the Government Accountability Office said imports of business, professional and technical services increased by 76.8 percent, from $21.2 billion in 1997 to $37.5 billion in 2002. On the other hand, the report said, in 2002, U.S. investments in developing countries that supply offshore services were small, compared with those in developed countries, and most services produced abroad are sold primarily to non-U.S. markets.

"U.S. government data provide some insight into the extent of services offshoring by the private sector, but they do not provide a complete picture of the business transactions that the term 'offshoring' can encompass," the report said.

Read more: Study: Government data limited on offshoring

Unctad: Developed Nations Benefit More from Outsourcing

The United Nations Conference on Trade and Development (Unctad) says that developed nations such as the United States benefit more from outsourcing than do developing nations such as India.

According to newkerala.com:

The report said during the past decade, India's export of software and other services jumped from less than $500 million to $12 billion in 2003-04 and the export intensity of its software sector rose from 58 percent to 78 percent.

The share of these services in the country's total exports also rose from a mere three percent to 21 percent between 1996 and 2004.

The report, nevertheless, said that information technology-enabled services (ITES) emerged as an increasingly important component in the country's export basket, rising from $600 million in 1999-2000 to $3.6 billion in 2003-04.

Read more: Developed nations gain more from outsourcing, says Unctad

Security Issues with Outsourcing

While outsourcing IT to India or China may prove to dramatically cut costs, the same deal may also jeoparadize security, according to experts at the Gartner IT Security Summit.

From Computerworld:

"India is seen as an answer when outsourcing applications but is actually a problem in the security space," said Gartner India research vice president Partha Iyengar while moderating a panel on offshoring security.

At issue is not so much the security that outsourcing service providers use to protect companies' systems -- such as firewalls and data backup -- as it is the cultural differences, Iyengar said. For instance, standards of privacy are often looser in India because it's a close-knit society where, say, reading someone else's e-mail wouldn't be considered much of an intrusion, Iyengar said.

Read more: When outsourcing, don't forget security, experts say

Analysis of John Kerry's Outsourcing Plan

U.S. Senator John Kerry plans to end tax breaks for companies that outsource jobs offshore. Some argue over how effective this plan would be in keeping jobs in the U.S.

From Computerworld:

The Kerry plan, outlined online (download PDF), doesn't spell out many details, but Kerry advocates eliminating "special tax breaks" for U.S. companies with overseas subsidiaries. Under current U.S. tax law, U.S. companies with overseas operations can defer paying taxes on income at those operations until they bring the profits back into the U.S.

The Kerry campaign has criticized President George Bush for "encouraging" offshore outsourcing. Bush's advisers have suggested that limiting offshore outsourcing may hurt the U.S. economy in the long term.

Read more: Kerry's plan on outsourcing faces mixed reviews

India's R&D Outsourcing Market to Top $8 Billion in 2010

The market for Research & Development outsourcing to India will grow from $1.3 billion in 2003 to over $8 billion in 2008, according to Ireland-based Research & Markets.

From rediff.com:

The report looks at various aspects of R&D outsourcing industry in India, with special focus on the R&D outsourcing scenario in the IT, telecom, auto, research and pharmaceuticals sectors. Estimates for R&D outsourcing in India, with forecasts till 2007 for the IT, telecom and pharmaceutical sectors, are also provided.

The report examines the key drivers and inhibitors impacting the growth of R&D outsourcing, prospects for growth and key success factors. Success stories of some of the major companies like Texas Instruments, Microsoft, Cisco and GE, who have set up large R&D centres in India, are also provided.

Read more: The next big opportunity: R&D outsourcing

AFL-CIO Launch Outsourcing Database

The American labor union AFL-CIO has set up a new campaign to combat outsourcing. They have launched a database which will track jobs sent overseas.

According to the Seattle Post-Intelligencer:

Richard Trumka, secretary-treasurer of the AFL-CIO, said the new Job Tracker database will help workers know which companies are exporting jobs, "and they can use that information to fight back."

Visitors to the Web site (www.workingamerica.org) are urged to write President Bush and their senators and House members to tell them to stop the export of jobs overseas. To make that task easier, the Web site will fax a pre-written form letter automatically if visitors provide their name and address.

Read more: Union sets up database to track job outsourcing