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Offshoring Disproportionately Effects the U.S.

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Much of the talk about offshoring is about India and China. With good reason too. India and China both have over 1B people each, and if you think about the “law of large numbers” even a small increase in skills translates into a huge competitive advantage against other industrialized nations. The real story however, is twofold. First, the offshoring of future industrial capacity can easily overtake anything the Americas and Western Europe can dish out over just about any time projection. Second, offshoring of services really only effects the English speaking countries.

Let’s not spend time on the first point. It’s rather obvious that China and India are developing quickly, and I don’t think anyone is arguing the evidence. The real argument is about current and future capacity compared to other industrialized nations. While China and India have a long way to go, even if they each only bring 25% of their populations to a “middle class” level of income and capability, we’re talking about a 500M workforce. Comparatively the U.S. has under 175M active workers. So a small percentage gain in productive workers in China and India create huge impacts on the global economy.

Point number 2. If we look at the jobs we’re most fearful of losing, it’s the service industry jobs. Let’s face the facts, industrial and manufacturing jobs are easily outsourced and offshored. These jobs are not highly valuable because they can be programmed into a machine or given to someone in another country for 5% the labor cost. The jobs we’re worried about losing are the service industry jobs which are heavily being displaced to India.

The fact is that India has the greatest chance of becoming the next world economic power because they already speak English. We do fear manufacturing going to China, but hey – that’s just manufacturing. But when we talk about India’s capabilities to take over our call centers, IT programming, and other white collar type jobs, this is serious business because these are high paying jobs that require a high degree of thought and quality.

Is Japan or Spain worried about their IT help desks getting offshored to India? Not nearly as much because there is no natural capacity in India for that work in those languages. Even if there was a population that could be easily trained to transact business in those languages, the reprogramming of software to accommodate language differences would be a nightmare. So the cost of offshoring functions to India or China is simply not as good as it is for English speaking countries.

So yes – offshoring certainly is a global phenomenon that effects all countries. But the high value jobs are most at risk in English speaking countries, and India with it’s natural capabilities to transact business in English is in a great position to capitalize not just in the industrial, but also the service industries.

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2 responses to “Offshoring Disproportionately Effects the U.S.”

  1. Andrew Marritt Avatar

    A good summary but I think your article should be titled ‘Offshoring Currently Disproportionately Effects the U.S.’

    You look at offshoring only from an Anglo / English perspective with India as the main recipient. Whilst this is obviously a key part it is far from the only. There is, for example, offshoring between German speaking countries & centres in Central Europe.

    English / India has been a lead example but other locations are rapidly developing. In business terms it may always be the lead in absolute terms due to the size of opportunity but it is likely in relative terms the lead will likely reduce over the coming years.

  2. Colin Kingsbury Avatar

    I’m calling bull and bull on these unless you have more numbers with which to back them up.

    For either China or India to bring 25% of their populations up to a global middle-class standard of education or competence will likely take 2-3 generations, assuming nothing occurs to radically derail the global prosperity train like a severe economic or political crisis. The 1997 SE Asian currency meltdown, for instance, effectively set Thailand, Malaysia, and Indonesia back ten years. We also see this in India, where they graduate people with degrees in computer science but who have less experience doing practical programming work than many high school students in the US or Europe.

    Some would even go so far as to say that China manipulates exchange rates in a way that impoverishes their own people but increases the amount of hard currency exchange flowing into the central bank’s coffers, which is very useful if you’re the government.

    As to the point about this being an English-language thing, I’d ask whether that has more to do with English qua English, or the fact that the English-speaking countries share a system of relatively laissez-faire trade and general economic policy that makes outsourcing and offshoring much easier to do in any language. While French, Spanish, and Chinese all have large diaspora, none have quite anything like the “Anglosphere” of ex-colonies that have retained most of the culture and machinery of the mother country