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Outsourcing a win-win deal

Indian investments in UK in recent years have been roughly equal to British investments in India, says Ronen Sen.

india Updated: Dec 25, 2003 21:34 IST

In the recent past we witnessed some demonstrations of concern about job losses in Britain, as a result of plans by various British companies to outsource some of their work to India.

A few of the concerns voiced were perhaps understandable but, in my view most of the fears of outsourcing expressed were either misplaced or greatly exaggerated.

Global outsourcing amounted to $321 billion in 2001, and it is expected to grow at an annual rate of 14 per cent.

India accounted for three per cent of global spending on outsourcing last year, and this is expected to increase to six per cent this year.

According to conservative estimates, US companies saved $16 billion and British firms saved around £1 billion through outsourcing to India last year.

Last year 19,900 businesses failed in Britain, which was six per cent more than in the previous year. This trend can be arrested and reversed either by companies shedding jobs or freezing wages to stay afloat, or by outsourcing some of their operations and business processes to lower cost locations, and concentrating on core competencies.

There have been some allegations that outsourcing to India has involved exploitation of low-skill and under-paid workers. This is far from reality.

The overwhelming majority of Indian IT and call centre workers are graduates, and wages in these sectors are amongst the highest in India. It is ironic that while some labour organisations here fear labour exploitation in India, a constant complaint from potential foreign investors relates to what they perceive as unnecessarily stringent labour protection measures in India.

It is not just lower labour costs that are making India an increasingly attractive global location for outsourcing. It has been the experience of virtually every British, or foreign, company that savings in labour costs in India become secondary to the marked improvement in quality and consumer satisfaction.

This applies not just to relatively low skill operations like call centres, but higher value added services involving financial management, sophisticated software development, realignment and optimisation of total business operations and so on.

In these circumstances, the question is whether outsourcing is an option or compulsion for companies that wish to remain viable in an increasingly competitive global business environment.

In fact, an increasing number of major international companies are locating their centres of excellence and their global research and development centres in India.

In a globalised economy, one cannot reasonably expect unhindered movement of capital and free trade only in selected goods and services, and impose barriers in other areas that do not suit the short-term interests of some nations.

Countries like India do not need aid or handouts but greater market access in goods and services, not on concessional, but on an equitable and mutually advantageous basis.

Job creation is a two-way process. There is inadequate appreciation of the fact that Indian investments in Britain in recent years have been roughly equal to British investments in India.

India is the second largest Asian investor in Britain, after Japan. Over 440 Indian companies are based here and their numbers are increasing.

New investments from India are creating hundreds of jobs every year in this country. These jobs are created not only in IT but in pharmaceuticals, manufactured goods and other areas.

It will be our endeavour to further strengthen such a long-term partnership based on mutual benefit, between the world's oldest and biggest democracies.

(Ronen Sen is the Indian high commissioner to Britain).

First Published: Dec 25, 2003 21:33 IST