Question

 

In the last decade, tens of thousands of IS/MIS jobs in the United States have been outsourced to India, as well as other countries. The three leading Indian outsourcing firms (Wipro, Infosys, and Tata) are growing at about 10% annually, and currently employ about 300,000 IS/IT workers in India, most of whom are working on outsourced projects from the United States, and Europe.

Large American global technology firms like Cisco, Microsoft, and IBM have made significant investments in India. IBM has created seven centers in India, and employs over 150,000 Indian

workers in 2012. Microsoft has over 5000 employees in India working on products at all stages of the lifecycle from research and development, to support services. Cisco has 7,000 employees in India. Accenture, one of the world’s largest IT and business consulting firms which has a large and growing practice called “business process outsourcing” and “management outsourcing,” has over 74,000 employees in India working diligently to encourage firms around the world to outsource to India, or other low-wage countries. At the same time, large outsourcing firms like Wipro and Tata send over 100,000 IS workers to the U.S. every year.

There are many reasons that outsourcing to India and other areas has grown so rapidly. Labor costs in India are 10%-20% of labor costs in the U.S. A $60,000 a year programmer in the United States can be employed in India in 2013 for about $8,000-$10,000, and that programmer will live comfortably. Second, the Internet has made it possible and inexpensive to coordinate and manage far flung teams of employees. Third, Indian infrastructure has improved to the point where it can support global business operations (although there are exceptions). Fourth, India and China with 1 billion+ populations and nearly 8% annual GDP growth rates represent significant investment opportunities for American and other global firms. Most investments in China are not made for their outsourcing potential, but for the chance to participate in the growth of China’s domestic and export markets. In their own right, India and China are the economies which will grow twice as fast as the U.S. economy in the next decade assuming existing trends continue.

All of this outsourcing would seem to paint a dim picture for IS/MIS careers in the United States.

One would expect thousands of IS/MIS workers out of a job, and investment in systems shrinking. Oddly, after a decade of significant outsourcing, unemployment among American IS/MIS workers is half that of the labor force average of 7.6 % in 2013, and is lower than unemployment among all college graduates and professionals of similar educational levels (about 3.7%). The estimated unemployment rate among IS/IT/MIS workers is less than 3.2%. Whatever the impacts of outsourcing, it clearly has not led to widespread unemployment among U.S. IS workers. Why not? Oddly, despite all the outsourcing of IT work, investment by U.S. businesses in information technology and systems has expanded in the last decade at an extraordinary rate of about 5% annually (more than twice the rate of growth of the economy as a whole).Investment in information technology, systems, hardware, software and telecommunications equipment was $540 billion in 2012, 52% of all capital investment in the U.S., and up from $366 billion in 1998 (Bureau of Economic Analysis, 2013). Employment levels in the IS/MIS careers and occupations have also expanded in the U.S. over the last decade at about 5% annually. How is it possible that IS/MIS outsourcing can be proceeding at a very rapid rate, and growth in IS/MIS careers and investments is expanding? The answers are speculative. One possible answer is that outsourcing has largely involved lower level, technical programming and engineering jobs and not higher level, high value-added jobs. As lower level jobs are outsourced, more higher value jobs replace them. Moreover the demand in the U.S. for technical programming jobs has exceeded the supply, leaving plenty of work for local U.S. technical personnel. Some jobs like technical support specialist cannot be easily outsourced. Higher level management jobs are much less likely to be outsourced because of the need for face-to-face interaction with suppliers, customers, and employees. Sales and marketing are difficult to outsource. Another possible explanation is that the growth of outsourcing has potentially lowered the costs of system development in the U.S., making systems less expensive to build, and therefore encouraging U.S. firms to invest more in IT/IS and systems in general. The cost of technology has also fallen significantly (in terms of cost/millions of instructions per second). These developments are the equivalent of lowering the price of capital (in this case IT capital). And high levels of IS investment in the U.S. have only encouraged more outsourcing (as well as domestic employment). One result is a virtuous circle: outsourcing leads to lower system development costs, which leads to more investments in systems, which leads to higher demands for skilled IS/MIS labor, some of which will be outsourced. There are of course brakes and limits on the outsourcing process which are beyond the scope of this paper.

 

(a) Why outsourcing to India and other areas has grown so rapidly?  

(b) How is it possible that IS/MIS outsourcing can be proceeding at a very rapid rate, and growth in IS/MIS careers and investments?                                                                   

(c) How has IS/MIS outsourcing impacts employment?                       

Answer 1

a) Why outsourcing to India and other areas has grown so rapidly?

There are many reasons that outsourcing to India and other areas has grown so rapidly.

• India has pool of unmatched pool of talented and skilled huma resources.
• Flexible pricing option is another major reason that results in significant cost savings for companies.
• Consistency in high quality services also makes India as a top outsourcing destination.
• Well-developed infrastructure and dttechnology including offers state-of-the-art telecom, ISP, and cellular networks is generally availabvle in all parts of cities and towns of India.
• Labor costs in India are 10%-20% of labor costs in the U.S. A $60,000 a year programmer in the United States can be employed in India in 2013 for about $8,000-$10,000, and that programmer will live comfortably.
• Second, the Internet has made it possible and inexpensive to coordinate and manage far flung teams of employees.
• Third, Indian infrastructure has improved to the point where it can support global business operations (although there are exceptions). Fourth, India and China with 1 billion+ populations and nearly 8% annual GDP growth rates represent significant investment opportunities for American and other global firms. Most investments in China are not made for their outsourcing potential, but for the chance to participate in the growth of China’s domestic and export markets. In their own right, India and China are the economies which will grow twice as fast as the U.S. economy in the next decade assuming existing trends continue.

How is it possible that IS/MIS outsourcing can be proceeding at a very rapid rate, and growth in IS/MIS careers and investments?         

Job outsourcing enables U.S. companies to be even more competitive in globalized economy. It helps them to deal in foreign markets with overseas branches. It helps in keeping low labor cost by recruiting people from lower standards of living. That results in lower prices of the goods they send back to the US.

However, there is also a negative impact that it results in US unemployment. The 14.3 million outsourced jobs are more than double the 5.9 million unemployed Americans. If all those jobs returned, it would be enough to also hire the 4.3 million who are working part-time but would prefer full-time positions.

Outsourcing has greatly involved lower level, technical programming and engineering jobs and not higher level jobs. As lower level jobs are outsourced, more higher value jobs replace them. Moreover the demand in the U.S. for technical programming jobs has exceeded the supply, leaving plenty of work for local U.S. technical personnel. Some jobs like technical support specialist cannot be easily outsourced. Higher level management jobs are much less likely to be outsourced because of the need for face-to-face interaction with suppliers, customers, and employees.

Sales and marketing are difficult to outsource. Another possible explanation is that the growth of outsourcing has potentially lowered the costs of system development in the U.S., making systems less expensive to build, and therefore encouraging U.S. firms to invest more in IT/IS and systems in general. The cost of technology has also fallen significantly (in terms of cost/millions of instructions per second). These developments are the equivalent of lowering the price of capital (in this case IT capital). And high levels of IS investment in the U.S. have only encouraged more outsourcing (as well as domestic employment). One result is a virtuous circle: outsourcing leads to lower system development costs, which leads to more investments in systems, which leads to higher demands for skilled IS/MIS labor, some of which will be outsourced. There are of course brakes and limits on the outsourcing process which are beyond the scope of this paper.

(c) How has IS/MIS outsourcing impacts employment?     

There is a negative impact of outsourcing as it increases U.S. unemployment. The statistical rate shows that 14.3 million outsourced jobs are more than double the 5.9 million unemployed people in US. If all those jobs are available to Americans, it would be enough to also recruit 4.3 million people who are working as part-time jobs but want to get full-time jobs.

Many foreign employees are recruited to help in local marketing, contacts, and language. If American workers are not satisfied to accept the low wages paid to foreign employees, American cpnsumers would have to pay hiogher prices for goods and services.

Implementing laws to restrict job outsourcing could result in making U.S. companies relatively less competitive. If they have to hire highly paid U.S. workers, they would increase prices for consumers.

The force to outsource may lead the companies to even shift their whole operation, including headquarters, overseas.