The anti-BPO illogic

BEATING THE STREET

India's penetration into the BPO market is small though it's growing fast. This makes it difficult to understand why outsourcing has been demonised to the extent it has.

There are over 50 anti-outsourcing bills pending in US legislative bodies as white-collar professionals lobby to "keep jobs in the USA".

John Kerry has jumped on the bandwagon in his presidential campaign, describing CEOs of outsourcing US companies as "Benedict Arnolds" (a colonist who fought on the British side in 1776 and hence, an American synonym for traitor).

This is odd. Kerry is a wealthy man because his wife Teresa is heiress to millions from multi-national Heinz. Heinz outsources manufacturing across 50 nations. But obviously there is a divide in Kerry's head about the outsourcing of services versus manufacturing.

There are intemperate, unprintably racist messages on display at all sorts of fora about Indians stealing jobs "" it's never Bulgarians or Filipinos. Some of the published stuff is quite scary "" including death threats in letters to Fortune.

The anti-BPO noise is illogical. For example, an American programmer working for Siemens was replaced by an Indian and proceeded to complain about this iniquity. Siemens is a German company "" the American was a beneficiary of outsourcing before he became a victim. What's sauce for the goose, etc?

Nasscom has tirelessly lobbied to get the pro-BPO arguments on record. Few jobs have been lost to Indians "" it could even be argued that the sectors where outsourcing is rife, such as financial services, have actually seen job growth in a scenario of poor US employment.

US MNCs have very little choice. If they don't cut costs by outsourcing, they will rapidly become uncompetitive versus companies that do. In which case, many more US jobs will be lost as these shut down.

Outsourcing depends on labour arbitrage. A vast range of services can be performed at the same standards in terms of time and quality anywhere.

While US per capita income remains at roughly 24 times that of Indian per capita, Indians can undercut US billing rates. Until national incomes come much closer to equality, this arbitrage will continue. (The same logic holds for Bangladeshis gathering Indian harvests.)

But it's obvious that logic is not going to be a useful weapon in this war of words. The people who see their jobs at risk are highly-paid, articulate professionals. If they can't make their case by cold logic, they will use nationalism to make their lobbying more effective.

That's a potent weapon in US election year. For that matter, it's used often at the sub-national level in India. We heard exactly the same "logic" when the Shiv Sena and the Asom Gana Parishad demanded that "outsiders" be banned for sitting from railway recruitment exams in Mumbai and Guwahati, respectively.

BPO growth projections must now be reworked in terms of political risk and so must BPO business models, which will have to circumvent those risks.

We must assume non-tariff barriers of some nature. I doubt that the reality in this industry circa 2014 will have much resemblance to current projections.