Senator John Kerry would do well to take a close look at a special report put out by the US Chamber of Commerce titled ?Jobs, Trade, Sourcing and the Future of the American Workforce.? It may be difficult for Mr Kerry to change mid-course during his election campaign to follow the compelling argument the report makes in favour of outsourcing. However, one hopes that if he does make it to the White House next year, he would allow the report to inform the policy choices he makes on an issue on which the ongoing controversy in the US has been blown out of all proportion.
One need not go into the details of the report to argue why outsourcing is good for the US economy and its businesses. Its conclusion is good enough: ?The evidence is mounting that worldwide sourcing, while painful to affected employees, will produce net benefits to Americans in terms of higher productivity, lower prices, better jobs, new export markets, stronger companies, and higher stock prices.?
No less important than the argument is the fact that it is being made by the leading business chamber of the US, and can be seen as the collective stance of leading US companies. It is clear, therefore, that Indian companies worried about the outcome of the current political debate in the US need not overstate their case, for when it comes to the legislative crunch, they will have a powerful local ally. And this ally will speak not in defence of Indian companies, but so as to ensure that US companies do not lose the competitive edge they derive from outsourcing.
The related message that comes out loud and clear is important for us in India. And this is that a defence of outsourcing tantamounts to a strong defence of the theory and practice of free trade. In trade, both the trading partners are supposed to gain as they leverage their competitive strengths for mutual gain. This is precisely what explains why outsourcing benefits both India and the US.
Indian companies gain business as they deliver better quality at lower ends of the value chain in the activity being outsourced at a fraction of the cost. US companies gain not only because they reduce their costs and stay competitive, but also as this allows them to focus on creating new value for their customers through innovation. Indeed, outsourcing allows US companies to sustain their global leadership and market shares in the world economy.
The report rightly states: ?As is true for trade overall, worldwide sourcing in services brings more business and jobs in the US than it carries away from the US.? I wish Indian companies also raise their competencies to levels where they can begin outsourcing back-end work to lower cost producers and concentrate on becoming competitive at the upper end of the value chain. If they aspire to become global leaders, they must learn from the Americans the benefits to be had from outsourcing.
By arguing for free trade in services, the US chamber also outlines a stance that would be useful in the Indo-US dialogue in the World Trade Organisation. I hope our negotiators in the commerce ministry read the document carefully, for it raises the hope that at the end of the day, there are strong forces in the US that may come to the defence of a free and fair multilateral trading system.
This apart, there is one message from the report that provides clues for adding a hitherto missing dimension to the Indo-US bilateral dialogue. And this arises from the ongoing demographic transition in the US. The rapid ageing of the US population is forecast to create a shortage of 10 million workers in the US by as early as 2010 as around 77 million baby boomers begin retiring in 2008. By 2020, while the US population will increase by only 18 per cent, the number of retirees will increase by 100 per cent. This would mean less and less number of earners would bear the burden of providing for social security and medicare programmes. The report cites projections that by 2019 both these programmes will begin collapsing as there will not be enough money to support them.
Therefore, the US has to increase immigration of trained workers from other countries to sustain its economic strength and entitlement programmes. Not surprisingly, the US Chambers? action plan suggests that the US ?Congress should pass immigration reform that creates guest worker programs, establishes an earned pathway to legalization for undocumented workers, and expands H1-B visas and visa programs to meet specific skill shortages.? As India is one of the key countries that can meet the US requirement, it may help if foreign offices of both the countries work out a structured plan to meet the impending skill shortage in the US. And this plan would be based not on India?s interest, as is often argued and wrongly so, but rest strongly on mutual advantage.
The author is an advisor to Ficci. Views expressed herein are personal