Outsourcing Is A Vital Business Strategy For Corporates, Says US Consultant

Written by Malcolm Subhan | Updated: Jun 12 2004, 05:30am hrs
Indian business must often compare its economic performance with that of its Chinese counterpart. Certa-inly comparing Europes economic performance with that of the United States enlivens many a business conference here, and is a regular theme of the speeches by business leaders of the 25-nation European Union (EU).

A leading American business consultant broke fresh ground here earlier this week under the banner of globalisation. A frequent visitor to China, and having spent two weeks in India during the general elections in April, he opened up new vistas for his Belgian audience with a speech that covered not only the EU and the US but also India and China.

Outsourcing was the thread which Harry Harris, President of a California-based consulting group, used to tie together developments in three continents. An ardent defender of the global economy, he insisted that outsourcing was an essential business strategy for companies that wanted to remain competitive in an age of globalisation.

Dr Harris, who was speaking at a meeting organised by the US embassy to Belgium, explained why American companies had an edge over their European counterparts when it came to outsourcing. They began to outsource half a century ago, sparking a political storm.

Admittedly, it was within the US, with textile mills located in the New England states shifting production to the southern states in order to take advantage of their lower wages. A well-known shirt manufacturer even went as far south as the Caribbean island associated with the US, Puerto Rico. For Dr Harris, the rise and rise of the Chinese economy, and now the Indian economy, means that US and European companies have to outsource if they want to remain competitive.

Europeans are all too familiar with the economic phenomenon that is China, of course. Mention Asia to a European business audience and China immediately pops into their minds, according to the head of a local think tank, whose membership includes American and European multinationals. Dr Harris startled his audience by referring to China and India in the same breath.

Dr Harris, who has visited more than 100 countries to study global management, told this correspondent that during his recent visit to India he had been impressed by the changes he found in the great urban centres, such as Mumbai. Their rapid economic development was in striking contrast, however, to the poverty of the north-eastern regions he visited.

Dr Harris was categorical in his reply when asked whether India or China would emerge the winner. It was obviously China, a place you can do business. This was partly because China had a 20-year headstart over India in reforming its economy. India would have to grow at an even faster rate in order to catch up. China, meanwhile, was changing all the time, moving away from cheap, imitation products to quality goods.

Even so, India remains an important outsourcing destination. Nearly four out of 10 outsourcing projects go to Asia, and to India in particular, according to a study to be released next week by the Geneva-based UN agency, UNCTAD.

European countries remain the main target destinations for European companies, with Poland, Hungary and Romania attracting the most outsourcing projects when it comes to Eastern Europe. Dr Harris noted that German companies were slowly outsourcing to Eastern Europe. Siemens, for example, had just announced that it is moving 2,000 jobs to Hungary.

Companies located in the EUs southern member states Italy, Spain and Portugal face a linguistic problem when it comes to outsourcing. Some are now beginning to explore the possibility of outsourcing to countries in Latin America, such as Brazil, and to Mexico.

Dr Harris, who is president of the San Francisco-based Global Management Associates, insisted that outsourcing was not a zero-sum game, with losers as well as winners. The Internet had made it very easy to export jobs. He cited the case of American hospitals that send X-rays to India for analysis by Indian doctors. But he also noted that Indian companies were investing in the US.

While Northwest Airlines had moved aircraft maintenance to Asia, a Chinese airline was having its fleet of Boeing aircraft serviced in San Francisco. A study of American companies concluded that they had created 2.8 million jobs abroad against 5.5 million jobs in the US in the last 10 years.

Dr Harris noted that outsourcing was a political issue in the US, although it seemed to have peaked in March. For the Democratic presidential candidate, John Kerry, American companies that outsourced were traitors. The German Chancellor, Gerhard Schroeder, was beginning to voice similar sentiments, according to Dr Harris, who had just come from Germany.

Outsourcing has yet to emerge as a political issue in Belgium. A Belgian member of Dr Harris audience nevertheless challenged his view that outsourcing was a necessity if European companies were to remain competitive. He argued that Finnish companies were doing very well, without recourse to outsourcing. Dr Harris confessed he had not looked at the situation in Finland. However, tongue-in-cheek, he noted that Nokia was not doing quite as well as before.

Dr Harris referred, but only in passing, to another element of American policy that had contributed to the underlying strength of the countrys economy: its open door policy as regards professionals in the IT and other sectors. During a recent visit to the research laboratories of Texas Instruments in the US, he noted that a high proportion of the names on office doors were Asian, many of them Chinese and Indian.

Over coffee, some Belgians admitted that their country needed to loosen up its restrictive visa policy. But the feeling is not shared by government officials, as Indian professionals working in this country will tell you.