BPO units breathe easy after Bush win
Gaurav Chaudhary

With George W. Bush settling down for a second term as the US President, the debate on the outsourcing activity appears to have subsided--- at least for now. In the run-up to the elections, Democrat candidate John Kerry had argued strongly against outsourcing back-end work to developing countries such as India. He and many others argued that outsourcing back-end work to developing countries was giving rise to unemployment in the USA.

While it was not really visible in the public domain, there appeared to be considerable concern among Indian business process outsourcing (BPO) companies about the backlash and resultant loss of business in case Kerry had made it to the White House.

That was not to be and even if they are not saying so publicly, the BPO industry in India clearly appears to be relieved.

The National Association of Software and Services Companies (NASSCOM), the apex association of the software industry in India, has expressed the hope that the re-election of Bush would give a further boost to outsourcing activity.

"We are glad that President George Bush is back in office as we know his policies. After his re-election, we would see more announcements by companies on outsourcing," Nasscom President Kiran Karnik said after the election results were announced.

At present, software exports to the US from India account for a robust 68 per cent and are growing at healthy rate of 30 per cent annually.

"We are confident that with Bush getting re-elected, the growth momentum will continue," Karnik said.

Analysts feel that the run-up to the elections was characterised by strong anti-outsourcing rhetoric. This had resulted in a situation where many US-based MNCs were avoiding making any public statements about offshoring various back-end operations to India, even though they had clear plans of doing so.

But with Bush back as President, one can expect a slew of announcements by major US corporations on their plans to move back-end work to India.

Offshoring of software development and later, back-office and call centre services, has driven India's rapidly expanding service exports. During the past decade, the value of exports of software and other services jumped from less than $ 0.5 billion to $ 12 billion in 2003-04.

Over the years, India has emerged as a source of outward FDI on an average of $ 1 billion annually, which may be higher if international norms of definition are adopted. Transnational corporations (TNCs) have played a critical role in India's exports of back-office services. TNCs have provided capital, knowledge and expertise, new infrastructure, access to markets and fostered the formation of new companies, the report said.

For the TNCs themselves, the phenomenon is driven clearly by the principles of comparative advantage and cost effectiveness. The World Investment Report of the United Nations Conference on Trade and Development (UNCTAD) has pointed out that that GE Capital was saving $ 300 million annually by outsourcing services from India while giving employment to 12,000 people.

On the implications for home countries arising out of the offshoring phenomenon, the report said that this is not simply a North-South issue. "Offshoring is essentially a manifestation of a shift in production in response to comparative advantage. It offers all the advantages — and costs — of such a shift. It is not a zero-sum game, in which one party gains at the expense of the other party. On the contrary, it offers benefits to developed countries", UNCTAD said.