Call it cross-sourcing

Part of the problem with the phenomenon described so far as “business process outsourcing” (BPO) has to do with the use of the word “out”. It has a geographical and a national connotation. How can a globalised company be “out-sourcing” anything at all. Whether it be technology, raw material or human skills, all global companies constantly source their needs in the cheapest possible way. Hence, the business of buying globally to be able to sell globally should in fact be described as “cross-sourcing”. This terminological difference alone can take care of at least part of the political controversy surrounding BPO in the US.

When US companies ask Indian professionals to perform a task for their clients, they are merely reducing company costs and increasing profits. Since they end up paying the taxes on these profits earned to the US government, increased corporate profits end up benefiting the US. There would of course be some job loss in a particular area, but this would be made up by new employment in others. This is what happens with trade in goods as well. When India imports US goods, the producers of actual or potential substitutes could lose out. Yet, consumers benefit. Thus, outsourcing is in fact not a favour done to the country to which the job is getting transferred but in fact a favour done to the country that is benefiting from this access to cheaper services.

When US politicians understand this simple economics they will pursue sensible policies. We should, therefore, welcome the statement made by US Secretary of State Colin Powell in New Delhi that the US must live with the consequences of outsourcing. However, he was wrong in linking outsourcing to trade liberalisation in India, since the latter is pursued within the multilateral framework of the World Trade Organisation and India is committed to implementing all WTO agreements. US politicians must resist the temptation of reviving antiquated “reciprocitarian” trade ideologies based on bilateral quid pro quos in a globalised world in which multilateral rules apply to trade in goods and services. India has opened its markets and allowed the share of imports in national income to increase. In fact, the imports of goods and services account for 15 per cent of GDP in India, compared to just over 12 per cent for the US, showing that India is more open to trade than the US. That, however, is not the key issue at stake. The key factor is that US companies are becoming globally competitive by outsourcing some of their business to India and it is they who would be hurt first if the US government cuts off their access to Indian skills.