India is now outsourcing outsourcing

3 October 2007 at 2:52 pm Leave a comment

Brian writes:

The New York Times recently reported that India is now outsourcing outsourcing- a number of large Indian companies are hiring workers and opening offices not only in developing countries, but even in Northern American cities in some cases. The looping of outsourcing back to the developed West where average costs of supplies and wages are much higher can be mind-boggling as it appears to be counter-intuitive to the conventional wisdom of cost minimization. But large companies like India’s Infosys Technolgies and Wipro are thinking beyond just wages and cost reductions. By gaining a comparative advantage in managing labor flows across continents, these companies are thriving to be “global matchmakers in outsourcing,” accumulating human capital that are crucial in serving local and specific knowledge to distant markets and clients.

The report illustrates the phenomenon but using an example of a company in the United States paying an Indian vendor 7,000 miles away to supply it with Mexican engineers working just 150 miles south of the US border. Now, outsiders may find it absurd for the company to outsource so far away for a service that is so close to home, but if the Indian firm can render the same service effectively at the equivalent or cheaper prices, then this transaction goes to show the lessening in importance of physical distance for many global service-based industries. With today’s communication capabilities, the world is perhaps flatter than we once thought. After all, nothing can really be that surprising in the world of outsourcing after that one Californian newspaper outsourced two journalists in India for reporting local news in fair Pasadena.

Entry filed under: economics, global.

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