IBM and the Rebirth of Outsourcing
A couple of month ago, India’s chief finance minister may have made calls to the heads of IBM and several other large U.S. tech companies to tell them that the huge developing nation was hemorrhaging high-end tech jobs. Whether the call happened or not, looking at statistics from India it would be easy to see that the costs of outsourcing technology work to firms based there is dropping as unemployment in the country rises.
For a number of years, unions and members of Congress spent a great deal of time complaining about the number of U.S. jobs being sent abroad. The bitterness about the issue seems to have receded recently, especially as the recession has deepened and large American companies have been inclined to cut jobs as much or more than they have been able to export them. Perhaps with the economy losing about 600,000 jobs a month, the need for efficiency though outsourcing has become less immediate.
But, outsourcing may be making a big comeback as word leaked that IBM (IBM) would cut about 5,000 jobs in the U.S. and move the work to India. This may be the beginning of a new wave of exporting of American jobs to developing countries which have large pools of well-educated workers.
The decision to adopt a narrow focus on areas such as finance and accounting is a sensible one. Sri Lanka, with a population of around 20 million people, cannot hope to match the all-round capabilities of India (which has a population of well over one billion) but it does have a significant labor pool of qualified accountants waiting to be tapped. According to figures from the Information and Communication Technology Agency (ICTA) of Sri Lanka, approximately 50,000 Sri Lankans qualify as accountants each year.
Despite these positive qualities, there is much work to be done before Sri Lanka can be considered a major outsourcing location. Competition among nations has never been stronger, with locations in China, Mexico, the Philippines and the Czech Republic, to name but a few, proving themselves capable of delivering high-quality low-cost services.
As well as competition from other nations, Sri Lanka must contend with a number of other challenges that could retard growth. The first relates to infrastructure; telecom costs in the country are high when compared with the rest of South-East Asia, which can reduce the country’s cost advantage over its local rivals. Furthermore, its IT and BPO industry is currently heavily centered on the Colombo metropolitan region and there are question marks over the ability of second tier cities to support this kind of work.
