Outsourcing at the centre of our world

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Outsourcing is a widespread global practice, yet with unknown boundaries.

It has become a highly polarised subject, depending upon the perspective assumed. From the standpoint of a developed nation, there is plenty of fear for job losses implied which, at the basic level, means a net gain for the population of the country hosting those services, like India. A deeper analysis, however, reveals outsourcing as an intrinsic, and hence inseparable component of globalisation.

Thus, it's not a socioeconomic phenome non that can be reversed in a ben eficial way for both sides of the equation.

In the long term, the net gain of outsourcing is spread around the whole spectrum here's an immediate For the receiving end there's an immediate benefit. For the developed nation, there is no “real“ immediate benefit perceived, due to jobs being transferred elsewhere. So, what should be done with the displaced workers in developed countries? The answer lies in re-training. This huge and complex task is easier said than done, but there is no better way to approach this opportunity in disguise.

Once the developed nation’s displaced workers have been effectively re-trained, they should aspire for more complex and better paying jobs. Later on, when the dust settles, outsourcing ends ups being a win-win situation for everyone.

Outsourcing is a natural development of the competitive advantage principle so aptly conceptualised and defined by the eminent British economist David Ricardo (1772-1823) about 200 years ago. In my book Globalization, I refer to that principle as a smart way of making a constructive use of our differences. Outsourcing can also correctly be visualised as an evident manifestation of the creative destruction process, so characteristic of a free economy, developed and popularised by the brilliant Austrian economist Joseph Schumpeter (1883-1950).

Globalisation and punctual ramifications of it, like outsourcing, along with the technology revolution, have been transforming the nature of work and the distribution of the rewards from that work. Hence, the need to adapt and thrive under the new set of circumstances, at all levels: individual, organisational and national.

Five basic principles provide the conceptual foundation to a proper understanding of outsourcing: Competitive (comparative) advantages Creative destruction (arbitrage of opportunities) Price mechanism Resistance to change Constructive use of our differences As a fact of life, and as an undeniable reality, not all nations are endowed with identical natural or human resources. On one end of the spectrum, stand the most affluent nations with formidable levels of technological development with high living standards for their population, meaning high labour costs.

At the other end, stand the many poor, underdeveloped nations, with negligible technological advancement, yet with abundant cheap, unskilled labour.

In between those ends, there are all sorts of possible combinations, to different degrees. India fits in this middle ground.

In an increasingly globalised society, like the one we have been experiencing in recent decades, companies and entrepreneurs have been rediscovering the gigantic benefits being reaped from the noticeable contrast in resources among nations. Rediscovering must be emphasised because throughout the ages, mankind has always, and rightly so, been taking advantage of those differences. That’s what globalisation is all about. In fact, in essence, that is the foundation of international trade as well as all sorts of exchanges in services too. In Economics, it’s called a competitive (comparative) advantage. Scientists, scholars, professionals and businessmen in all

nations are constantly in search of a solid, lasting competitive advantage. That’s what competition is essentially all about.

The only valid and lasting way to progress is by intelligently applying each and every competitive advantage at reach; in other words, by making a constructive use of our differences as individuals, organisations and nations.

The hyperdynamic nature of the world economy does not guarantee anything forever. Thus, it is extremely important to always be ready, with the appropriate constructive attitude, to learn and become better by the day in our daily professional endeavours. That’s the only infallible formula to successfully cope with globalisation.

There are a myriad of success stories at the organisation and individual levels that are a living testimony of doing things the right way. The path for success in the global village is clear and well established. There is not, nor will there ever be, a single country wi th competitive advantages across the whole spectrum. That’s a virtual impossibility. Hence, if appropriately handled, both the global economy and outsourcing leave plenty of room for everyone, provided that the right flexible and dynamic attitude is ever present and honoured.

Dinosaurs did not adapt to the changing circumstances on our planet. As a result, they disappeared from the face of the Earth. Metaphorically, that’s a story of how we all must collectively strive to continuously learn and adapt to new circumstances.

India’s major competitive advantages lie in the fact that it is the second most heavily populated nation on the Earth. It is located in a vibrant region, with plenty of untapped opportunities. India can benefit enormously from large infrastructure projects. Naturally, this is a universal truth. However, the potential multiplying effect in developing nations is substantially higher that in developed ones.

And, above all, by being a developing nation, it means that the gap to be filled in India as development is achieved, on a relative basis, is enormous. In practical terms, being a developing nation means to be way behind the organisation and management standard practices of the developed world. Hence, there is a lot of catching up to do. Well-refocused poverty can be a passport to new prosperity and accelerated development.

That’s what Deng Xiao Ping in the late ’70s and Lee Kuan Yew a decade earlier had in mind when embarking their respective nations in a turbo-charged rate of growth that narrowed the enormous gap between their countries and the developed world. Singapore has already placed itself on the top of superb management in the world for over two decades, and counting. Singapore’s public management is so effective that with a relatively meagre 20 per cent of government spending, they have achieved schools and hospitals that are among the best in the world.

China, although still a very p o or nation, so far has been conducting the gap closing process in an unprecedented, highly effecti ve way. English as the major official language is a humongous co mpetitive advantage for India.

It is a most axiomatic truth that, in essence, poverty is not a cause but rather a consequence of insufficient organisation at best, or excessive chaos at worst.

The proportional relationship between the organisation level of any country and its corresponding wealth creation capabilities is almost 1:1.

The key to success in the global economy resides in truly learning and constructively applying our differences with other nations, in such a way as to complement each other in the most efficient possible way. It is of equal importance to learn from the best and imitate them in their virtuous ways and best practices, as it is also paramount to differentiate what makes us different and profit from it. Experience shows that the optimal solution seems to be in an adequate balance of those two elements.

(The writer is a global investment strategist based in Mexico City and author of Globalization: Opportunities & Implications. Martin Marmolejo has written this article exclusively for Financial Chronicle)

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