India says outsourcing jobs good for U.S.

NEW DELHI, Dec. 31 (UPI) -- In 1999, Microsoft Chief Executive Officer Steve Ballmer thought India was plagued by high levels of piracy and was not the best place to hire new staff.

Five years later, Ballmer is a changed man. When he came to India in November, Ballmer was stunned by the growth of India's information-technology sector.

"I was on holiday here in 1983 and on a business visit in 1995, but what I see today is just stunning, not only in terms of the number of engineers but also in terms of the market," he said.

Microsoft India has about 800 employees, whom Ballmer describe as smart, capable and innovative. The southern city of Hyderabad is home to Microsoft's India campus -- it's largest outside the United States.

"I am quite sure of hiring hundreds over the next 12 months," Ballmer said.

Microsoft's interest in India's IT industry is just the tip of the iceberg. The world's biggest software developer also depends on India's skilled labor to handle troubleshooting and customer-care calls from across the world.

Microsoft is among many U.S. companies that have set up back-end shops in India to cut billions in costs by hiring skilled but inexpensive workers in India and other countries. Citibank N.A., British Airways, General Motors, IBM, Intel and Hewlett Packard are some of the leading multinationals that have routed customer-care calls to Indian cities.

The issue of outsourcing, though profitable in India, has threatened to chill warm bilateral relations between New Delhi and Washington because the country remained an increasingly popular destination for U.S. companies, which cut their jobs in the United States. That prompted some U.S. lawmakers to threaten firms that outsource their jobs to countries like India with tax disincentives. And though U.S. President Bush, who backs outsourcing, won the November election, the issue dominated the campaign.

Washington has also used the issue to urge India to open up its markets.

"The American people will find it less difficult to accept outsourcing if India helps generate more American jobs by supporting trade liberalization in the World Trade Organization and further opening its markets to U.S. exports," U.S. Secretary of State Colin Powell said in India earlier this year.

Indian Prime Minister Manmohan Singh said the country does not see outsourcing as an obstacle in its relations with Washington and hoped an objective view will emerge on the backlash against it in the United States.

"We do not see outsourcing as an India-U.S. issue," he said in an interview to the Financial Times. "I do hope that objective view will emerge, which will see this as a win-win situation for both countries, and, in fact, for all countries involved."

India's Finance Minister P. Chidambaram said Washington would ultimately gain from outsourcing.

"I think this dispute about outsourcing is highly exaggerated," he told the BBC. "For every dollar that is outsourced by American business to India, U.S. insources at least $10 of business from India."

He added: "What do they (U.S.) outsource? They outsource low-end jobs, call centers, and help centers. What do they insource? They insource orders for capital goods, for technology, for design, for brands, for trademarks, for intellectual property."

He said the gains of U.S. business through insourcing far outweighed losses through outsourcing.

"Believe me, U.S. business knows that it can remain competitive only if it outsources low end jobs."

A report by experts from the International Monetary Fund also said India-bashing on the issue was unjustified, adding Britain and the United States have the largest net surpluses in business services.

Mary Amiti, an economist, and Shang-Jin Wei, head of the trade unit in the IMF's research department, in an article in Finance & Development, an IMF publication, said in reality, the growing outsourcing of services is simply a reflection of the benefits from the greater division of labor and trade.

"But in the aggregate, outsourcing does not appear to be leading to net job losses," they said. "Jobs lost in one industry often are offset by jobs created in other growing industries."

"Our results from the U.S. and U.K. studies suggest that service outsourcing not only would not induce a fall in aggregate employment but also has the potential to make firms and sectors sufficiently more efficient, leading to enough job creation in the same broadly defined sectors to offset the lost jobs due to outsourcing," they said.

U.S. business service imports as a share of gross domestic product have almost doubled in each of the past several decades, from 0.1 per cent in 1983 to 0.2 per cent in 1993 and 0.4 per cent in 2003. India, reported to be the recipient of major outsourcing, itself outsources a large amount of services.

The International Labor Organization said contrary to the general perception India was a major beneficiary of outsourcing, the country was one of the largest outsoucers in the world.

"India has turned out to be the fifth largest economy in the world, which outsourced IT and business services to the tune of $11 billion by the end of 2003-04 to the United States, the United Kingdom, Germany and Japan," ILO deputy director M. Bussi said at a meeting in New Delhi.

He said India spent 2.4 percent of its GDP in the outsourcing of IT and business services as against the United States where outsourcing accounted for 0.4 percent of GDP last fiscal. The United States spent $41 billion for outsourcing in 2003-04, followed closely by Germany at $39 billion, Britain at $35 billion, and Japan at $16 billion, he said.

China followed India in outsourcing to other countries, spending $8 billion in the last fiscal.

As of now, Indian call centers are handling everything, from tracking a DHL packet, to transcribing a medical report to Windows troubleshooting to booking tickets on British Rail. Despite the backlash in many countries, more companies are expected to move to Indian in the coming years.