Friday, August 29, 2003

The Outsourcing Problem-One of the things that we went over in my International Finance class is the idea that if you can digitize a product, it doesn't matter where you produce it, since you can zap it around the world in seconds. We've seen Papa Blog frequently riffing on that, but the most recent bloggage that caught my eye was from Illinigirl. She links to a Buisness Week article on the topic. This is an big issue in computer programming, where a good crop of Indian programmers have made Bangalore the Subcontenantal Silicon Valley. If a Bangalore guy can do as good a job at half the price of a Sunnyvale guy, it makes economic sense to farm it out to India. The Business Week piece mentions accounting work being farmed out to Filipino bean-counters; if you can put the data onto a Excel file, it doesn't matter where the guy working with it is. Even telemarketing and tech support can be farmed out as well; if the gal on the phone can speak solid English and can help you fix the problem, it doesn't matter that she's halfway around the world. However, this outsourcing can work both ways. If Americans have expertise in a field, firms from other countries can farm out the work here. Our software firms can sell worldwide and our financial services, insurance and media firms can do business around the world while still staying put here. Two things that can mitigate against outsourcing. The first is that the person has to have expertise in it's American application. Things like law might be harder to outsource, since foreign lawyers would have to be trained in American law to be helpful. Tax accounting might be another area that will be hard to farm out. Secondly, if a job requires physical contact or person-to-person contact, international outsourcing might not work. Unless remote imaging gets real good, doctors or physical therapists will stay US-bound. Well-trained foreign doctors might move here, but that will at least have them spending money here. That factor is a good reason to keep the H1B visas at a high level. If we have a choice of having Bangalore come to us or the jobs going to Bangalore, bring the Indian code-jockeys here. That way, the programmer's salary is being spent in the US, and any companies and bright idea that come from the immigrants are done in the US and not elsewhere. Quite a bit of our high-tech economy was built by immigrants; for instance, Intel's Andy Grove is a Hungarian immigrant, and the founder of Hotmail, Sabeer Bhatia, is Indian. Outsourcing is a side-effect of a digital economy. It might mean lower salaries for some, but higher salaries for others. Creative destruction, anyone?

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