Outsourcing, offshoring, extreme offshoring, near shoring, rural outsourcing – these are the terms coined by tech savvy media people or media savvy tech people. In reality, outsourcing really doesn’t exist. All there is to outsourcing is pure economics. We cannot take economics out of outsourcing.

The best place to do it is where the labor is cheaper

India’s outsourcing story started with Patni computers where a husband wife duo started a shop in the US where two teams were sitting in two different rooms. The instructions was passed on between the rooms using just a paper and pen. Surprisingly that model worked and was replicated with the rooms being in two different countries. This was in the 1970s.

In the mid-90s the US needed people, lots of them, to eschew the Y2K bug. There are only two places to find lots and lots of people. China and India. China didn’t pick up the call, India did and thus was born India’s IT industry and America’s so-called outsourcing. Once a company (American) gets a taste of cost-effective labor and good returns, there is no going back.

Of course, at the same time were born the shenanigans like ‘you have been Bangalored’ or ‘Indians are stealing American jobs’. Whatever the case is, no one has stolen anyone’s job. This economic phenomenon was inevitable. The only barrier between countries is communication. Advances in telecommunications, and modern day tools like email, instant messaging, screen sharing, video conferencing and tele-presence made rapid strides in terms of communication.

American companies started looking at India as a destination because of its cost-effectiveness and large English-speaking population. The cost effectiveness is eroding as Indian employees are demanding better wages. Growing at 10% per annum, some of the Indian salaries are comparable to the global standards. There might be a state of equilibrium where getting a job done might cost the same in India and the US. That is at least few years away. Until then the hunt for the next cost-effective destination is on. China, the Philippines and Vietnam are the immediate choices people are raving about. Can Indians talk of their jobs being stolen by Vietnamese?

Off late, there is one more dynamic which has come in to existence. This is still a noise and not yet a signal. Legal jobs which came from the US to India are now going back to the US. A $300 per hour job is turned in to $60 job with this back and forth. It is more economics at work than outsourcing.

Outsourcing is actually redundant, but outdated seems more politically correct. Not that I care.