ECON 782 Managerial Economics For the BPO Industry

Answers:

Outsourcing may be defined as a phenomenon whereby certain type of work are carried out by the labour situated in the foreign country. This has been quite prominent as the world has become more globalised and hence more competitive. I used to work as the recovery agent in a call centre based in US which had many leading banks as the client. However, gradually there was a reduction in business as majority of the clients outsourced their operations to India. Eventually, the call centre also shut down as the labour costs in US cannot be compared with the prevalent labour costs in India.

India has the advantage in terms of a large English speaking population and has abundant supply of labour (primarily young people). These people tend to work for a fraction of the cost that is involved in running the operations in US. As a result, there is significant cost savings which are realised for the clients based in US. Gradually, this outsourcing has also expanded to a host of other services where the clients can be dealt with through voice call. As a result, outsourcing has become extremely popular amongst the US businesses. This is apparent from the fact that there is a booming BPO industry which has sprung in India and this provides direct and indirect employment to more than 2 million people. However, this has impacted job creation in the US which has been especially felt in the last decade as the US economy has had adverse impact (Wizard, 2017).

In the recent times, especially after the election of Trump as the US President, there have been clamours with regards to shift in policy so as to give preference to businesses creating jobs in US. This move is aimed towards the development of American economy and the people (PTI, 2017). This endeavour may be in the right direction, but it would fail to meet the stated objectives. This is because it does not make economic sense. Irrespective of the prevailing political climate in the US, there is no denying that there is a huge labour cost between the manpower available in US and India. If outsourcing is discouraged and businesses are advised to shift these jobs back to US, then there would be incremental cost which would be borne by businesses which would adversely impact their competitiveness. As the competitiveness of the business declines in the global marketplace, thus, these businesses would lose market share and in the long run may cease to exist (Historum, nd).

In this scenario, the loss of US jobs could be much higher coupled with adverse impact on the economy. In order to avoid the above disaster, the policy makers would need to provide some monetary incentives by way of tax cuts or otherwise to these businesses that do shift jobs back. However, this would put burden on the exchequer and too at a time when the economy is just emerging from the grim shadows of sub-prime crisis. Hence, more jobs creation in skilled labour category should be the focus rather than preventing outsourcing (Historum, nd). 

References

Historum (n.d.), What if outsourcing labor was illegal for American companies?, Retrieved on November 30, 2017 from https://historum.com/speculative-history/65262-what-if-outsourcing-labor-illegal-american-companies.html 

PTI (2017, March 3), Bill against outsourcing jobs reintroduced in US Congress, The Times of India, Retrieved on November 30, 2017 from https://timesofindia.indiatimes.com/world/us/bill-against-outsourcing-jobs-reintroduced-in-us-congress/articleshow/57444399.cms 

Wizard (2017, March 4), Why Is BPO A Booming Industry In India? Retrieved on November 30, 2017 from https://www.wizardgroup.in/blog/why-is-bpo-a-booming-industry-in-india/