Why a High-Tech US Economy Must Outsource

Shaunvir Mahil July 25, 2018

Is outsourcing ‘good or bad’? To most people, the answer would be rather obvious – ‘Of course, outsourcing is bad! How can the outsourcing of jobs to a country like India be any good for the US economy?’

On the flip side, research conducted by a number of renowned economists has shown the opposite, that outsourcing enables a lot of companies to experiment with more projects and boost innovation, and products and services, and, in the long run, fuel local employment.

The research has also shown that when companies outsource and streamline operations, they reinvest locally the savings that they have garnered from the efficiency gains of offshoring.

Lastly, the studies have also shown that when companies outsource, quite often a local job was NOT lost in the first place; that is, had the company not outsourced, it wouldn’t have hired locally anyway.

The point is, outsourcing simply makes something that previously was unviable, viable and hence, adds value to a local economy by giving businesses a solution they previously didn’t have access to.

In short, there are a multitude of arguments, theories and angles from which one can make a case for why outsourcing is ‘not bad’.  Not least that outsourcing is also simply a form of free trade. If America can export iPhones, Hilton Hotels and Boeing planes to India, does India not have the right to export its intellectual manpower? Is the latter not merely one side of the two-lane free trade highway? If you purchase a BMW, are you not outsourcing to Germany?

One aspect of outsourcing that is rarely discussed is the rapidly evolving nature of the US economy. Increasingly, the US economy is evolving into a software/digital-based economy. The cloud is a great example of this phenomenon. The adoption rate of the cloud among large and small businesses has been unbelievable. Within the space of just five years, the cloud transformed how we store our data.

On the horizon, many more disruptions are likely to take place; whether by way of virtualization, artificial intelligence or the Internet of Things.

When they do take place, what will be the ramifications for all businesses, particularly small businesses?

Most businesses are struggling to cope with the current level of technological burden placed on them. The vast majority of businesses are already struggling with maintaining a well-optimized website and social media platforms. When the aforementioned technological developments truly penetrate and go mainstream, we will wonder how heavy a technological burden will be placed on the shoulders of all the companies (irrespective of whether they are technology-based businesses), particularly for SMBs (small to medium-sized businesses). Will they be able to cope?

There are five realities that we must face:

  1. Technology is moving faster than the speed at which we are re-training our workforce. Technology is innovating increasingly at a faster and faster pace.
  2. The gap between technological solutions and capabilities available and the capabilities of our workforce will increasingly become bigger.
  3. For increased technological adoption (which makes our economies more efficient), we need greater cost-effectiveness.
  4. A vacuum is created by the culmination of the above. It can only be filled by outsourcing.
  5. The filling of an economic vacuum doesn’t hurt an economy, but rather positively impacts it by way of providing it with a solution to which currently there exists none.

The field of digital marketing provides us with a great illustration of the above:

  1. Despite the extraordinary growth in digital marketing over the last few years, the re-training of workers in this field is pretty much non-existent. Those who are qualified to work in this area are not only small in number, but also individuals who already were working in technology or have studied a related field at a university; that is, they have not been re-trained.
  2. Over the past 10 years, the number of digital marketing activities you can undertake has continued to increase year after year. Five years ago, you were probably using Facebook on your desktop and commenting on your friends’ walls. Now (a bit like a TV commercial), you can target peoples’ phones with video advertisements of your business.
  3. Conversion Rate Optimization (CRO) gives us a fitting example. Despite arguably being one of the most important digital marketing activities you can undertake, the costs involved make CRO a prohibitive exercise for the vast majority of companies.
  4. Again, as for CRO, it is simply not viable to have someone locally watch hours after hours (using a software such as mouse flow, for instance) of video, recording the behaviour of users on your website. This simply will never be viable locally. It is a vacuum.
  5. Having someone in India watch user behaviour recordings from your site is simply increasing the capability of the local firms by supplying a form of manpower that cannot be supplied locally.

The US economy is evolving and changing. Just as a shift took place from manufacturing to a service/finance-based economy, once again a shift is taking place to an increasingly technology/digital-based economy. This creates upheaval and challenges in the form of re-training, cost and accessibility. Outsourcing simply enables this shift to take place seamlessly and it provides a solution until one exists locally.

 

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