NCPA - National Center for Policy Analysis


November 1, 2007

A new wave of outsourcing could be the globalization of consumer services, says the New York Times.

So far, sending work abroad has been all about big business operations:

  • Computer programming, call centers, product design and back-office jobs like accounting and billing have to some degree migrated abroad, mainly to India.
  • The Internet makes it possible, while lower wages in developing nations make outsourcing attractive to corporate America.
  • In economic terms, there were economies of scale so that the most efficient Indian offshore specialists like Infosys Technologies, Tata Consultancy Services and Wipro Technologies could become multibillion-dollar companies.

Offshore outsourcing for big business thrived partly because the jobs were often multimillion-dollar contracts and the work was repetitive.  It is not clear that similar success can be achieved in the consumer market.  For instance:

  • Economies of scale will be more difficult to come by because customers are individual households and services must be priced in tens or hundreds of dollars.
  • Then there are the matters of language, accent and cultural nuance that promise to hamper the communication and understanding needed to deliver personal services.
  • Already, some American consumers voice frustrations in dealing with customer-service call centers in India.

Even optimists acknowledge the obstacles.  In a report this year, Evalueserve, a research firm, predicted that "person-to-person offshoring," both consumer services and services for small businesses, would grow rapidly, to more than $2 billion by 2015.  Yet consumer services, in particular, are in a "nascent phase," said Alok Aggarwal, chairman of Evalueserve and a former IBM researcher.  "It's promising, but it's not clear yet that you can build sizable companies in this market."

Source: Steve Lohr, "Hello, India? I Need Help With My Math," New York Times, October 31, 2007.

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