NCPA - National Center for Policy Analysis

Outsourcing Jobs is not Always the Best Option

August 27, 2003

As manufacturing workers worry about their jobs moving to China, service workers now see India as a threat. With its large pool of educated, English-speaking workers available for wages 80 percent lower than here, many large companies, especially banks, have set up Indian operations or contracted with Indian companies to provide information technology services, says Bruce Bartlett.

A new report from Deloitte Research projects that outsourcing of IT jobs to India will accelerate in coming years:

  • It estimates that $356 billion worth of global financial services will relocate to India in the next 5 years, producing a cost saving of $138 billion for the top 100 financial service firms.
  • It further estimates that 2 million jobs will move to India -- 850,000 from the United States, 730,000 from Europe and 400,000 from elsewhere in Asia.
  • It notes that while direct wage costs may be 80 percent lower in India, total labor cost savings are much more modest-10 percent to 15 percent for most companies.
  • Higher costs for travel, communications, equipment and managerial oversight are some of these.
  • But the largest costs are for lower productivity, cultural differences and incompatible systems.

The Deloitte Consulting report goes on to detail several case studies where companies went into India thinking that they would achieve significant savings only to find that it was not worth the effort. Other companies undoubtedly will make the same discovery, says Bartlett.

Source: Bruce Bartlett, "Outsourcing Jobs Is Not Always Best Option," is a senior fellow with the National Center for Policy Analysis, August 27, 2003.


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