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When US corporations put outsourcing on hold in 2009 as the US economy imploded, outsourcing specialists feared the worst. However their fears were unfounded. According to the Global TPI Index, which measures the commercial outsourcing contracts valued at more than $25 million, the 4th quarter of 2009 saw $24.7 billion of new business – the best performance in six quarters.
Critics of outsourcing say that over a million jobs have been lost due to outsourcing since 1994. However, in a stark contradiction, while it tells the American public it cares about American jobs, the U.S. Chamber of Commerce actually works to send jobs overseas on behalf of its corporate members, which include some of Asia’s top off-shoring companies.
The Global IT Outsourcing boom could well have been fuelled by the Y2K issue. This “Year 2000″ problem arose because many computer programs stored years with only two decimal digits; for example, 1980 would be stored as 80. Some such programs could not distinguish between the year 2000 and the year 1900.
Some warnings of what would happen if nothing was done were particularly dire: “The Y2K problem is the electronic equivalent of the El Niсo and there will be nasty surprises around the globe.”, said John Hamre, United States Deputy Secretary of Defense.
The United States Government responded to the Y2K threat by passing the Year 2000 Information and Readiness Disclosure Act, by working with private sector counterparts in order to ensure readiness, and by creating internal continuity of operations plans in the event of problems. The private sector in turn outsourced work on a massive scale to countries around the world to counter the Y2K threat. The total cost of the work done in preparation for Y2K is estimated at over 300 billion US dollars.
When the Y2K problem was overcome, IT outsourcing by US corporations continued as a normal practice because by then the companies to which the work was outsourced had developed deep domain expertise, innovative solutions and global sourcing credentials.
The then CEO of HP, Carly Fiorina (now California’s Republican Senate nominee) has repeatedly defended the decision to outsource thousands of jobs that tech giant Hewlett-Packard made while she was its CEO between 1999 to 2005. “During my time at Hewlett Packard, yes, I had to make some tough choices like families and businesses all across California are making tough choices.” she said. This outsourcing of jobs added billions of dollars to HP’s bottom line.
According to Michael Corbett, Chairman of the International Association of Outsourcing Professionals, US companies are under enormous cost pressure. Outsourcing not only allows them to ramp up and down on demand but also lets them take advantage of their outsourcing partner’s lower cost structure. Thus, according to him, outsourcing isn’t expanding in spite of an uncertain economy – but because of it.
Again, perhaps as an offshoot of the Y2K crisis which saw hordes of Indian IT professionals move temporarily to the US, and the subsequent consolidation of the Indian IT industry, three Indian companies – Infosys, Wipro and TCS – are in the Top 10 of the IAOP Global Outsourcing 100 Leaders list.
Clearly IT outsourcing is the new age paradigm.