A Brief History of Outsourcing

One of the major by-products of Globalization is Outsourcing; an industry that is loved as much as it is hated. Many corporations try to justify their stand on outsourcing as a necessary evil. Truth be told, this evil has saved and ruined families across the world equally. This article is not about the sentimentality associated with this topic but to look at outsourcing for what it is.

Before globalization and the WTO, companies mostly manufacturers had large plants where they went about doing their business. But as they started making money, these large manufacturers wanted to be able to reduce the cost of production so that they could reinvest more profits into expanding the business. Let us take an example of the automobile industry. The large manufacturers decided to outsource some of their non-critical work to other local manufacturers. These local manufacturers were people from the community or later stage, other companies within the state or country. This form of ‘internal outsourcing’ found a huge market. The smaller companies became vendors or suppliers who manufactured spare parts such as nuts and bolts, wipers, visors, etc.

And then waltzes in Globalization with its shining armour. The world markets changed and trade routes were re-written. Developed countries were now open markets for the developing markets and vice versa. The developed countries adopted globalization with open arms. Developing countries were wary and had to reconstruct their economy to open their markets to this new phenomenon. Developed countries were looked upon as a threat to local markets by the leaders of developing nations such as India, China, Brazil, etc.

After several rounds of talks, the WTO and the concept of globalization were accepted and it was realized that open market economy was here to stay. The developed nations who were the harbingers of globalization capitalized on this opportunity. The developing nations also lapped up the rush of new and imported products that was never easily available before. Many domestic manufacturers & local brands suffered due to this situation. North American and European countries convinced the governments of developing nations of the importance of economic development through open markets.

The internet and the IT revolution further made sweeping changes in the way the developing economies did business. Developing nations started getting more opportunities due to the price disparity. Many entrepreneurs cashed in on this along with the large MNCs of the developed world. The MNCs realized that quality work can be availed from the developing nations at relatively much cheaper costs than getting the same work done in domestic markets. So, now it was the turn of the local manufacturers and service providers of the developed world to shut down. Many lost jobs and now the tables were turned. All of a sudden outsourcing which was until now considered a boon to business, now American and European counterparts started finding problems with the same.

The developing nations are fast catching up with the developed nations due to outsourcing. It is history repeated the other way now, where in Americans is losing jobs and companies are shutting down just as India had to go through the same in the past. The adage seems befitting: As you sow so shall you reap.