Saturday, August 20, 2011

Outsourcing

"We had all these productivity improvements and all this outsourcing in the economy, but we still managed to employ those people. That was the critical thing that happened. Instead of outsourcing and productivity improvements creating an instantaneous employment or wage problem, those people managed to find employment in the non-tradable side of the economy. A lot of them were employed in government, in health care, and many of them were employed in industries, like construction and retail, fueled by a consumption bubble. But we were just delaying the adjustment. Some things looked wrong during this period: The middle incomes were stagnating and the jobs didn’t look very challenging. But these are big industries, so when they’re humming along, they employ a lot of people."

-- Michael Spence, Nobel laureate in Economics, Professor of Economics, New York University while talking to Ezra Klein

Infosys chairman Narayana Murthy calls it a day

Shares of IT companies take maximum brunt as investors sweat over US and EU crisis

My take - the whole story of outsourcing is complex with multi-dimensional effects. One thing seems clear, days of vertical pure outsourcing companies in India making money for share holders are over as every major Western company is having their own captive outsourced unit along with their own business units chasing Indian market. In a sense Murthy era is truly over while West is only waking up now how to deal with what has happened in last two decades of outsourcing.

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