Outsourcing - why companies support it?

I discussed in my previous post why America is losing in the outsourcing battle. In this post I would like to examine the reasons for companies going offshore.

Outsourcing has been grabbing headlines for the past few years. Many developed countries view outsourcing as a threat to jobs, industries, and whole economies. On the other hand, Microsoft, Google, and other technology companies claim it as an effective tool to obtain much needed skills to remain competitive.

Contrary to what many of us believe, cheap labor is only the starting point and not the main driving force behind outsourcing. That is pretty much evident from the 100K+ US dollar offers the multinational companies throwing at fresh graduates in India and China. Then why are these companies going to China and India, if it not entirely for cost advantage? Two words: knowledge workers.


Companies are in the middle of revolutionary transformation. Industrial age competition has given way to information age competition. Let us examine two of the industries, automobile and software that have been going through this transformation and how that shift has resulted in the demand for so called knowledge workers.

Henry Ford changed the automobile world by moving from craft manufacturing to mass manufacturing . He standardized automobile parts and introduced assembly line manufacturing techniques, so that many low-skill workers could easily do the repetitive work, but few engineers and managers were responsible for production. Pioneered by Toyota, lean production has taken over from mass production in the last few decades. A lean organization transfers maximum number of tasks and responsibilities to those workers actually adding value to the product on the assembly line. This created the need for highly skilled and educated knowledge worker that can think and solve problems on the shop floor.

Similarly, in the early days of software industry, we used low-skill programmers to produce code while few highly skilled analysts and designers did the critical thinking. A standard Waterfall process was developed so that programmers could translate design into code simply by following the pseudo code. New innovations like agile development methods are driving unprecedented quality and productivity within software development world. These new methods expect a single person to be responsible for analysis, design, coding, and testing. The high school graduate who used to do coding is now replaced by a knowledge worker - an engineer that can make design and quality decisions at the time of coding.

Over the last century, blue collar workforce that was the main strength of industrial age companies has given way to white collar workforce that could perform analytical functions required in the information age. Today, employees are viewed as problem solvers and not as variable costs. This essential need for these thinking workers and problem solvers is what’s forcing companies to look for them wherever they are available both in quantity and quality.