Where in the World is Offshoring Going

If you can read this, you’re probably at one end or the other of the offshoring revolution. It’s not much of a generalization to say that the common denominator of the countries either sending or receiving work is a large population that speaks and understands English.

    English became the lingua franca of world trade after World War II. For the next 30 years, however, Cold War politics kept most countries’ back-office work firmly within their own borders. What offshoring activity there was went from the United States and England to Ireland and Israel, two English-speaking countries considered well within the Western bloc. Today, both countries do significant offshoring work, but their limited populations and rising standards of living have begun to price them out of the market. As of 2001, Ireland led the world in offshoring revenue with $8.3 billion; India’s share was $7.7 billion. Since then Ireland’s income has been flat. India’s is soaring.

    The new colossus of the offshoring industry is India. Its more than one billion citizens speak 26 different native languages, but India’s legacy as a British colony left it with one unifying tongue, English. “We are very happy that we were colonized by the English, not the French,” jokes Indian businessman Som Mittal. For 34 years after its independence in 1947, however, trade barriers, political turmoil and socialist governments kept India from taking advantage of this in any significant way. In 1991, however, a serious currency crisis prompted the country to open its doors to free trade. The next significant date is 1999, when the dot-com boom and the looming Y2K “crisis” meant that the only sources of low-cost computer coders and testers were in places like Bangalore and Hyderabad. When the boom ended, American companies in desperate need of cost savings looked to India more than ever.

    In a poll taken by the consulting firm A.T. Kearney, India has the best reputation as an outsourcing destination among top U.S. companies. A potential challenger is the Philippines, which has a large pool of English speakers thanks to its American occupation in the 20th century. Despite the language handicap, Eastern European countries such as Hungary and the Czech Republic and Russia also have potential, particularly for outsourcing from Western European countries like Germany and France.

    The country to watch, however, is China. With a population of 1.3 billion and an exploding industrial base and educational system, all it lacks is English speakers. Even that is changing. Puneet Shivam, an associate principal at the consulting firm Inductis, says that two years ago, the premier of China visited India, then returned home and ordered that English be taught as a required subject to every schoolchild. “Ten or 12 years from now, the picture will be very different.”

Workforce Management, January 2004, p. 45 — Subscribe Now!