India has relatively few resources, but it does have a population of approximately 1.3 billion people, nearly half of whom are in the workforce. Therefore, it should have a comparative advantage in the production of goods or services that require large amounts of inexpensive labor and relatively little capital. However, India has a additional comparative advantage because about 350 million of its people are able to read English. About 125 million of those people understand spoken English and can communicate in English sentences with a high level of fluency, a figure expected to quadruple in the next decade. As internet and cellular telephone communications continue to become less expensive, India is increasingly using its English-speaking pool of labor to export services such as software engineering, telemarketing, reviews of credit or mortgage applications, preparation of review of legal documents, analysis of blood test and other medical services, and claims processing to foreign companies and their customers.

Fortune 500 companies such as Amazon, IBR, and American Express, as well as a range of more moderate-sized firms, have already sent million to U.S. jobs aboard. During the decade after the start of the Great Recession in 2007, more than 2.4 million jobs were offshored form the Untied States, and India is well positioned to capture much of this busines. Although the primary driver has been a reduce costs, access to internationally competitive capabilities has also been an important consideration in offshoring decisions. While many people think of low-skill jobs like telemarketing and call centers when they think of sending jobs to India, the sophistication and skill levels required for outsourcing jobs are rising rapidly, driven by the abundance of qualified and low-cost workers in India. For example, a typical Indian information technology (IT) engineer earns and annual salary of $6,500 and an experienced mid-career IT engineer earns $11,000 about on-tenth as much as their U.S. counterparts. The Indian IT industry accounts for about 65 percent of all exports in 2017-2018 and a projected $300 billion in revenues by 2020. According to Noshir Kaka of the consulting firm McKinsey, This industry can do for India what automobiles did for Japan and oil for Saudi Arabia.

Companies in financial services, accounting, and insurance have also been actively pursuing opportunities to move jobs to lower-cost foreign locations. More than 80 percent of global financial service companies have a facility aboard, and the range of services is broadening fast. There are more than 22,000 people employed by the Big 4 accounting firms in India. About 5 percent of U.S. audit work is currently offshored in India, along with preparation of an estimated 2 million U.S. individual and corporate tax returns annually. Documents obtained from taxpayers are scanned and shipped electronically to India, where forms are completed and sent back to the Untied States to be examined, approved, and signed by a U.S. accountant. While a U.S. tax preparer can cost more than $4,000 per month during the peak tax season, a comparable Indian worker might cost $200 to $400. There is no requirement that the taxpayer be informed the work is done abroad, and most accounting firm base their fees on a U.S. scale to boost profitability. Although sending service jobs abroad has generated concerns across a broad spectrum of society, widespread publicity may actually have speeded the trend by making more companies aware of the possible cost savings.

On the other hand, some have argued that sending jobs to lower-cost locations abroad will help strengthen U.S. industry and economy as a whole. Ending jobs abroad is not necessarily a zero-sum game, in which one foreign worker substitutes for one U.S. worker. From this perspective, when U.S. firms hire lower-cost labor abroad, they often must hire other workers at home to complement the increased level of foreign labor. Overseas expansion can also cause companies to modify their U.S. operations, focusing on more complex and higher-value-added activities rather than on the lower-skill positions that have been sent abroad. Shifting work to lower-cost locations abroad has the potential to lower prices in the United States, thus raising the purchasing power of U.S. consumers, enhancing consumer spending and economic activity, and in turn, creating more jobs. A study by the Center for Economic Performance at the London School of Economics reported that a 1 percent increase in the level of jobs sent to lower-cost foreign locations produced nearly a 2 percent increase in overall employment of workers in the United States. As the Wall Street Journal editorialized, The world economy is a dynamic enterprise. Jobs created overseas generate jobs at home. Not just more jobs for Americans, but higher-skilled and better-paying ones.

Critical Thinking Questions:

1. Can a company gain advantages besides profit by offshoring? If so, what are they? If not, why not?