2/11/04

THE GLOBAL OUTSOURCING REVOLUTION

This interview with Infosys Executive Chairman Narayana Murthy was conducted in Bangalore, India, last week by Global Economic Viewpoint's Beijing-based correspondent, Jehangir Pocha.

QUESTION: Even while you are calling for more globalization the United States is passing legislation against outsourcing to India. Do you think the global trading system is fair?

ANSWER: The champions of globalization have always been the Western nations, or the G-7 countries. And fortunately for them, they benefited quite a lot. For the first time, thanks to China, India and perhaps a few other nations from the South, there is a fear of a possible loss of jobs in a big scale. Today it has not happened; for job losses are still very small. Still, the leaders of the West have reacted.

In the past, political compulsions led leaders of the South to take unreasonable decisions. Now we are seeing that the political compulsions of the leaders of the G-7 countries are as unjustifiable.

But I would not throw out the free trade system. This is the time when we have to listen to people like (the former chief economist of the World Bank, Joseph) Stiglitz. This whole debate has to be taken beyond just the governments of different nations, and that's why I think the World Social
Forum is good. We need to create a forum where well-meaning people from all different nations come together and say "free trade will never succeed unless it is fair trade," unless everybody sees a win-win. And we also have to understand the sensibilities and perhaps the unpreparedness of different partners in the global trade. That's the only way.

Q: Where do you think outsourcing will go in the next five to seven years? How will it affect the global trading system?

A: I define globalization as sourcing capital from where it is the best, producing where it is most cost-effective, and selling where it is most profitable, without being constrained by national boundaries. Of course, it is easier said than done. If that is the definition of globalization, and if everybody wants to subscribe to that, I think all players must accept the rules of the game. Yes, in the short term, there will be pain. But it is the job of the respective governments and of the respective corporations to create alternative opportunities, for example, to retrain people. At the end of the day developed nations have a lot more experience in creating jobs because they're all at unemployment levels of 2-8 percent. On the other hand, in India, we have been mired at unemployment levels of 20 percent. And that's when you define basic human needs by Indian standards. If you go by global standards, it's much higher. So I don't know if we are in a position to offer suggestions. As I said, I have tremendous confidence in the ingenuity of the corporate leaders and the political leaders in the developed nations to sort out these problems quickly and effectively -- if they want to bring value to their consumers.

There is also another side to outsourcing. Every morning, I get up, and I switch on my Sony TV. It's imported, and it's replaced jobs at the ECI Corporation of India that used to produce fully indigenous TVs. And then I open my refrigerator, which is an LG refrigerator, South Korean company. We used to have an excellent refrigerator company called Godrej. But I'm sure a lot of Godrej employees have lost jobs. And I use my Opel Astra, which is a GM car. Certainly, Indian auto companies have lost jobs.

Should I stand up against it? My view is, no. Because what these companies have done is enhance the quality for the consumer, enhance customer focus and brought better value for money -- as against, perhaps, a few million people who have lost jobs in India, but a majority of them have benefited. This happens all the time. It's happened in India. It happens in the United States. It will happen in Timbuktoo. Outsourcing is about people giving you better value for money.

Q: For outsourcing, as a force, as an industry -- how far do you think it could go? How much could we do from here?

A: When the cost of a transaction within a corporation becomes higher than the cost of the transaction within the marketplace, whether you like it or not, that transaction will move out. Otherwise, the future of that corporation is at stake. So, on the one hand, this is a good opportunity for corporations to become more and more efficient internally. And on the other hand, there are more and more opportunities for outsourcing vendors to become more efficient and demonstrate to their customers that the cost of your transaction with us is lower than the cost of your transaction inside the company. So, this battle will continue forever.

Q: It follows from this that free markets achieve equilibrium in price and in supply. For an unbalanced system to reach equilibrium something has to go up and something has to come down. If it is clear that the standard of living has to go up, and is going up, in developing countries will it have to come down in developed countries?

A: I'm not so pessimistic. As long as human innovation is alive and kicking, as long as there is a desire to solve problems, I do think that we the Western nations, the G-7 nations -- will be able to solve this problem, to create new jobs, new kinds of jobs, while lifting up the standard of living of the developing countries.

But one thing we must understand is that if India starts consuming like the United States, if China starts consuming like the United States, we are finished. Because we just don't have enough natural resources to sustain that. It is possible that in 20 or 30 years some smart scientist may come up with a method of regenerating natural resources. But short of that, it's going to be very difficult. I think that is where there is a need for a very balanced approach, in terms of looking at the international trading system, the global warming situation, the environmental situation and so on. I think the leaders of the G-7 countries have a lot more responsibility, because they're consuming a lot more of the natural resources than countries like China, India or Brazil.

But as long as you and I sit down and discuss the issue, with me having confidence in you that, this guy is much richer than me, but he's not going to hurt me, and you having confidence that, look, this guy has a set of problems and the best way for me is to understand those problems and solve them whatever way, perhaps by making some accommodation. I don't see any other way.

(c) 2004, Global Economic Viewpoint. Distributed by Tribune Media Services International
For immediate release (Distributed 2/10/04)