The existing literature on offshore outsourcing focuses almost exclusively on the extent of job losses in the home country, and the plight of the unemployed worker whose white-collar job has been outsourced. The impact on recipient countries is rarely examined in the debate on offshore outsourcing. This paper attempts to close this gap by examining some key economic and technological issues pertaining to offshore outsourcing in the service industry in India, particularly the information technology (IT) sector, and IT-enabled services (ITES) sector, including business process outsourcing (BPO). Specifically, the paper examines the impact of offshore outsourcing on (a) employment in India, and (b) technology diffusion/innovation gap in India.
With respect to employment generation, the paper critically assesses the chances for long-term success of the Indian strategy of “leapfrogging” into the big league of advanced nations by exporting high-tech services without first going through the labor-intensive, manufacturing export stage. It argues that being a service industry, the IT/ITES sector cannot possibly be expected to solve India’s massive unemployment problem. India needs to build labor-intensive, manufactured products, not just services, in order to create jobs for millions of unemployed Indians. With respect to technology diffusion/innovation gap, in spite of impressive progress achieved by Indian service providers, they continue to lag behind in high-end areas that call for creativity and innovation such as inventing innovative business products or processes that could sell globally, and creating new markets for such products or services.
