Why did outsourcing to India take off?

November 9, 2005, [MD]

I just finished reading “The World is Flat” by Thomas Friedman. He makes many arguments in the book, many of which I agree to, although I think he is quite a little bit too optimistic about technodeterminism and the whole world becoming equal and happy. One of his starting thoughts, which I quite liked, is (paraphrased) “Fifty years ago, if you were given the choice between growing up a genious in Shanghai or a dumb kid in Poughkepsie, which would you choose? Poughkepsie, because there you’d have the best shot at a nice life. You’d work for some factory, find a wife, have some children… Today? Shanghai! The sky’s the limit for smart people in Shanghai (ideally), but the dumbo in Poughkepsie would loose his job to an Indian”…

(Of course, would you rather be a smart kid in Sierra Leone? No…, didn’t think so. Not flat enough yet.)

He also gives a fascinating account of how it came to be that the outsourcing to India grew so incredibly fast. It all started with the Y2K problems, when millions of lines of code had to be combed by mid-level software engineers in a short timespan. American just didn’t have enough coders, and these were relatively simply tasks, so they were outsourced to India. At around the same time is the dotcom-bubble, during which companies thought that the internet would just keep growing at an amazing speed, and literally threw money after anything with .com in their name. This included companies lying fiberoptic cables to connect the world, including the US and India. The bubble burst, and US companies had to downsize or went burst. The fiberoptics companies went bankrupt, and the bank got their cable; it sold it for close to nothing to other companies.

As US companies were downsizing, they had to send a lot of Indian software engineers home. However, they also needed to get the same amount of work done, but cheaper. So they thought, why can’t Rajiv, who did the work while he was in the States, do the same while he is in India - or maybe a little cheaper. So this combination of gaining a level of trust in the industry during the Y2K reprogramming, supercheap fiberoptics because of the dot-com burst, and US companies wanting to downsize, with Indian programmers that had US experience and contacts; it all came together and resulted in the current wave of outsourcing.

I thought it was fascinating. I knew it had happened, but never really asked why.

Much more in this book too, but I’ll stop here. Two quick facts: All the reservations for JetBlue (or was it WestJet? Hm) are done by Mormon stay-at-home wives in Salt Lake City. And UPS claims that 2% of the worlds GDP at any time is in one of their trucks. Hm.


Stian Håklev November 9, 2005 Toronto, Canada
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