To Outsource or not

Following up on the previous post on Paul Samualeson's outsourcing comments, Deep pointed me to this blog of Daniel Drezner, a pro-outsourcing Republican and an assitant professor of political science at Univ of Chicago. I would recommend you to read the whole post, but here a few interesting notes. Daniel asks the following questions:

1) Just how many well-educated workers are there in China and India?
2) Will U.S. firms have an incentive to offshore sophisticated value-added work in areas where the United States currently has a comparative advantage?
3) Will the United States continue to be a locus for value-added innovations?
4) To what extent are wages and employment in the affected industries declining because of outsourcing as compared to technological innovation standardizing and commodifying what used to be highly complex (and highly paid) tasks?

In the past, my answers to these questions have been a) not as many as you think; b) no, c) yes, and d) not a lot.

Of course, these economists & political scientists are way, way more brilliant and qualified than me, but here are my views:

1. Ok, so I may not be entirely right, but about (1) above, I am not aware of any research study that actually details these numbers, but at least in India, I daresay the number of qualified professionals will be a good number. In addition to the hundreds of undergraduate colleges specializing in engineering, there are literally zillions of professional training institutes that impart the necessary training to non-engineering students (with pretty much any backgrounds - commerce, biology, physics, etc.). This is surely some trend to reckon with. While this has certainly done a lot of damage to the lack of encouragement and opportunities for students with interests in advanced degrees in the fields of pure science, literature, etc. this has certainly contributed to the ease of availability of well-qualified professionals.
2. About outsourcing sophisticated work, I believe we are now seeing this trend. The main reason, and I strongly feel about this being true - most corporations are realizing that the US is not the only place with smart/qualified people who can do research in advanced science and engineering fields. One has to only look at the large corporations setting up advanced R&D centers all over the world, especially India & China. India has research labs set up by Texas Instruments, Lucent Technologies, Intel, Hewlett Packard, Daimler Chrysler, GE (the more recent Jack Welsh research center), IBM, to name a few. According to some studies I recently read about, Bangalore has had one of the highest VC funding for biotech companies recently. A recent article on NY Times talks about China becoming a hotbed of advanced research and innovation.
3. The US still has a very strong advantage and will continue to be the locus of advanced technology in pure science and engineering research. However, the other growing Asian giants - South Korea, Japan definitely have more "technology penetration" as compared to the US. A recent article on Fortune just shows how far ahead S. Korea is with 75% broadband penetration (as compared to a little over 20% for the US), they even have gigabit to the home! WoW! This naturally fuels an immense amount of digital content being pumped into these fat pipes, leading to a much faster adoption of technologies like digital TV, interactive video/TV, etc.
4. I am not sure how many jobs have actually moved from the US to India/China/elsewhere, but here is a recent article from Seattle Post Intelligence that claims that the US has lost over 400K jobs since 2001.

Although outsourcing has done its good bit for the Indian economy and lifestlyes people lead here, especially in Bangalore (I havent seen too many other cities), there are certainly some ill effects that I see. These are highly subjective, and I will try to organize them in another post. That is it about it on outsourcing for today.