One of the major boons of globalization is that it allows companies greater freedom in their productive processes. The possibility of moving their industrial structures to one country or another, coupled with the quest for greater economic efficiency, has unleashed an offshoring process. The concept of offshoring encompasses three very different models: the transfer of production to subsidiaries in other regions in the world, outsourcing production, and subcontracting other companies to do a given job, the latter two either in the same country or abroad.

The new offshoring

Until recently, offshoring had mainly affected the low-level manufacturing industry. Nowadays it is a different story. Any service that can be digitalized, that is, transformed into zeros and ones, can be outsourced. This new offshoring, the outsourcing of services, is even more surprising as it has reached services of a surprisingly high level, such as IT, accounting, financial engineering, and pharmaceutical R&D. The fact that today companies have to face international competition has enhanced their efficiency. Companies like Accenture, IBM, Eli Lilly, Cisco Systems, Boeing, Citigroup, Airbus, and Morgan Stanley are on the verge of launching this second wave of offshoring.

A blossoming revolution

Offshoring translates into more efficient production, and it thus exerts positive effects on companies not just in developed countries but also in China and India, the two largest targets of Western investment.

Alan Blinder, former vice president of the U.S. Federal Reserve, has described the offshoring process as the “third industrial revolution”. According to Blinder, this revolution will have a major impact on the U.S. industrial sector within the next two decades, with the transfer abroad of 28 to 40 million jobs. If we bear in mind that the manufacturing sector in the U.S. currently employs at least 40 million people, his prognosis is mind-boggling. Blinder wanted to coin the term “third industrial revolution” to highlight the fact that offshoring is causing profound changes in the structure of the economic and social systems in 21st century cultures. These transformations are materializing in the ownership and structure of companies, how work is organized, and labor relations. Yet they also affect our way of life, where we decide to live and how we educate our children.

IT: India and China in the spotlight

In this issue we shall analyze what is happening with technological outsourcing in India and China. Although the former is attracting the lion’s share of both IT and technological services, China’s vast potential is just waiting to burst. Both countries, which follow divergent models of growth, offer Western companies not just significant cost savings but also an enormous pool of talent and the possibility of focusing on quality, a key factor that until now seemed to have been relegated to secondary status. In the case of China, we should also bear in mind the increasing demand for technology products from its burgeoning middle class. Not only have the large multinationals managed to see the advantages of technology outsourcing in these two Asian powers: as shown by the case of Spain, albeit at more modest levels, SME’s are increasingly venturing to explore this route, especially in India.

Among the top three in the world

China and India’s economic growth is the most important event of this century. As a result of their impact, the world economy is in the midst of a transition in terms of both demographics and productivity. Western companies cannot remain aloof from this transformation.