Is offshoring "offshoring" at all?

NEW DELHI: Most of the business decisions in global IT services business are today made on the numbers estimated and projected by research firms and industry bodies. WTO's World Trade Report 2005 which contains a full 37 page thematic essay on Offshoring Services (one of the two areas picked up by WTO, the other being air transport services) however asks some important (and uncomfortable) questions on these numbers.

The broader question posed and examined by the Report is the gap between the numbers estimated by the surveys-it quotes OECD, McKinsey, EITO, and Gartner-and the numbers emanating from national Balance of Payment (BOP) data. A major part of the chapter on offshoring is spent on trying to reconcile these two sets of numbers.

“While the general perception among the US public appears to be that the United States is importing more

services from India than it is exporting, US balance of payments statistics report a surplus in favour of the

United States,” says the Report.

The Report closely examines the 2003 data on bilateral trade on services between the most important source and destination in offshoring-the US and India. In 2003, India exported $6.8 billion of IT services to the US, the Report notes, basing the calculations on the estimates of the country's IT services association, NASSCOM. According to the US BOP data on the other hand, the imports of Computer and Information Services (CIS) from India that includes software services accounted for just $0.9 billion. The Report seeks to find out the reasons behind this large discrepancy.

There are many possible reasons. First and foremost, the Report blames the inconsistency in classification of sectors by different national statistical agencies and other sources of such information. In India, for example, NASSCOM combines many business services-BPO in common parlance-and part of Other Business Services in the US BOP classification. That leads to the gap, the Report notes.

However, this cannot explain this large gap entirely, notes the Report. “Even if one takes into account

that India's software exports include many business services other than IT services, a reconciliation

with official US BOP numbers is not possible even at a more aggregate level.,” it says.

The second gap creator is the calculation of employment. “A reconciliation between Indian and US data in respect to India's software exports is only possible if one takes into account the earnings of Indian IT specialists which are beneficiaries of US H-1B visas and are considered by the US Department of Commerce as local residents,” the Report notes. Estimating the number of such people to be close to 80,000 in 2003, the Report calculates that their total earnings could be as much a $4.8 billion, a sum which it says “could largely close the gap found in the statistics above.”

This, however, raises still more questions. Does it mean that more than 70 percent of the India's IT exports do not result in jobs in India? From employment statistics, it seems a highly “unreal” picture.

And if it is real, that raises a far bigger question for Indian government and other aspiring offshore destinations. Is the effect on economy and job creation through “offshoring” for real. Or to put it slightly differently-Is offshoring “offshoring” at all?

The author is the Associate Editor of GlobalOutsourcing.