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OM in the News: Why Indian Firms Outsource Even More Than American Ones

December 5, 2011

The front page headline in the New York Times (Dec.2,2011) reads “Outsourcing Giant Finds It Must Be Client, Too”, describing how most employers in India rely on contract hiring agencies to avoid India’s restrictive labor laws. India, of course, is known the world over as a prime innovator of outsourcing for foreign firms which take advantage of its cheap, English-speaking labor force. Less well-known is the extent to which Indian companies outsource their own jobs within their own country.

To skirt laws that prevent companies from laying off workers, Indian firms hesitate to hire permanent employees, instead turning to firms like TeamLease to field “temporary employees”. Factories employing more than 100 workers, for example, are not allowed to lay off employees without government approval. Economists assert that firms will continue the outsourcing trend, although they are reluctant to admit to it because of political and societal pressures. Already, 1/4 of India’s industrial laborers and perhaps 1/2 of service sector workers are on outsource contracts.

Walk into any of India’s shiny new shopping malls and many of the store clerks, janitors, and security guards will be on the payroll of outsourcing companies. Firms like TeamLease supply workers who are paid half of what a “permanent employee” can earn, with few benefits to boot. Today, one of TeamLease’s biggest clients in India is Whirlpool. It has hired 1,850 salesmen for the American giant and sent them to stores to sell appliances. This avoids the myriad of employment laws and taxes that differ by region and simplifies Whirlpool’s entry into a new market.

Discussion questions:

1. How does outsourcing impact Indian companies and employees?

2. What are the disadvantages of outsourcing in general?

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