Outsourcing vs. Automation

Growing up in an India that had barely achieved independence from over two centuries of British imperial rule, I read and heard many accounts of how terrible the British rule was. One story was particularly harrowing. The British found that India had a vibrant and sophisticated handloom industry. They started importing to Britain fine fabrics woven in India. Then came the industrial revolution. Manchester and Liverpool became thriving mill towns, with fast mechanical looms. Rather than sourcing handloom fabric from India, the British became more interested in selling mill made fabric to India.

The problem was, the quality of India’s handloom fabric was superior to quality of the mill made fabric from Manchester and Liverpool. The only way to create a market in India was to curtail the production of fine Indian handlooms. It is said that the British soldiers went looking for the master weavers in Northern India and chopped off their thumbs – to prevent them from working the looms.

I am sure there is a grain of truth and a large apocryphal element to this story. What it shows is the long-standing contest between outsourcing and automation. In the richer of two trading partners, this contest is particularly sharp. It may be possible to prevent outsourcing and to preserve an industrial or business process in the rich nation if the process can be automated. In software programming, for example, automation tools like Computers Assisted Software Engineering (CASE) and Computer Aided Design (CAD) attempt to stem the tide of outsourcing to locations where labor costs are low.

But even in the 17th to 19th centuries, the technology of the Manchester and Liverpool mills soon became globalized. Charles Slater, celebrated as a hero in my present home state of Rhode Island, was almost seen as a traitor in England because he memorized the design of the mechanized loom and kicked off the industrial revolution in the United States by opening factories on this side of the Atlantic. Similarly, Bombay and Ahmedabad in India became booming textile towns, rivaling Manchester and Liverpool.

In today’s Information Age, it does not take decades for the automation methods invented in the rich nations to transfer to less well-off nations. Sometimes such transfers occur in months, even weeks. So, the advantage that automation offers – in terms of stanching offshoring – is ephemeral. In fact, as the offshore companies internalize these technologies, they become doubly competitive – combining the advantages of low labor costs and the productivity enhancing aspects of the automation techniques.

So there are no good ways to chop off the thumbs of the master crafts people of the Information Era. The only possible options are political – to ban offshore outsourcing by government agencies or government contractors, to offer tax incentives to firms that keep business processes at home rather than “offshore” them, and so on. But the tightening of such “thumbscrews” also has limited efficacy. Under conditions of global capitalism, process work flows to locations that can guarantee quality at reasonable cost.

It took couple of centuries and the charisma of Beatles to reinvent Liverpool as an icon of rock-and-roll culture. What the rich nations need are ways of speeding up charisma-creation processes!

Nik Dholakia