USA, June 17, 2004
By Selena Maranjian (TMF Selena)
The outsourcing (or "offshoring") of jobs abroad has been
a hot topic in America in the past year, but there have been some interesting
developments lately. If you're a possible investor in the outsourcing
sector, or simply a concerned citizen, read on.
For starters, the Labor Department recently released a report suggesting
that outsourcing may not be as big a problem as previously thought.
In this year's first quarter, of the 182,456 jobs reported lost, just
2.5% of the jobs (about 4,600) had been shifted abroad. (The International
Herald Tribune pointed out that the 2.5% excludes those jobs that were
created overseas by American companies that did not have a corresponding
layoff and that it excludes layoffs at smaller firms.)
So if outsourcing isn't the problem, what is? Well, the economy has
been a major culprit. In downturns such as we've experienced recently,
both consumers and companies rein in their spending. When demand for
products and services slows, jobs are lost. Another culprit is technology
that increases productivity and makes some jobs obsolete. And yet another
factor is the relocation of companies: When they move, many employees
don't move with them -- some by choice, others not by choice.
With companies overseas able to provide needed services at a fraction
of the cost here in America, offshore outsourcing is not likely to go
away. India has been a particularly attractive provider, as it has many
educated workers who speak English. There are some changes afoot in
the Indian outsourcing scene. The top public companies engaged in doing
information-technology outsourced work for American companies, such
as General Electric (NYSE: GE) and Coca-Cola (NYSE: KO), include giants
Infosys (Nasdaq: INFY) and Wipro (NYSE: WIT), as well as Satyam Computer
(NYSE: SAY), Cognizant (Nasdaq: CTSH), and Syntel (Nasdaq: SYNT).
They'll soon be joined by 800-pound gorilla Tata Consultancy, a subsidiary
of Tata Group, which is going public. Tata Group is India's largest
industrial conglomerate, operating some 80 businesses. Tata Consultancy's
IPO will be among the nation's largest. According to Hoovers.com, Tata
Consultancy takes in $1 billion in annual revenues, which have grown
18% over the previous year. Employee count has risen by 26%.
Should you rush to buy shares of Tata or other outsourcing firms? Well,
we generally recommend steering clear of IPOs, as they tend to be hard
for small investors to buy into at fair prices, and they can be highly
volatile, too.
A little patience often delivers a chance to buy in at lower prices
a year or more down the road. (If you're looking for stock or mutual
fund investment ideas, check out our suite of newsletters and some free
reports.) Regarding other outsourcing firms, note that many are foreign
companies, which presents special complications. Learn some critical
things about investing internationally in this classic Bill Mann article.
And read some passionate arguments about outsourcing from fellow Fool
readers, too.