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 SatyamComputer (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.
Longtime Fool contributor Selena Maranjian owns shares of Infosys.
