Outsourcing is a major debate in United States as the country prepares for November's elections. If Kerry wins, it will have a lot to do with the economic issues of trade blocs and outsourcing. It is not only our Nepali business fraternity that loves protectionist economic policies. US businesses are crying foul on losses arising out of NAFTA and jobs moving out the country. Some states are even contemplating legislation to circumvent this trend.

With unemployment at an all time high, there is much resentment of outsourcing. First call centres moved out, then data centres followed. A large pool of 'digital clerks' are available in south Asia as well as eastern Europe at a fraction of the US costs. The trend continues with more specialist back office jobs like accounting and software writing also moving out. India is building more facilities and global players are setting up shop there.

However, contrary to the common American belief, outsourcing works well for the US economy. It ensures that the cost of production and services are reduced. If outsourcing stopped, costs would rise, thereby creating an inflationary trend in the economy that would depress business growth. One should also recall that there was a great deal of hue and cry when computer hardware businesses moved out of the US to southeast and east Asia in the early 90s. However, there were great benefits to the US economy as the firms then focused on the software and making strides in IT and communications. Similarly, the relocation of routine jobs ensures that the skilled manpower focuses on research and development instead, and also encourages people to move towards graduate degrees and higher education. In the US unemployment mix there is virtually no unemployment amongst school graduates. The message is loud and clear: change the focus.

For Nepal, the trend of outsourcing should emerge as an opportunity in the future if we start planning now. Just as production jobs moved from Japan to South Korea to China due to cost increases created by the demand for higher wages to support better living, the same will happen with India. In India, outsourcing centres are already moving from the metropolitans to smaller cities, and Nepal will have comparative advantage in terms of wages, and our growing numbers of English speaking youth will provide the pool of resources. However, Nepal will definitely need to look again at the labour and employment-related legislation to make this happen. This lesson has already been learnt from transcription centres that once ran well, then crumbled due to problems with legal provisions.

Outsourcing will dominate the way business is done in the coming years, with firms focusing on their core activities and outsourcing other work whenever possible. Nepal has to recognise this trend and join the bandwagon. Surely, this could be an interesting US-Nepal co-operation issue to tackle.