Statements made in February by Gregory Mankiw, chairman of the Council of Economic Advisors, ignited the already-brewing debate over offshore outsourcing. "The benefits from new forms of trade, such as in services, are no different from the benefits from traditional trade in goods," Mankiw said in his testimony before the Senate's Joint Economic Committee."Outsourcing of professional services is a prominent example of a new type of trade," he told the committee. "The gains from trade that take place over the Internet or telephone lines are no different than the gains from trade in physical goods transported by ship or plane."
Indeed, not only does offshore outsourcing help U.S. insurers reduce costs, convert fixed costs into variable costs, spread operational risk, and respond quickly to market opportunities, it may also enable them to establish "beachheads" in emerging markets that will foster their future growth, says Anupam Rajvanshi, a consultant with Andrus Consulting Services, a division of Dwight Andrus Insurance, Lafayette, La.
"Growth has slowed down in the Western world since Western countries have reached an advanced level of economic growth," Rajvanshi says, citing a report from Goldman Sachs & Co., New York, titled "Dreaming with the BRICs: The Path to 2050."
According to that report, over the next 50 years, Brazil, Russia, India and China-the BRIC economies-could become a much larger force in the world economy. In 2003, the Chinese economy grew at an annual rate of 9% and the Indian economy grew at a rate of 8%, compared with 3% to 4% growth in the Western world.
"BRIC nations represent future markets for just about any company in the West," Rajvanshi says.
"And businesses that have the foresight and vision to perceive this-and have ongoing and existing relationships with the BRIC nations-will be in the best position to reap the rewards."
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