Outsourcing within Borders
While listening “Return on India” podcast recently, I checked this essay by Sajith Pai explaining how India is not one country in terms of market. It consists of multiple countries — ranging from India 1A similar to Taiwan to India 3, which is similar to sub Saharan Africa. In this post, I argue that existence of these multiple countries within the same geography enables India to outsource within its borders and have unique business models.
Over the past few decades, there has been increased outsourcing of goods and services from developed countries to developing countries. This outsourcing enables consumers in the developed countries to benefit from lower costs of labour and corporates to generate additional profits. However, this outsourcing is possible only for goods which can be easily transported such as clothes, electronics or the services which can be delivered electronically such as IT, call centres. But for the services which require presence of human, outsourcing is not usually not possible. A person living in the USA cannot outsource their cooking to someone in India (though they can outsource frozen food). But in India, the upper middle class (1A as per Sajith Pai), can outsource their daily services to an economy where labour costs are lower.
We can see it everywhere. For cooking food, they can outsource to someone from India 2, who exists in the same geography, but in different economy. Uber costs in India are low because the drivers come from India 2. Compare this to the West, where the Uber driver has the same economic status as the rider, pushing the costs up. In other words, the business model itself differs in the West and India, because the dynamics are different. Zomato has to think of its delivery partners differently than Doordash as the incentives for delivery people are different. In fact, some businesses and services can exist in India only because of this internal outsourcing. Some of the 15 minute delivery apps can be successful only in India because there is someone from India 2 who is willing to risk traffic.
To summarize, existence of multiple Indias in India results in local outsourcing creating unique business dynamics. It results in additional comfort for the elites in India 1A compared to their counterparts in the developed countries, as they can benefit from this outsourcing. While this may provide short term benefits, I do not think that such inequalities result in creating harmonious society. It always makes me wonder how the Western societies reached this relative equality in the society. But that is a topic for different blogpost!
PS: I had written about similar split in my blogpost few years ago and had arrived at the conclusion independently :). In this post I intend to expand on my previous post about the consequences of such coexistence of multiple economies.
