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Is offshore outsourcing worth the loss of IT jobs?

IT executives and outsourcing experts debate the pros and cons of offshoring -- are the losses worth the gains?

CAMBRIDGE, Mass. -- What is happening in respect to technology jobs in the current environment? Is the global environment a drain on technology jobs here in the U.S.? A group of outsourcing experts gathered last month at the Emerging Technologies Conference at MIT to discuss the effect of globalization and offshore outsourcing on IT jobs in the U.S.

"At the end of the day, we -- as the consumer -- always want the best product at the least price," said Sudhakar Shenoy, one of the panelists and the chairman and CEO of Reston, Va.-based Information Management Consultants Inc. "Therefore, it makes perfect sense that we should send work offshore."

But consumers don't reap all the benefits of offshore job loss, pointed out fellow panelist Ronil Hira. "In this mode of outsourcing, companies think they are winners. But unfortunately the tech workers are really the losers in the end," commented Hira, an assistant professor of public policy for Rochester Institute of Technology.

So the question remains: Are the benefits and cost savings of offshore outsourcing worth the loss of IT jobs in the U.S.?

Companies think they are winners. But unfortunately, the tech workers are really the losers in the end.
Ronil Hira
Assistant Professor of Public PolicyRochester Institute of Technology

Offshore outsourcing stats

The reality is that offshore outsourcing is a growing trend. According to a recent study from Meta Group, the worldwide offshore outsourcing market is worth $10 billion today and will grow 20% annually through 2008. Meta also claims that offshoring growth will outpace outsourcing in general and predicts that the average enterprise will offshore 60% of application work by 2008 or 2009.

Regarding job loss, a study from the U.S.-China Economic and Security Review Commission, found that up to 406,000 U.S. jobs will be moved overseas this year. The offshore job tracker on reports that more than 259,000 jobs have been sent offshore from Jan. 1, 2000 through Oct. 12, 2004. The site also claims that 142,500 jobs have been lost as a result of offshore outsourcing during this same time frame.

Training and education

Experts suggest that better training and education could solve the IT job loss problem here in the U.S.

Michael A. Bettersworth, associate vice chancellor for technology advancement at Texas State Technical College in Waco, thinks that companies should take more responsibility for creating innovative, high-level jobs in IT.

"We need profitable businesses to provide high-paying jobs," said Bettersworth, an attendee at the Emerging Technologies conference. "Will this mean that some industries, companies and jobs will be lost? Yes. But it also means that better industries, companies and jobs will be created. To sustain this increasingly rapid world of innovation, we must have an agile and highly skilled technical workforce."

Catherine Mann, the panel moderator, is also a senior fellow at the Institute for International Economics. She agreed with Shenoy that education is the key to success in IT.

Mann presented some findings from her organization, which she said back up her theory that education aids job changers. According to studies done by the Institute for International Economics, high school graduates are 10% more likely to be re-employed than dropouts; college graduates are 22% to 26% more likely to be re-employed and suffer 7% to 9% less earnings loss; and skilled workers are 5% to 7% more likely to be re-employed than less skilled.

But not all the panelists agreed that training and education is a fix for IT jobs outsourced from America.

"Her [Catherine Mann's] solution for more training falls short since no one knows what to train for," said Hira, who is also the author of Outsourcing America: What's behind our national crisis and how we can reclaim American jobs, due in spring 2005. "The problem right now is not a lack of skills or a skills mismatch. The problem is that there just aren't many jobs out there. People whose jobs have been offshored are being laid off in the worst technology labor market we've ever had," Hira said.

Costs and savings

Most studies have shown that cost is the No. 1 reason companies decide to outsource jobs. But how much money are companies actually saving by going offshore?

Shenoy shared a story with the audience about a project he worked on. Three years ago, some researchers approached his company for help in improving their software and making it run faster. Shenoy and his company made the decision to hire some at their subsidiary in India to do the work.

In the end, the job was done in India for less than $400,000. The same job in the U.S. would've cost more than $3 million.

Since then, Shenoy and his company have signed up several financial companies, research institutions and universities that are tapping into his database.

"In addition to saving millions, we ended up hiring 12 highly paid scientists in the U.S. to explain what the system does," Shenoy said. "This is a very good example of how the commodity works -- which is basically coming up with the software -- is done abroad and results in jobs being created in the U.S."

Although these results aren't typical of all offshore outsourcing deals, they emphasize the possible benefits for companies. But aren't IT workers really paying the price?

"There is no way that the cost savings [of offshore outsourcing] make up for the loss in income for those displaced workers," Hira said. "Companies are gaining from this because they get the cost savings, but they have no responsibility for those displaced workers. The displaced workers obviously lose. In the end, America loses because the cost savings for companies don't outweigh the losses for displaced workers."

Will [offshoring] mean that some industries, companies and jobs will be lost? Yes, but it also means better industries, jobs and companies will be created.
Michael A. Bettersworth
Associate Vice Chancellor for Tech AdvancementTexas State Technical College

Bettersworth doesn't necessarily think offshore outsourcing is a good or bad thing, but a reality. Therefore, he thinks we need to make smart decisions that will keep the U.S. competitive.

"You have three choices: remain competitive, choose a new industry or go down a misguided path of tariffs and closed markets," he said. "We rightly chose to have a minimum wage in this country and not to allow sweatshops. By doing so, we accept that we may not be able to compete in some industries where cheaper labor and lower costs of living can produce the same products at a fraction of the cost."

Can America still prosper?

BusinessWeek magazine's February 2003 cover read "Can America lose these jobs and still continue to prosper?" The article discussed offshore outsourcing and the toll it's taking on IT workers stateside.

Hira commented on this cover story, saying that without some smart new policy responses, the U.S. will not prosper by losing high skill/high wage jobs.

"The current policy response is to do nothing, which means we will not prosper," Hira said. "The policy responses proposed by industry organizations, like the Council on Competitiveness' National Innovation Initiative is to boost R&D funding and improve K-12 math and science education. These are both good ideas but don't address the job destruction caused by offshoring.

Even in the short run, we are losing as a nation," Hira added. "Hopefully, we will begin creating jobs again and those displaced workers can go to other jobs. But robust job creation hasn't happened since 2000."

But in the end, Hira still couldn't win Shenoy to his side of the offshore debate.

"Outsourcing isn't bad," rebutted Shenoy. "It brings down my costs, and it's good for the consumer. They end up with more money to spend on other stuff and ultimately help the economy."


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