Posted on 04/21/2005 7:36:41 AM PDT by A. Pole
Is offshore outsourcing good or harmful for America?
To convince Americans of outsourcing’s benefits, corporate outsourcers sponsor misleading one-sided "studies." Only a small handful of people have looked objectively at the issue. These few, and the large number of Americans whose careers have been destroyed by outsourcing, have a different view of outsourcing’s impact. But so far, there has been no debate, just a shouting down of skeptics as "protectionists."
Now comes an important new book, Outsourcing America, published by the American Management Association. The authors, two brothers, Ron and Anil Hira, are experts on the subject. One is a professor at the Rochester Institute of Technology, and the other is professor at Simon Fraser University.
The authors note that despite the enormity of the stakes for all Americans, a state of denial exists among policymakers and outsourcing’s corporate champions about the adverse effects on the United States. The Hira brothers succeed in their task of interjecting harsh reality where delusion has ruled.
In what might be an underestimate, a University of California study concludes that 14 million white-collar jobs are vulnerable to being outsourced offshore. These are not only call-center, customer service and back-office jobs, but also information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services. The authors note that these are the jobs of the American Dream, the jobs of upward mobility that generate the bulk of the tax revenues that fund our education, health, infrastructure and social security systems.
The loss of these jobs "is fool’s gold for companies." Corporate America’s short-term mentality, stemming from bonuses tied to quarterly results, is causing U.S. companies to lose not only their best employees—their human capital—but also the consumers who buy their products. Employees displaced by foreigners and left unemployed or in lower-paid work have a reduced presence in the consumer market. They provide fewer retirement savings for new investment.
No-think economists assume that new, better jobs are on the way for displaced Americans, but no economists can identify these jobs. The authors point out that the track record for the re-employment of displaced U.S. workers is abysmal: "The Department of Labor reports that more than one in three workers who are displaced remains unemployed, and many of those who are lucky enough to find jobs take major pay cuts. Many former manufacturing workers who were displaced a decade ago because of manufacturing that went offshore took training courses and found jobs in the information technology sector. They are now facing the unenviable situation of having their second career disappear overseas."
American economists are so inattentive to outsourcing’s perils that they fail to realize that the same incentive that leads to the outsourcing of one tradable good or service holds for all tradable goods and services. In the 21st century, the U.S. economy has only been able to create jobs in non-tradable domestic services—the hallmark of a Third World labor force.
Prior to the advent of offshore outsourcing, U.S. employees were shielded against low-wage foreign labor. Americans worked with more capital and better technology, and their higher productivity protected their higher wages.
Outsourcing forces Americans to "compete head-to-head with foreign workers" by "undermining U.S. workers’ primary competitive advantage over foreign workers: their physical presence in the United States" and "by providing those overseas workers with the same technologies."
The result is a lose-lose situation for American employees, American businesses, and the American government. Outsourcing has brought about record unemployment in engineering fields and a major drop in university enrollments in technical and scientific disciplines. Even many of the remaining jobs are being filled by lower-paid foreigners brought in on H-1b and L-1 visas. American employees are discharged after being forced to train their foreign replacements.
U.S. corporations justify their offshore operations as essential to gaining a foothold in emerging Asian markets. The Hira brothers believe this is self-delusion. "There is no evidence that they will be able to out-compete local Chinese and Indian companies, who are very rapidly assimilating the technology and know-how from the local U.S. plants. In fact, studies show that Indian IT companies have been consistently out-competing their U.S. counterparts, even in U.S. markets. Thus, it is time for CEOs to start thinking about whether they are fine with their own jobs being outsourced, as well."
The authors note that the national security implications of outsourcing "have been largely ignored."
Outsourcing is rapidly eroding America’s superpower status. Beginning in 2002, the United States began running trade deficits in advanced technology products with Asia, Mexico and Ireland. As these countries are not leaders in advanced technology, the deficits obviously stem from U.S. offshore manufacturing. In effect, the United States is giving away its technology, which is rapidly being captured, while U.S. firms reduce themselves to a brand name with a sales force.
In an appendix, the authors provide a devastating expose of the three "studies" that have been used to silence doubts about offshore outsourcing—the Global Insight study (March 2004) for the Information Technology Association of America, the Catherine Mann study (December 2003) for the Institute for International Economics and the McKinsey Global Institute study (August 2003).
The ITAA is a lobbying group for outsourcing. The ITAA spun the results of the study by releasing only the executive summary to reporters who agreed not to seek outside opinion prior to writing their stories.
Mann’s study is "an unreasonably optimistic forecast based on faulty logic and a poor understanding of technology and strategy."
The McKinsey report "should be viewed as a self-interested lobbying document that presents an unrealistically optimistic estimate of the impact of offshore outsourcing and an undeveloped and politically unviable solution to the problems they identify."
Outsourcing America is a powerful work. Only fools will continue clinging to the premise that outsourcing is good for America.
Outsourcing bump!
I never hear the word "quality" mentioned when people make a case for outsourcing.
I dpnt know much about trade deficits, or profits for companies or financial dealings. I do know a lot of our jobs are being sent to China. Now we see China starting trouble in the Taiwan straits, wanting to buy weapons from the EU, Buying oil all over the world, raisng the price of that oil, becoming more belligerent every day and now seeking to go to the moon , and who's mponey are they using to do all this. Thats right folks, the money Americans are spoending on Chinese good and the money thats been outsourced to them. I see Idian buying F-16's and Submarines, More of our money. Now I dont mind seeing the living conditions in these countries improving because of our outsourced jobs, but I do have a little bit of a problem with them using our money and jobs to strengthen their militarys'and possibly to become a threat to peace.
It is in no American company's best interest for Americans to be broke and jobless. I have been saying all along, if outsourcing works and increases profits, companies will continue to do it. If it doesn't, they wont. Times change and economies change, thank goodness.
Read more about the coming financial crisis and how Americans are chained to debt ?
This is the key idea. What the authors don't say is that enough Americans benefit from the lower cost of the service that the net benefit to the nation may be positive. This does not make being laid off easier to take, but does make it easier to understand.
In short, if you have a job that some one else can do for less money, you had better hope that the customer who is paying you does not find out about the other guy. If he does, he presumably will switch unless you offer better service, better language skills, more attention or something. It is hard for me to imagine a person who wants a building designed to seek an architect in India to do the work. (Maybe an Indian who has moved here?) But if it were to happen, I suspect the US architect could find ways of competing. What I can imagine is that someone who needs a bunch of "fill in detail" on a design going to an Indian firm for the routine work. So the message to take from this if you are in architect school is: prepare well, be better than your contempories overseas, and stay up with the technology. If you can look at your job and honestly say that a technition can do this work, you are in danger.
The question of protectionism is real, the other alternative is to tell managers that they can look for cost reduction and profit margin only in certain places. This does not seem to make sense when at the same time we want bar owners to be able to decide whether to allow smoking or not. Either we are free or we are managed by our govenrment. Which will it be? Of course if the US school system still turned out the best product in the world we would not even be discussing this.
The US cannot sustain an economy of our size without the "technicians" that currently inhabit it. Without these so-called middle-class jobs our economy would fall apart. Not everybody gets to be an executive and no-one wants to be a serf so we're headed for big trouble.
Offshore outsourcing is bad for America, anyone can see that if they examine:
1 - It's bad for national security. How can you defend yourself in wartime, if you don't MAKE many of the things your military requires.
2 - It's bad for the economy. Unemployed workers remain unemployed for emotional and physical reasons. Unemployed workers do not buy goods, or pay taxes.
3 - It's bad for the government. Businesses are a traditional source of tax revenue. If your physical plant is in India. Unemployed workers do not pay taxes!
4 - It costs us our future. Kids in college are smart. They look and see that technical and engineering jobs are easily oursourced. So they gravitate to what seems to be more stable. Service type careers, sales and marketing. If our country is outsourcing most of it's technical type work and a conflict arises, we can and most likely will, lose access to this "hired help".
Nationalism in America is dying, and the liberals continue to hasten nationalism's death. Without nationalism, corporate leaders don't care about their workers, or their community. Only one thing matters: "how much money did you make this quarter?"
Since our politicians are bought and paid for by lobbists. And there is a lobby for outsourcing, but very little against, there is no help coming from our legislators.
There is only one hope. People wake up and pay attention. Vote for anti-offshore outsourcing candidates. Buy from domestic producers.
If people continue to behave like our politicians and corporate leaders, worrying only about what benefits them today. We are doomed to becoming an also ran, not a super power. Think it can't happen?
Gee, who would have ever thought England would be where it is today?
What of Spain, or Rome if you want to go way back.
We're going to make it there, then we're going to sell it there. Ok, obviously this will lead to higher corporate profits. I'd like to know exactly how this translates into higher paying American employment opportunities?
Lenin said American capitalists will sell us the rope we hang them with.
"It is in no American company's best interest for Americans to be broke and jobless."
Actually, a global corporation has no stake in the status of American workers. If they are broke and jobless it just means someone, somewhere else is employed and prospering. They'll sell to them. You'll have corporate offices in the US that manufacture in China, and sell in India and China.
The only concern that corporation has for America is that their own gated communities are safe. When that becomes an issue, they'll move the corporate offices too!
Greed is good??
It's not whether or not you are better than the cheaper guy. It's a question of 'is the cheaper guy good enough.'
"I'd like to know exactly how this translates into higher paying American employment opportunities?"
Doesn't. But they don't care. If the CEO of X corp. will make $11 million a year if the outsource, and $10 million a year if they don't: Good bye America, hello India!
Well if you are one of these "technicians" at the very least you have to realize that your job may one day be done by a machine or a cheap international. I would move into a technician job that can't be outsourced, Military work, Government work, school system work, real estate work, and franchise work are some examples. Don't stay in a job where you are a "coder" when the designers of the world are making coder jobs obsolete. BTW, the outsourced jobs will not last long either. Smarter chips will eliminate them anyway. Also, companies who have tried outsourcing have often found that language barriers or quality of workmanship have forced firms to move some jobs back to the US. Waht is really happening is people are trying things withoug knowing ahead of time that they will work. Our employees need to stay ready for change.
Right, it is the guy who does not need quality, or care about service who outsources. This is typically the guy whose next step is to go out of business entirely. Not a good future in either case. It is part of our capitalist system and will continue to change.
Yep, and it would be kind of stupid for you to train and provide the required technology to your competitors. Time to send Corporate Headquarters a clear message in the form of import tariffs.
Let me clarify. For example, some clown comes into a company and spews the current zeitgeist about outsourcing. Its always about how cheap it is and how you don't have to pay healthcare. Not one word about quality. So what you end up with, Carly Fiorina, is a company like Hewlett-Patel where you talk to 4 people on the customer service line who barely speak engrish. Then time and money is wasted in fixing a simple printer problem.
"Waht is really happening is people are trying things withoug knowing ahead of time that they will work. Our employees need to stay ready for change."
And this is a major point. For every job I was ever recruited for, I was told I was "joining" an organization. I was never told that I was a resource to be used, and discarded at will. A company wants a culture of loyalty. The company wants to keep skilled workers, (at their discretion). But, if the company decides they want to try something that is dubious, that may or may not work, the employees are left to twist in the wind.
The employer - employee relationship should be give and take. When it's not... bad things happen. That's how unions got a foothold.
If a company HAS to move operations or shut down, that's one thing. If a company WANTS to move because a few of the top management thinks it would be interesting, and might work. That's a sickness.
This is a good way to look at it. I started out believing I was a loyal employee, but after being laid off twice I learned that the company has NO real loyality to me. This does not mean a union would be better, ask the people of GM about this. But when companies are looking for ideas to make more with less, some smart MBA suggests they move some manufacturing operation overseas. Then later, after a lot of displaced unhappiness and substandard hardware coming in from the overseas site and watch the company lay off the MBA and try to pick up the pieces.
More and more firms are gaining insight on how important their workforce is to them. It will occur to them eventually that outsourcing is a bad idea and the amount of outsourcing will be lowered in my estimation as a way to make money in the future.
Agreed 100%. I would add that the MBAs and Execs are so focused on the stock market's demand for short term profits that they are making very poor decisions.
I left a very capital intensive industry that is killing itself by a 1000 cuts.
Many of the needed equipment upgrades can generate a valid payback in 3 to 5 years. My previous company refused any project with less than an 18 month payback because the stock market demanded such returns. I don't know about you but 3 to 5 year payback on my money would make me a happy camper.
Well the lack of investment bit them in the butt. Other firms upgraded, reduced their costs and are winning contracts with new customers.
I am very anti-government in most areas of life but I would like to see a powerful long term gain tax incentive to get the investor to become an active participant in growing a company instead of sucking it dry by short term demands.
You cannot grow heavy manufacturing with 18 month payback requirements.
Well, maybe. But if there really is any truth in outsourced services being much more dismal than they were before outsourcing, why then, shouldn't it dictate the end of outsourcing as we know it? If it isn't, either there is something seriously wrong with the system, or the issue about quality is a pack of lies.
After all, the best part of capitalism is its way of getting around problems with extreme efficiency. Why is it 'failing' now?
Hey - HP doesn't even stock or sell replacement parts for any printer that costs less then $350!! Their authorized distributors say 'junk it and buy a new one with exetended warrentee - that way when the new one breaks in 18 months - you get a new one, cheap!'.
Quality in outsourced services is non-existent. Not just HP, but IBM, DELL, American Express Travel, ....I could go on and on...trying to get someone who understands American English AND can troubleshoot and resolve any kind of problem is nearly impossible. The problem is the American consumer has been trained to accept very poor service.
"This is a serious question: What kind of laws would these candidates pass if they were to become legislators, and how would these laws "fix" the problem?"
This is a very delicate area. Too much interference by the government is bad, I think most here would agree. Any legislation would have to be done sector by sector, there is no sweeping solution. No one law/tariff/tax that will fix it.
On the offshoring side you have, for example, the Chinese. The government will subsidize the move of a manufacturing plant to China. In China, there is no OSHAA, or EPA. Regulations are minimal. This is NOT A LEVEL PLAYING FIELD. Regardless of what others here would tell you.
So, one start is for government to ease up on domestic manufacturers. Safety is good, but extortion in the guise of safety is wrong. And that is what happens now.
Another approach is in sectors where it seems clear that items are produced overseas mainly to bypass pollution/worker safety issues, tariffs should be applied.
The answers are complex, and not easy. They will require creativity and cooperation, but isn't that what our legislators are supposed to do?! Be creative problem solvers, not extortionists and bribe takers.
In my rust belt city, a large insurance building stands with only a skeleton crew. All the jobs have been outsourced to India, destroying lives and careers of American citizens. Women who were employed with no over source of income were suddenly pushed out, so were the men.
The company hired a few back, at much lower wages and health care benefits.
Oh yes, outsourcing has really been a blessing for my rust belt city. Not!
What a bunch of liberal garbage. Nobody is entitled to a job. They tried that in the old Soviet Union. You don't own "your" job. Your employer owns your job. You don't have a right to work. You establish value in the free marketplace through experience and education, and then you sell your skills to the highest bidder.
The authors have twisted the meaning of the "American Dream" to suit their socialist agenda. Nobody can stop you from living the American Dream, as long as you have the desire and tenacity to go into business FOR YOURSELF. If you have a skill, a product, or a service that's in demand, then you don't need anybody to give you a job. Start your own company, and then you can decide if you want to outsource your own labor costs.
Of course the fact that one should even have to call anybody for a printer problem, is a sign that the product is not designed very well in the first place.
"A cynic might say that you are being delusional - that legislators will always devolve into extortionists and bribe takers."
Count me as a cynic! The core to the answer, where it all starts, is a concerned, educated, involved electorate. The electorate can continually weed the congressional garden. If the electorate isn't involved and diligent, then we get what we deserve.
I don't believe that most people will care about politics until they are hurting. By that time, it could be too late.
BTTT
Ho-hum, another anti-outsorcing argument. Well, here's one for ya to think about -- what's outsourced today comes "back home" tomorrow.
I base this contention on my own experience after 20 years in data processing, computer operations and system's programming. These things work in cycles --- once a hot new idea comes along, everyone jumps on board, and then someone finally realizes the mistake they've made.
The allure of outsourcing lays in reduced costs. However, once it becomes apparent that such costs are short-term and often illusory, the people responsible change their minds. There are certain fields of endeavor (banking, brokerage, medical, for example) in which it will only require one major "Aw, sh*t!" for someone to realize thay may be saving money, but not getting their money's worth.
This major catastrophe will revolve around the loss or theft of important customer, technical or legal information. The culprit will be some denizen of a Hong Kong/Karachi/Moscow/New Dehli consultant's mill, and the resulting lawsuits and bad publicity will destroy any 'savings' earned by stiffing American workers. Those jobs will then come back home, and the people who get them, will be able to quote their own price for takling them.
My bet is that such information will fall into the hands of criminal or terrorist organizations. Corporations that formerly outsourced will fall all over themselves in the mad scramble to bring their operations back 'in-house'and reassure their customers that they're personal information (not to mention wallets) are safe.
In the meantime, we have to find some way of getting benefit costs (which actually account for more than the worker's salary) under control.
This is my third brush with a massive round of outsourcing and the story is always the same. Formula-driven decisions make bad business practice, and it just require enough pain to brought to bear on the people who made them to realize their error.
The first indication of pain will be when those Chinese/Indian/Russian/Pakistani workers currently working for pennies on the dollar start seeking parity vis-a-vis benefits with their American counterparts. A rising standard of living almost requires this. The second indication will be when American companies start to complain that they cannot comepete and come to the startling realization that, while they are complaining, they are also funding the opposition (just ask Lee Iacocca). The final indication will come when a massive class-action suit (I'm betting on a bank or credit card company) indicates that the company safegurds with regards to data were so poor that the Russian Mob or something was able to launder more money than Kofi Annan.
There are only three ways to get an American corporation to do something that it believes is not in it's own interests:
1. Provide bad PR
2. Sue the hell out of them.
3. Allow The Law of Diminishing Returns, reflected in this case, by falling prices for executive stock options, to operate.
All three of these conditions will be met vis-a-vis outsourcing in the very near future.
In the meantime, if there are any Freeper's with software/mainframe computer skills in North Carolina interested in joining me, I do have an idea of how to take advantage of corporate stupidity to earn a living, I just need some expertise to help me get it off the ground. Please contact me via Freepmail.
I do not agree that it is idiocy - the rules of game changed. If you can legally get rich quick by the looting and dismantling of a company, many if not most of managers will do it. Free market ideology is about making profit no matter what it takes, be it legalized treason, usury, ruin of one's own country and neighbours, war, slave trade, prostitution, etc ... Anything is justified if the private wealth is the main objective.
The savings at the corporate level mostly stay there and don't get passed to the consumer.America cannot remain a superpower if it has to rely on other countries to produce the things it needs.Once an industry or trade is lost it is lost forever.
"What a bunch of liberal garbage. Nobody is entitled to a job"
Agreed. However, there's more to it than that. You are over simplifying to suit your purposes. If it makes you feel better, fine. This is still a free country.
I've posted about the responsiblities of the employer/employee relationship. And about the impact on the country. If all that matters is the bottom line, fine.
Hope you can sell a lot of your product to a bunch of burger flippers.
Do you think that benefiting from the misery of others is justified if the "net benefit" is positive?
For example, imagine that there are two Amercian families - one making 100K a year and another making 30K a year. You make a free market/free trade reform and as a result the first makes 120K and second one makes 15K. The net total income rose from 130K to 135K. Do you really think that it is good?
Lenin is dead. And still wrong.
What nonsense. Free markets do not function without the rule of law. You sound like a lib screaming, "Enron! Enron!"
Answer to second question: Some have been rehired at lower wage, as I said, and the workplace environment is hostile, as the company hold it over their heads that they are not really wanted or needed. Others have gone to other jobs, however as I know what is going on in our area, and wages on other jobs are not good, since these things work like dominoes, falling into disarray..
It is so sad to go downtown at noon, remembering the good days when the workers poured out of the building, eating in restaurants that are now closed, along with many stores.
American business owes something to America and the community in which they reside. They have a beautiful building, large parking lot and freedom to do business as they wish, without being murdered by some terrorist. These business people are helping the illegal immigration lovers destroy America. In five years, we'll be a third world nation.
What the article fails to mention is that US business people may have an advantage over the Chinese and Indians. That advantage is that our offshore operations are not specific to any single nation, that we're still headquartered in the US (and hence much more accountable), and that we can inculcate a more traditional US work ethic in offshore labor.
The article also fails to mention that, now that solutions are available at a lower cost, business can afford to implement MORE SOLUTIONS. This should have somewhat of a counterbalancing effect that is not mentioned in the article.
BTW, my own offshore operations are concentrated in Latin America, where I've found some terriffic skills with a more westernized mindest (and good English speaking skills). Also, this solves an otherwise terrible problem with time zones. I'm not afraid of the Indians or Chinese.
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