Skip to comments.Drifting away: Many fear such 'offshoring' will hurt the economy and nationa l security.
Posted on 08/03/2003 1:11:56 AM PDT by sarcasm
Sunday, August 03, 2003 - Denver-based Quark Inc., one of the nation's best-known software companies, has just built a brand-new facility that will employ 1,000 software and technology workers.
The growth might appear encouraging to the state's ailing tech economy, but there's a key caveat: the center, and the jobs, are in Chandigarh, India.
Quark is among a long line of tech companies now moving jobs or creating new ones in India, China, Vietnam and Singapore in search of cheaper and faster software development, manufacturing or tech support.
The trend appears to be an unstoppable force that infuriates many of Colorado's jobless and worries some economists who say it ultimately may hinder the state's economic recovery.
"This is part of why the economy is still sluggish," said Mac Clouse, director of the Reiman School of Finance at the University of Denver.
"It's not the traditional economic model anymore," he said. "Businesses may be spending, but they're not spending their dollars here - it's not going to result in new jobs and increased economic activity."
Momentum by U.S.-based companies to create new jobs in foreign countries is building throughout the tech industry. Late last month, news leaked that IBM Corp. would move 1,000 jobs overseas.
A couple of weeks earlier, Microsoft Corp. said it would hire 5,000 more people, up to 2,000 of them outside the United States. At about the same time, Oracle Corp. said it will almost double workers in its Indian unit to 6,000.
Tech-heavy Colorado is being hit especially hard.
Two-thirds of the layoffs in Colorado over the past few years came from telecommunications and technology firms. In June, 142,000 people were looking for work in the state, according to the Colorado Department of Labor and Employment.
Dozens of Colorado companies have already moved or created technology manufacturing jobs outside the country. More recently, they're taking technical support, software jobs and even network operations overseas.
One Denver firm called Technology Crafters is helping 18 Colorado businesses do software development in India.
"There's a lot of interest," said Robert Welch, the company's president. "American software teams are awesome for innovation, but in terms of being able to crank things out in a productive manner, they're not the best on the planet."
Three years ago, Louisville-based Storage Technology Corp. moved its manufacturing operations to Puerto Rico. Agilent Technologies shipped hundreds of its Colorado Springs jobs to India and China. Also in the Springs, broadband device maker Actiontec sent several hundred jobs to India, and computer storage firm Quantum sent 865 jobs to Malaysia.
Now PeopleSoft, the company that last month acquired Denver software maker J.D. Edwards, plans to double its Indian operation to as many as 700 jobs. And Denver tech consulting firm Ciber Inc. revealed a few weeks ago it will create new software and information technology-related jobs in India.
"All this is a huge challenge that the new mayor and Gov. Owens have to bring back a job base to Colorado and to Denver," Clouse said.
On Tuesday, Denver Mayor John Hickenlooper and Gov. Bill Owens will fly to California to meet with tech firms that have Colorado operations. The duo will encourage those businesses to expand in the state and in Denver.
"There are still jobs to be created domestically," said Hickenlooper's press secretary Lindy Eichenbaum Lent. "We just need to make our case."
But it won't be easy.
The pressure on corporate executives to look overseas is huge, primarily fueled by the weak economy.
Within the next 18 months, one in 10 U.S. technology jobs will be moved offshore, according to Gartner Inc., a research firm that follows technology trends.
|Special /Todd Spangler|
|Indian workers, above, staff a U.S. companys call center in Bangalore, India. Technical jobs are increasingly being offshored to companies such as Wipro Technologies in Bangalore, top.|
Business executives say they can't compete, let alone keep their companies alive, if they hire U.S. IT workers for $40,000 to $80,000 a year while their competitors hire the same talent in India for $8,500 to $9,800.
Mac Slingerlend, chief executive of Ciber, argues that by using Indian workers, his firm ultimately saves U.S. jobs. The company employs 6,000 worldwide.
For instance, Ciber lost work from a major client, American Express, when the financial firm sent half of its software development work to India.
Because Ciber didn't do work in India at the time, the company lost the business and was forced to cut 100 jobs in its Phoenix office, Slingerlend said.
"I've cost American jobs by not doing work on India," he said.
Slingerlend acknowledges that if the U.S. economy remains lackluster, India will chip away at American jobs and economic growth here. But he said the United States is simply too expensive.
"If things can be done well and more inexpensively, the work will find its way to these places," he said. "The question is, do we want to participate or put our heads in the sand? I'm not trying to sound cruel or crude, but we as a country need to adapt."
That doesn't provide much consolation to the thousands of Coloradans looking for work, some of whom say they were replaced by foreign workers.
"Corporate America is loyal to their stockholders, not loyal to America," said Richard Armstrong, an unemployed Denver computer programmer who was laid off three times and each time replaced by foreign workers.
"We really can't compete because they're earning $6,000 a year overseas," he said.
Armstrong started a website, HireAmericanCitizens.org, to organize rallies and urge people to write Congress to stop offshore job development. He also is pushing for reform of the temporary worker visa program that he says is abused by companies and ultimately used to send more jobs overseas.
"They bring in these people to work and train on their software," Armstrong said. "Once they've trained them, they can do everything offshore."
|Protesters picket last month outside Microsoft Corp. offices in Irving, Texas. Workers are upset because the software giant announced it would close the facility and move 800 jobs to India. The trend among tech companies to offshore jobs worries both workers and economists.|
Yet jobs have been leaving the United States for years in a number of other industries. The automotive industry began hiring offshore in the 1960s as did clothing, shoe and widget manufacturers a decade later. In 1970, manufacturing jobs made up 15 percent of the Colorado workforce. By 2000, they made up just 9.3 percent.
And more recently, customer call centers started moving overseas.
"It's the worry du jour. But it's been going on for hundreds of years," said Tucker Hart Adams, a regional economist for U.S. Bank.
"These people have to retrain," she said. "It's particularly hard for the older worker, but these jobs won't be here to put people back to work when we move out of this recession."
Critics of "offshoring" argue that technology isn't the same as making tennis shoes or cars. They worry that eventually, all the high-tech brain power will be in the hands of another country - which potentially could be dangerous to U.S. national security and to future high-tech innovation.
"Right now we're the technology leader of the world," said Jim Hertzel, chairman of Alumni Consulting Group International, a Greenwood Village technology consulting firm. "If we take the technology and let someone else do it for us, what's left for us?"
Armstrong, the laid-off programmer, fears that future college graduates, who will soon include his own son, won't find jobs or that others will be discouraged from even learning software skills.
He says that ultimately will lead to a technology brain drain for future American generations.
"It's dumbing down of American software," Armstrong said. "We're going to be so dependent upon that labor and they'll have an opportunity to have their way with us. It puts our assets and capital at risk."
And while manufacturing jobs in the 1970s were replaced with new and higher-paying jobs in technology, the future for today's jobless tech workers is not clear, said Clouse, the DU economist.
"No one knows what will replace these jobs," Clouse said.
Meanwhile, the noise made by people such as Armstrong over offshoring has piqued the interest of Congress.
Two congressional representatives from Washington state, Democrats Jay Inslee and Adam Smith, asked the U.S. General Accounting Office to study why companies are going offshore, which policies could encourage them to stay here and what domestic jobs will look like in the future. Washington has had one of the top state unemployment rates in the past couple of years, reaching 7.7 percent in June.
"We want to steer people toward jobs that will be there," said Smith's press secretary, Katharine Lister. "We're concerned we may be giving tax breaks to companies and then encouraging them to send jobs overseas."
Armstrong and Hertzel want to see Congress impose tariffs penalizing companies that do offshore work and create rewards for those that do not.
But John Hansen, Colorado's secretary of technology, said the solution is not regulation. That, he said, will strangle businesses' global competitiveness.
Hansen said U.S. companies and citizens must innovate and come up with technologies that create new companies and ultimately new jobs. Most of that innovation, he said, will come from university laboratories.
"We need to create an environment for innovation, access to capital and favorable tax climate," Hansen said. "(Regulation) will not work in the long run."
Technology workers must make themselves more valuable to employers as well, said John Raeder, CEO of IQNavigator, a Denver software firm that develops its code in India.
Raeder said tech workers should develop expertise in finance, marketing or perhaps business strategy as well as software.
"Don't pigeonhole yourself into just learning computer science," he said. "A lot of creativity for software cannot be done offshore."
Young college graduates already are starting to adapt, said Terry Wanger, director of DU's Suitts Center for Career Placement. She said 73 percent of DU's new graduates are getting jobs because they bring with them additional expertise and they expect jobs with lower salaries and less responsibility.
She said it's critical that older workers see the shift in the industry as well.
Welch, who sees the global economy firsthand as president of Technology Crafters, agrees.
"Colorado will evolve. We have to," said Welch. "We're in direct competition with people from all over the world."
Isn't that what Herbert said in 1932: "don't be worry, be happy" just before FDR and modern socialism got swept into office?
The Republicans ignore current trends at their own peril, the unemployed have always voted for the other party and always will.
You are ignoring NC, MS, ID and just about every other state. Yes I can even cite many examples from FL and TX.
Also the estimates I see is that 500,000 will be outsourced so that means %0.5 of the total 2000 electorate effected and we don't how many have moved on and started their own business or went into other postions.
That 500,000 figure can only be from now through the end of the year.
So IMO, balanket statements aren't applicable on debates such as these, since there are so many variables.
I am not making simple blanket stetements about anything except the possible threat to GWB. A large percentage of those who have been and are being affected negatively by trade policies have friends and family who see what is going on and will also consier that in their future votes.
Also in addition I would like to add this anecdotal evidence which you mat find not applicable, but I do.
Recently a chain of supermarkets in my area have added self-checkout lines. I like them. They way the work is that there are 4 computerized checkout stations and an island for a casheir attendant to punch into the computer such things as produce and alcohol. I zip right and in out. The supermarket has effectively "outsourced" three casheirs to the machines. Do you think this is wrong and should be abolished?
Actually the supermarkets have not effectively outsourced three of their cashiers to the machines by adding these machines they have increased the productivity of their cashiers. They invested in capital improvement to increase productivity. This is clearly what the argument is about. The US government must get rid of the incentives for investing offshore to increase productivity and restore the incentives to invest in increasing productivity in American business.
What do you do, incidently?
"No one knows what will replace these jobs," (DU Economist) Clouse said.
Finally, an honest economist.
I've got four scenarios:
1. Gloom & Doom - Massive foreign outsourcing (and h1b/illegals/etc.) leads to massive U.S. unemployment, less tax revenues, massive debt & foreclosure, banks failing, ending in a huge worldwide economic depression. Prison will look like a free ride.
2. Downward ratchet into Socialism - Dem's pick up on problem and propose more welfare & assistance, job re-training, bigger gov't, etc. Move towards the England/France/German model.
3. Outsourcing fails - pool of overseas software development talent not quite as good as anticipated. Many big bets by big corporations on big projects fail. Economic advantage turns to strategic threat (strategery, I love that word). Many big corps bite the dust.
4. A New Economy Emerges - American entrepreneurial spirit emerges as thousands, millions of new small businesses emerge, making America a great place to live. These form the basic business dynamic for the rest of the century (hey, a guy can dream) (note to self - entrepreneur is a French word - oh, my, goodness).
Here's my new term for scenario 1 (you heard it here first!) - Middle-Class Holocaust.
A half truth.
Packaged software has X value to customers, regardless of the underlying costs to produce it. E.g., when Mitch Kapor hired a high school student to code VisiPlot/Trend, the market didn't ding him and demand a lower price because of Kapor's lower costs. Nor did it pay it premium when Kapor used the experienced, middle-aged programmer Jon Sachs to write Lotus 1-2-3.
So it's completely fallacious to say that underlying software costs have anything to do with "competition" in the marketplace.
But when it comes to software services, it's completely accurate to say that Tata Development can consistently underbid IBM (or any other American company) when its programmers cost $22 per hour.
What has no place in this argument is the proliferation of H1-B and L1 visas, which actually import those lower-priced coders and techies onto American business premises. If one can get Indian H1-B / L1 labor at a 40 percent discount from American market rates, sell it off at a 20 percent discount, and reap the 20 percent margin, then the H1-B / L1 visa has actual monetary value, i.e., it is a saleable asset owned by the firm.
And in fact I know an Indian entrepreneur who used exactly this scheme to import several dozen Indian techs, from whom he reaped about $20K per year profit each (approximately $750K to $1M per year gross profit).
With his U.S. service contracts and multi-year H1-B visas, he was able to sell the company for several million dollars.
Clearly H1-B and L1 visas should not be free.
I have mixed feelings about this. A world where every country has high tariffs has local economies with little specialization. Everything "imported" becomes unaffordable. Further, you get these tremendous inefficiencies. Economists are well aware of this. An understanding of this is behind the various international trade accords.
However, in a world where social costs are considered, some balance needs to be struck. Predatory pricing behavior causes great dislocations when nationally important industries are attacked. Further, most modern countries also incur tremendous social costs--unemployment compensation, untrainable older workers who are no longer productive, loss of strategic capabilities--which don't show up in analysises based only on price.
The solution would appear to be a national board which was capable of rationally striking a balance. However, such a board would be so obviously subject to the political winds that it might be next to useless.
Here's the reality. There is growing unemployment among trained and educated Americans because of export of their jobs. They will go to the polls at some point and take it out on those in charge....or, failing that, take to the streets.
Forget textbooks and free-market propaganda. If you ain't working and you are really searching for a job, you ain't gonna be a happy camper.
This bulldozer is gonna run over a lot of smug politicians.
You can't spend statistics and spin. W. and his buddies can talk about "economic recovery" but to an unemployed American worker, it'll sound like his Daddy did when talking about supermarket checkout scanners.
Agreed 100 percent.The best way to do this is boycott companies who think Americans should be second in line for employment, and fire/recall politicians who think the same(I.E. those who think Illegal-Immigrants are good for this country and outsourcing is fine because Americans really should work for $10,000.00 or less per year).
It's going to take one heck of an explosion in debt creation and massive increases in government spending for that to happen. Any increases in GDP based on more debt and more government will actually be a significant drag on the private economy down the road. The adminsistation can cook the books in the short term, but the harder they try to paper over the underlying economic deterioration and financial rot, the greater the price that will need to be paid later. The hangover is going to be a killer.
What I see is that this outsourcing guarantees that a lot of money gets taken out of circulation here. These myopic people may save some costs, but what's spent doesn't return. So the economy is not helped by this practice at all.
What are the long-term effects? We've seen the impact of trade deficits, particularly when Japanese cars were all the rage after the 1973 OPEC torpedo. It took Detroit almost a decade to engineer practical solutions and become competitive again.
A practical solution to this is something I can't see on the horizon, unless the yuppie management types eventually see past their "grasshopper" strategies to understand the long-term impacts.
Mine is more grass-roots, done by displaced workers creating small businesses, then maybe growing bigger.
As you said, the very people that should "get off your ass and start your own business" can't prcisely because of the reasons you cite. Plus, most people aren't suited to run their own business. It takes a talent like that of music or fine art, or engineering and programing.
This has been true in all of history. A few build a business and the rest work for them. That's how American businesses became great. Even those with the talent get nowhere without hard capital. The "amazing success stories" make the news for the very reason they are so rare, per percentage of the population.
See post 34
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