| by Laura Smith
Here's a quick way to start a fight: mention offshoring in any unemployment center in the United States.
The number of U.S. jobs lost to offshoring varies depending on the state of hysteria of the source, but most experts estimate that at least 10 percent of the five million U.S. white-collar jobs lost since March 2001 are due to offshoring. To be sure, this trend, which is about 15 years old now, has serious--even dire--implications for the future of almost every U.S. worker. White-collar workers in almost every sector are especially imperiled as their corporate bosses look overseas for employees who will work for what often amounts to a tenth of their U.S. counterparts.
Nowhere has the offshoring trend had a greater effect than in the software sector. While the manufacturing sector lost 15 percent of its jobs between March 2001 and March 2004, the U.S. software-producing industry lost 16 percent, according to the Economic Policy Institute. Moreover, software jobs in the manufacturing sector shrank even faster than overall manufacturing jobs. Between 2000 and 2002, also according to the Economic Policy Institute, total manufacturing jobs fell by 12 percent, while software jobs within manufacturing fell by 19 percent. Ironically, these highly skilled technical workers are the very ones who were told for decades that they had exactly the skills necessary to thrive in an increasingly computerized world.
The world is increasingly computerized, of course, but it's no longer U.S. programmers who are reaping the lion's share of the financial benefits of the technical boom. Indian programmers increasingly corner that market, and the effects of this have been dramatic for the Indian economy. The building boom in Bangalore is concrete proof of India's rising prosperity, as are increased wages: The average annual salary for a computer programmer--the most common job to be offshored to India--is $8,593. This is significant, given that 35 percent of India's population lives on less than $1 a day, according to UNICEF.
Workers in offshoring magnets such as China, India, Singapore, Bangladesh and Columbia may be relishing their new financial might, but the tune is different in the United States. Workers can't blame management for offshoring: The same relentless drive for the almighty dollar that birthed such U.S. manufacturing giants as GE, General Motors and Motorola (employing hundreds of thousands of U.S. workers in the process) also led these companies to lower costs by looking overseas for a cheaper labor pool. This is what happens in a free market economy, say proponents of offshoring.
Even so, it's scary for the hundreds of thousands of U.S. workers who have lost their jobs to overseas workers. It's hard--even impossible--to avoid pointing fingers in resentment, but there may be benefits to offshoring. Multinational companies that post profits year after year because of decreased labor costs are likely to expand, hire more workers and be more amenable to doling out better compensation and benefits packages. A rising tide lifts all ships, the old saying goes. Whether you see offshoring as a wolf in sheep's clothing or a normal shift in a capitalist economy, almost all experts forecast that we better get used to it because offshoring is here to stay.
What companies are sending white-collar jobs overseas? Why are they doing so? Software giants Microsoft, Oracle and Cisco Systems all have Indian facilities, although they have refused to say exactly how many offshore contractors they work with. From a purely financial perspective, it's easy to see why they'd be interested in Indian employees: They earn about a tenth of their U.S. peers.
Opponents of offshoring like to say that the trend harms U.S. workers, and in a sense, they're probably right; any family that's suffered through a job loss and prolonged unemployment is surely a testament to that fact. But for every one of these sad stories, there's a family in India (or China, or Singapore--you get the picture) that can suddenly buy the necessities of life, and even some luxuries. Surely, in the macroeconomic sense, this is good, right? The answer is simple, kind of: yes and no.
If, as most experts predict, wages for jobs in industries such as information technology, computer programming and software production, and payroll administration continue to go overseas for cheaper labor, there will be a drag on wages for these positions everywhere else in the world--specifically in the United States. On a broad scale, this could mean that general wages in all sectors for all U.S. workers will decrease, diminishing consumer spending and expanding consumer debt, thus sparking a vicious circle of downward economic growth.
Well-researched data support this assertion. The Bureau of Labor Statistics reports that after rising about 10 percent through the 1980s, the pay rate of college graduates aged 25-35 remained flat until the mid-to-late 1990s, when a tight labor market drove it up. The average hourly wage for these workers peaked at almost $23 an hour in 2001 and has dropped every year since.
India is adding almost twice as many college graduates to its workforce as the United States (2.5 million vs. 1.2 million), according to a 2004 report by the National Association of Software and Service Companies. Of these Indian graduates, 250,000 earned engineering degrees, compared to just 70,000 awarded in the United States. This trend suggests that the shock waves resulting from the increasingly highly qualified Indian workforce won't settle for many years.
David P. Northcraft, owner of Bullseye Machine Tools and Equipment, has seen the effects of offshoring first-hand. Since 2001, 57 of his clients have been pushed out of business because of the trickle-down effects of offshoring. U.S. toolmakers, he says, simply can't compete with "slave labor" overseas.
"We're bleeding ourselves to death," Northcraft says. "Since we've been sending all this manufacturing work overseas, have you seen any price reductions? No, you haven't. All [the products made overseas]
are disposable. There's no one to call with complaints when something breaks. It's terrible."
An outsourcing survey performed by Quality Digest revealed opinions that were generally consistent with that of Northcraft. Seventy-five percent of respondents reported that they opposed the offshoring trend; the majority of respondents said it was "important" or "extremely important" that they purchase only products made in their home countries.
At the murky bottom of the debate about the ethics of outsourcing and offshoring is really an argument about corporate loyalty. What do U.S.-based companies owe to their employees? Is it different than what they owe to employees in other parts of the world?
Few people would argue that expanding the middle class--especially in developing countries--is an important and noble goal. Prosperity abroad will certainly lead to increased social and political stability, both of which would make the world a better place to live in for just about everyone.
U.S. workers are understandably fearful of offshoring, but that fear could be based on an outdated paradigm. After all, surely foreign-owned manufacturing giants such as Toyota don't perceive their U.S. workforces as "offshored," although in every sense they meet that definition. The new workforce paradigm, says Jerry Mairani, president of the American Society for Quality, has to shift to reflect the new realities of a global, increasingly educated and mobile workforce.
"You can bet that a company in another country doesn't think of the United States as a foreign market," says Mairani, who also serves as director of quality for Beulter Corp. "We are the market. That's the new reality we need to get used to."
"We're really behind the curve when it comes to this issue," Mairani continues. "We perceive the markets, as we usually speak about them, as our domestic markets here in the U.S. This makes sense because we are just huge in business all over the world. But it's the larger global economy that's driving the marketplace now. I think we have to get comfortable in this new role."
The conversation about the ethics of offshoring is also heavily weighted by one's perspective. For the thousands of people who have lost their jobs because of it, offshoring is probably a black-and-white issue: horrible, with not even the hint of some good. For the rest of the economy, though, the effects are far more ambiguous. Executives are asked to make major business decisions almost every day; their decisions must reflect the good of the company. The decision to offshore a function or functions should be perceived as neutrally as possible, as just another business decision.
Mairani forecasts that the quality function will never be fully offshored because it requires some degree of physical presence in a manufacturing facility. Quality professionals of the future will likely be far more mobile than they are now.
"If you're a quality professional in any kind of corporate environment, you'd better get your frequent flyer card ready, and your passport, because you're going all over the world in this new economy," Mairani says.
A hefty dose of professional flexibility is also key in the offshoring years. "I don't think there will ever be no jobs for American workers," Mairani says. "It could be, though, that there aren't the same kind of jobs available in certain areas of the world, and while that's a bitter pill to swallow, it could also be liberating. It implies a new start and cross-training that is good for any highly employable professional."
Gartner Inc., a technology research and analysis firm, reports that although the market for global offshoring is expected to increase to $12.2 billion by 2007 (from $8.4 billion in 2004), only 20 percent of these offshoring partnerships will save money. The firm also cited trends that suggest that by 2008, 60 percent of firms that outsource parts of their customer-facing processes will suffer customer complaints and hidden costs that will outweigh any possible savings. It's possible to save 25-30 percent of a company's costs through the careful management of offshoring, but badly managed projects can "reduce the quality of the customer experience, dilute the brand values of the company and fail to deliver cost savings," according to Outsourcing Times, which quoted Gartner's research.
Subir Chowdhury, best-selling author of The Ice Cream Maker and president and CEO of ASI Consulting Group, isn't surprised by these figures. He suspects that the vast majority of offshoring partnerships are poorly managed for a simple reason: U.S. executives have been too quick to jump onto the offshoring bandwagon in search of quick cost savings. Their follow-through has been abysmal.
"In America, there is still a very strong 'flavor-of-the-month' way of doing things," Chowdhury says. "So we have these executives saying to themselves, 'Oh, India is hot right now, so let's offshore to India.' I don't see that there's a lot of consideration to the long-term effects of this. It's just about saving a quick buck, and that's never the best way to do things."
Another bump in the offshoring road is a lack of history between offshoring partners. Automakers, for example, that end long-term contracts with U.S. components makers to get cheaper deals at offshore factories may save money on the parts, but they will gain a whole new set of requirements: quality monitoring of the production facility, cultural disparities and different time zones, and a new lag time between when problems occur and when they can be solved. A survey conducted by ICM Research Ltd. illustrates this: It reported that the biggest problem for companies that outsource is difficulty in quickly pinpointing network problems.
"As with almost everything, looking for the cheapest way to do things is often the most expensive way to get things done," says Chowdhury.
In the end, what workers believe about offshoring is highly indicative of where they sit on the workforce ladder. However, it's probably fair to say that no one is totally immune from the offshoring phenomenon. Instead of fearing it, then, it makes more sense to broaden our worldview. Blind protectionism would shield the United States from offshoring; it would also prevent the kind of global partnerships that have produced some of the best innovations of the last century. Prohibiting Indian call centers or auto parts factories won't save the U.S. auto industry--or any other flagging U.S. industry, for that matter. U.S. citizens have a long history of efficiently producing innovative, quality products that are the envy of the world. That innovation and resulting industrial might was organic--not the result of the government forcing out all competition.
Maybe we should recognize the world as it has become: one giant marketplace, with many cogs in the wheels that turn it. The U.S. workforce has never seen itself as vulnerable to the shifts of the global marketplace, but getting comfortable with our role in it leaves us open to benefits that we may not see coming.
Laura Smith is Quality Digest's assistant editor.
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