Outsourced Jobs Could Haunt U.S.

Saturday, 11 Apr 2009 02:53 PM

By Mike Tighe

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Similar to the way American automakers fell asleep at the wheel when foreign cars gained on them, the United States could take a back seat to other countries as U.S. companies send many jobs abroad.

Some observers even hint at the specter of aiding the enemy as U.S. companies escalate outsourcing jobs in information technology, computers, and consumer electronics.

“Many multinationals are making massive investments overseas at the expense of investments at home,” according to an article in the March issue of Mechanical Engineering magazine.

“This raises fundamental questions,” the article notes, not the least of which is: “Are multinationals transferring too much technology to potential competitors?”

The answers don’t come easily, and opinions collide on the ramifications.

Outsourcing has evolved from its early days in the 1980s and 1990s, and it accelerated after the North American Free Trade Agreement removed trade barriers among the United States, Canada and Mexico in 1994, outsourcing expert Ron Hira tells Newsmax.

During those latter years of the 20th century, outsourced jobs were mainly blue-collar manufacturing jobs, says Hira, an assistant public policy professor at the Rochester (N.Y.) Institute of Technology and co-author of “Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can Be Done About It.”

The offshoring pool expanded in 2002 and 2003, Hira tells Newsmax, adding, “Now, white collar workers’ jobs are up for dibs” at an accelerating pace that some say could put 40 million jobs at stake.

Many losses are invisible because companies have mastered the PR tack of “laying off in dribs and drabs” instead of threshold numbers that must be reported, he says.

In addition, a major factor differentiates the outsourcing waves: the morning after.

During the blue-collar surge, laid-off workers were advised to retrain, often in information technology fields, usually with success, Hira says. The white-collar wave involves layoffs of a lot of higher-waged workers.

“What do you tell them to retrain into?” he says.

Asked whether the balance of some companies might shift overseas, Hira cites IBM as one that is getting close. Its Indian workforce has risen from 6,000 a few years ago to 75,000, even as has cut its U.S. payroll to 120,000, he says.

Banks and insurance companies also are major outsourcers, says Hira, adding, “It is seeping into others more than ever.”

Hira rebuts those who tout the issue as free trade. It isn’t, he says, particularly if the shifts give competitors the comparative advantage. “We will lose,” he says.

Despite such concerns, observers worried about the ramifications of the job exodus sometimes have been shushed.

For example, in January 2006, BusinessWeek acknowledged that “Benedict Arnold CEOS” were painted as the bad guys sending computer-related and customer-service jobs to India and other countries for lower labor costs.

“The changes can be harsh and deep,” BusinessWeek reported. “But a more enlightened, strategic view of global sourcing is starting to emerge as managers get a better fix on its potential.

“The new buzzword is ‘transformational outsourcing.’ Many executives are discovering offshoring is really about corporate growth, making better use of skilled U.S. staff, and even job creation in the U.S., not just cheap wages abroad.”

The labor savings are “peanuts compared to the enormous gains in efficiency, productivity, quality, and revenues that can be achieved by fully leveraging offshore talent,” the Business Week article said.

Enough with the leveraging, counters the more recent Mechanical Engineering article, even as outsourcing shares the blame with the economy for the spike in layoffs and rising U.S. unemployment.

“This massive transfer of knowledge and capabilities overseas is depleting engineering capacity in developed nations,” Mechanical Engineering reports.

The article recounts a study of a company that outsourced increasing amounts of a project to India until it didn’t have the people back home to help solve problems with customers. So the company brought staff from India to do so, which degraded U.S. workers in customers’ eyes.

Although outsourcing proponents insist that the practice will be a boon for the United States, Hira isn’t convinced. “We don’t know whether it will be good or bad,” he says. “We could be winners or losers. We don’t know.”

He recalls the days of the slogan: “What’s good for GM is good for America” and vice versa.

But the economic pendulum may be swinging too far in outsourcing.

“What’s good for IBM is not necessarily good for America,” Hira tells Newsmax. But you can bet when they go to Capitol Hill, they’ll argue for what is good for IBM.”

Outsourcing Trends for 2009

Outsourcing obviously isn’t going to reverse field and head home anytime soon, although it faces a couple of dilemmas rising from the global economic quagmire.

  • It beckons companies that want to save costs in the shrinking economy, but if they flock to it too fast, they could be stretched too thin if the financial implosion escalates.

  • Outsourcing firms have multiplied, leading to a glut of such companies.

    Nonetheless, outsourcing gurus predict industry progress this year. The International Association of Outsourcing Professionals issued a prediction of five top trends for 2009, based on more than 25 observations about global factors affecting the industry:

  • Outsourcing will stay closer to home, partly because layoffs have improved the talent pool. That could make domestic providers and near-shore destinations the big winners.

  • Global financial uncertainties will stall the breakneck speed of outsourcing, as companies cut spending.

  • Professional expertise will be valued, although outsourcing providers’ profit margins will decrease as companies emphasize larger cost savings and lower risks.

  • Strategic companies will prosper as the economic meltdown creates opportunities for strong, well-positioned companies, according to consultants Booz & Co., a founding member of the outsourcing association.

    “In many ways, it will be the best of times and the worst of times,” says Michael Corbett, chairman of the international group. “In this turbulent environment, it will no longer be a rising tide that can lift all boats. Only the truly seaworthy will prosper.”

    Echoing that thought is an article on the Web site ezinearticles.com, which suggests that many outsourcing companies that have been created pell-mell can’t survive the competition, and many will be forced to consolidate.

  • Social responsibility and green will be outsourcing themes, the group predicts.

    That, too, mirrors a trend cited in the ezinearticles.com piece, which notes that customers are demanding that global companies take such issues into account.

    The rush to outsourcing still dallies with peril, Gartner Research analyst Linda Cohen told itworld.com. Companies trying to save money exhibit “convenient amnesia” about arrangements that backfired and sign ill-advised deals for short-term returns, she said.

    “Everyone has a gun to their head right now,” Cohen said. “But the financial voodoo of outsourcing deals doesn’t work. You have to accept the reality that, if you hand your mess over to a vendor, you’re going to eventually have to pay for that burden they take off your plate.”

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