Offshore outsourcing

By David Ticoll at Globe and Mail Update

Three developments are sharpening the U.S. debate over the offshore outsourcing of information technology and other knowledge-based services jobs. We've got updated projections and insights from Forrester Research, some policy moves by the Bush administration and a refreshing viewpoint from Senator Joseph Lieberman.

Let's check out the Forrester data. A few weeks ago, The Wall Street Journal threw mud in the eye of its readers with a story that claimed "confusion" in analysts' projections of big job losses from offshore outsourcing. It singled out a widely cited 2002 study by Forrester that projected the loss of 3.3 million U.S. jobs by 2015. The article quoted the report's author, John McCarthy, as having said his numbers were hyped.

If the article provided ammunition or solace to one camp or another in the offshoring debate, it was short lived. In a new report published this week, Mr. McCarthy raised his 2015 estimate from 3.3 million to 3.4 million job losses and added front-end loading to the impact. Where he originally projected migration of fewer than 600,000 jobs by the end of 2005, he now predicts 830,000.

This accelerated momentum, according to Forrester, is driven by several changes. The publicity has convinced more companies that they need to act for competitive self-protection. Offshore vendors such as Wipro and Infosys now tout more kinds of services. Traditional suppliers such as IBM, Accenture and EDS are expanding their offshore capabilities and sales pitches. And companies such as banks and insurance companies are setting up their own so-called "captive" operations to deliver such internal services as call centre, accounting or claims processing. (Forrester predicts many captive operations will eventually be sold off to outsourcing vendors who can do the work more cost-effectively.)

The hardest-hit U.S. professions, including computer hardware and software engineering, Forrester says, will lose 10 per cent of their jobs by 2010, and 18 per cent by 2015.

Mr. McCarthy says this isn't just about saving money. India-based IT firms, with their focus on quality disciplines, "are bringing adult supervision into the computer industry and other services work in the way that Japanese companies brought total quality management into manufacturing."

April 24, 2004

The best blend a variety of leading-edge quality techniques with deep reserves of low-wage employees. "A lot of U.S. companies," he says, "will have to adjust."

The changes will affect many kinds of activities, not just software development. Fifteen years after the business process re-engineering craze began "there's still a ton to do. We saw one situation where a bank employee needed to go through 17 screen pages to enter a change of address. The outsourcer reduced the number to three," Mr. McCarthy says.

The Bush administration's response? Bring 'em on.

From a Canadian perch, having weathered the softwood lumber dispute, cattle bans and various other trade troubles, it's surprising to see the U.S. President as a free trader. Yet this is what George W. Bush has been saying about trade on the election trail. "The President has got to make sure that we're optimistic and confident in order for jobs to be created. That means we've got to reject what I call economic isolationism . . . shutting down markets, walling ourselves from the rest of the world."

Such words have been supported by deeds. Recently, the administration turned down a petition from the AFL-CIO (the country's largest union association) to raise tariffs on Chinese imports as a penalty for the country's low labour standards. It also denied a request from the National Association of Manufacturers to try to force China to raise the value of its currency against the dollar; so Chinese imports to the United States will remain cheap while its imports from the United States will stay dear.

While Mr. Bush's anti-isolationist view is justified, it's flawed in the details. It relies, literally, on a faith-based approach.

"The economic isolationists have a pessimistic outlook," the President said in a March 10 speech. "They don't show much faith in the American worker or the American entrepreneur. They don't think we can compete."

Senator Lieberman, a Democrat from Connecticut, agrees with Mr. Bush that isolationism is a bad idea, but he's not quite ready to rely on faith to address the impact of offshoring. In a well-researched 40-page report available on his website (, he argues that the loss of high-wage services and R&D jobs to competitors such as China and India threatens to undermine the U.S. innovation infrastructure, which he describes as the engine of job growth. Mr. Lieberman recommends an active, multipronged competitive response.

He calls for increased R&D investment, better safety nets for affected workers, stronger enforcement of trade agreements, and better work force education and training.

Until now, the U.S. debate about offshoring has been dominated by know-nothings of the "exporting America" school (defined by CNN commentator Lou Dobbs and presidential hopeful John Kerry's comments about "Benedict Arnold CEOs"), and the "don't worry be happy" crowd of pro-offshoring industry groups. The U.S. public discourse about offshoring may rise above the dialogue of the deaf. Stay tuned.

David Ticoll's new book is The Naked Corporation: How the Age of Transparency Will Revolutionize Business, written with Don Tapscott


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