Messy process of capitalism

Offshore outsourcing is nothing new; U.S. manufacturers have been sending work overseas for years. What’s new about offshore outsourcing is that we’re now transferring the work of knowledge workers to places like India and China. Software development, call centre operations, procurement and accounting work, and even tasks such as tax preparation are moving to where the labour costs are far lower. If you call a technical support hot line, chances are good that you’ll talk to someone in India.

If you think your job isn’t vulnerable, think again. The CBS show “60 Minutes” recently ran a segment called “Out of India.” This show emphasized how much investment has been made in terms of infrastructure and human capital to sustain and grow the offshore outsourcing business model. Indian companies have built power generation plants and satellite communication centres to run call centres to serve the world 24 hours a day. They are taking college-degreed workers and teaching them English phrases and American dialects so callers feel more comfortable. Likewise, countries such as Nepal are laying miles of fibre-optic cables to improve telecom capabilities to prepare for outsourcing.

The overseas workers earn US$3,000 to $5,000 per year — a fraction of what the worker would be paid in America. Companies that outsource professional work can get great service and save 30 to 50 per cent on their costs. It’s easy to see how the economics of an outsourcing deal would entice a huge contract from a CFO.

But at what cost? No American company wants to be known as one that lays off American workers to send jobs overseas. America Online Inc., IBM Corp. and EarthLink Inc. have all been under fire for moving jobs offshore. Dell Inc. even brought back some of its contracted technical support when major corporate customers complained.

European countries are struggling with offshore outsourcing as well. Kasper Rorsted, Hewlett-Packard Co.’s managing director for Europe, Middle East and Africa, said in a speech at Cisco Connection 2004 that it’s inevitable that many existing jobs in Europe’s IT sector will move to lower-cost countries. He is calling for discussions on how to best respond to the trend.

The situation is leading politicians in both the U.S. and Europe to talk “protectionism,” or at the very least, regulation. Rep. Joseph Crowley (D-N.Y.) is leading a delegation to India to explore how the U.S. can work with that country to preserve and create jobs and ensure both countries benefit from outsourcing. Lawmakers from several states are introducing bills that would prohibit or limit state agencies from contracting with firms that use offshore workers. Service providers could be forced to reveal where the work is being done, in the same way a clothing label tells where a shirt was made.

These might be knee-jerk reactions to a long-term concern. Calling it “the messy process of capitalism,” Stuart Anderson, executive director of the National Foundation for American Policy, says we should not outlaw offshore outsourcing based on stories of American workers losing their jobs. The Computer Systems Policy Project, an organization of CEOs from major IT industry firms, is urging the development of policy priorities to spur economic growth and preserve America’s ability to compete. Such policies include improved tax credits for research and development, increased federal spending for university-based research in the physical sciences and engineering, a set of national broadband goals, and improved education and training.

I don’t have the answers, but one thing is clear: The trend of offshore outsourcing is growing, and there’s no telling where it will lead next. The effect we’ve seen on IT jobs such as programming and technical support could soon affect service areas such as radiology, tax preparation, architecture and other professions where work can be done via computer rather than “hands-on.” As long as someone else will do a job at a fraction of the cost, the work will flow to the least-cost provider.

Musthaler is vice-president of Currid & Company, a technology assessment firm in Houston. She can be reached at

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