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Face-off: Offshore outsourcing

There's probably no greater threat to U.S.-based IT worker job security than offshore outsourcing. Some argue the practice is sleazy and if it doesn't stop it will likely do irreparable damage to our economy. Others counter saying the fear of job loss will keep U.S. workers competitive--so stop whining. Two of our editors argue the finer points.

Bad news, no matter how it's sliced

By Mark Brunelli, Site Editor

The current trend among U.S. companies to ship IT jobs overseas hurts American workers. Moreover, the so-called savings incurred by outsourcers simply isn't enough to warrant the human cost, especially when financially sound alternatives to the practice can be found right here in the good old U.S.A.

Problems associated with offshore outsourcing -- things such as security issues, language barriers and time zone differences -- all point to one conclusion: Offshore outsourcing isn't worth the headache. It's time for CIOs to look within the United States for solutions to economic problems.

Let's examine the scope of the outsourcing problem:

  • Stamford, Conn.-based Gartner Inc. predicts that 40% of companies with revenue of more than $100 million will be trying out or using offshore services by the end of 2004.
  • Gartner also predicts that one in 20 IT jobs will head offshore by the end of 2004.
  • Cambridge, Mass.-based Forrester Research Inc.

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  • projects that more than 3 million U.S. white-collar jobs will be lost to offshore outsourcing during the next 10 years or so -- a half-million of them in IT.
  • New Canaan, Conn.-based Foote Partners LLC found that the overall premium bonus pay for certified IT workers fell 4.1% in the first half of 2003 and about 6% over the entire year. The company also found that much of this money is being used to cover the costs of offshore outsourcing.

Some say the current outsourcing trend is an example of a natural job-market shift and is to be expected in a capitalist society. The lost U.S. jobs, proponents say, will eventually be recovered by a combination of natural-market forces and the improved economy, which will result from companies' saving money. Translation: Skilled American IT workers will be forced to switch careers and/or take lower-paying jobs in their field.

What's more, even if the outsourcing fad can fairly be described as a "natural-market shift," there is no guarantee that these jobs and wages will eventually be recovered. There certainly wasn't much of a recovery after thousands of U.S. manufacturing jobs were sent overseas during the '70s and '80s. Back then, the loss of relatively well-paying, blue-collar jobs hurt that segment of the work force, and real wages for the bottom 25% of the work force were lost forever.

The highly touted savings associated with outsourcing jobs to places like India and China simply isn't as overwhelming as some would have us believe. The costs of infrastructure planning and deployment, travel and training can lower the savings substantially.

Offshore outsourcing also can also lead to myriad other problems directly and indirectly related to the bottom line. Here are just a few of those problems:

  • IT security: There are few ways to gauge the security risks posed by offshore workers. One risk is the potential loss of intellectual property and business-process secrets. China, in particular, lacks laws to protect companies' intellectual assets and is suspected of having a major espionage program targeted at U.S. technology firms.
  • Business continuity: Large terrorist networks exist in the Middle East and Southeast Asia, where many U.S. companies look to outsource IT labor. Outsourcing to a third party in one of these countries means risking that daily operations could be disrupted. A political situation, such as armed conflict between Pakistan and India, could also shut down offshore operations.
  • Customers' fears: Customers need reassurance that their data is safe. It can be difficult to convince customers and potential customers that their information is secure with a company thousands of miles away, in a nation that may be unstable.

The time to seek substitutes for offshore outsourcing is now. Several choices exist today for companies interested in keeping skilled Americans working. Many companies, like RTTS and SoftSol, are now touting domestic outsourcing alternatives that are both financially sound and good for U.S. workers. It is this humble commentator's hope that CIOs nationwide will begin examining these possibilities. American families are depending on it.


Struggle will make U.S. stronger

By Sarah Lourie, Assistant Site Editor

I'm a proud American. But I don't believe offshore outsourcing is bad for this country. I'll admit that, for the U.S. worker, the statistics on offshore outsourcing aren't pretty. But I'm convinced that, in the long run, outsourcing will strengthen us as a nation.

According to research firm Gartner Inc., by the end of 2004, one out of every 20 U.S.-based IT jobs will be sent overseas. Gartner also predicts that, by 2004, more than 80% of CIOs and CEOs in the U.S. will have considered offshore outsourcing, and more than 40% of them will have at least dabbled in outsourcing, either offshore or near shore (in Canada, Mexico, South America, and so forth). Forrester Research predicts that $136 billion in wages, or 3.3 million jobs, will move offshore in the next 10 years.

However, as sympathetic as I am to the American IT worker, I can't sit at home watching my Japanese-engineered television, wearing clothes that were made in Thailand, Hong Kong and Malaysia, demanding that my computer hardware and software be made only in the United States.

Offshore outsourcing is a smart business strategy, plain and simple. The top three reasons to outsource offshore are to reduce and control operating costs, free internal resources for other purposes, and improve a company's focus. Bottom line: Offshore outsourcing makes sense for U.S. businesses because it's a way to get the job done for less money.

If you think companies should be less concerned about the bottom line and think more about their employees, consider this: Companies that make money are healthy companies. Healthy companies fold more money back into the economy, which strengthens the economy, ultimately producing more jobs.

Here's another argument: It isn't good for us to be too comfortable. This is a global economy, after all, and we compete with people around the world.

As an industry, we'll expand our skills because of offshore outsourcing and avoid becoming stagnant. As a nation, we'll push our boundaries and become more competitive. When the automobile industry was threatened by foreign competition, it forced U.S. automakers to build better cars. Eventually, factories reopened, jobs were created, and we once again became a legitimate competitor in that industry.

These are tough economic times, and many Americans are hurting. However, U.S. businesses need to stay competitive, and outsourcing offshore will help us do that.

I am a proud American, and if you think I'm wrong to believe that my fellow citizens can push harder, do better and create more, then sue me. This is America, after all.


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