Offshore IT outsourcing: Economy, not ethics, is big question for CIOs

Offshore IT outsourcing is an emotional topic for CIOs, but the cost can be more complicated than a simple bottom line.

Wendy Schuchart

Wendy Schuchart,
Senior Site Editor

This past week, SearchCIO-Midmarket Features Writer Karen Goulart explored the trend of IT insourcing. It was perceived by our readers as a feel good story, but I'm not sure why. One of the biggest issues that pops up when discussing offshore IT outsourcing surrounds ethics. Senator Chuck Grassley wrote in a letter to Microsoft Inc. CEO Steve Ballmer, "Microsoft has a moral obligation to protect these American workers by putting them first during these difficult economic times." Apple Inc. has taken criticism for offshoring to gigantic facility Foxconn the manufacturing of iPads and iPhones by the millions. Working conditions at Foxconn are allegedly inferior to what would be legal in the U.S.

One has to wonder whether there's an apples-to-oranges conflagration. While jobs truly are being eliminated on U.S. soil in exchange for new positions created in foreign markets, in practicum, it's not usually a one-to-one relationship. Jobs are often eliminated due to a financial need to reduce costs and stay competitive in the marketplace. While it's an emotional subject, the fact remains that the typical U.S. worker demands a higher salary than a similar worker in Bangalore, Shenzhen or Mexico City. By offshore IT outsourcing, the company is able to retain the same productivity at a lower cost (in theory, at least).

If, say, the U.S. government ruled that offshore IT outsourcing were illegal, it's entirely possible that we'd see a reduction in workforce to align with those budgetary constraints while the workers who remained would be tasked with more work to fill the gap. Of course, associates who are retained after a blitz might argue that they are still filling a gap even with the relocated offshore IT support. The justification for small- and medium-sized businesses (SMBs) is that, by sending a portion of the jobs overseas, they save whatever jobs remain in the U.S.

Obviously, outsourcing IT services makes sense in many situations. But in outsourcing a task, production or an initiative, the where is often under the advisement of the CIO. For instance, whether an SMB decides to go with a local company to produce its new mobile customer engagement application or to a Silicon Valley producer is entirely a matter of what makes the best sense.

Offshoring as a national concern

In the 2012 U.S. presidential election, offshore outsourcing became the demon that everyone liked to invoke, but the truth is, it's not as simple as an ethical dilemma, and I'm not entirely sure that it should be one. Capitalism, by definition, requires the purchase and acquisition of goods at a lower price and then the sale of those goods or services at a higher price. In a perfect world, we would all understand exactly how each and every piece of the supply chain gets produced, and we would have a rock-solid understanding -- ideally gained through first-hand experience -- of how the workers are treated in those facilities. The moment that those goods and services are produced and performed outside of U.S. borders, you can no longer trust what you're seeing.

The only way to ensure U.S.-grade working conditions is to retain U.S. production facilities at U.S. pay grades. Period. You can't have it both ways.

Nobody likes to talk about this, but how likely is it that offshore providers who are treating their workers inhumanely would neglect to create a smokescreen to hide their less-than-desirable facilities? The only way to ensure U.S.-grade working conditions is to retain U.S. production facilities at U.S. pay grades. Period. You can't have it both ways.

Instead, let's talk about what's right or wrong for the U.S. economy -- you know, that thing that drives a business' sales and growth. What CIOs (and CEOs) should be wondering is how eliminating a portion of their U.S. workforce will affect the state of the U.S. economy and their potential U.S. customer base. Shifting those jobs to other economies to fix this one is like fixing a leaky boat by poking more holes in the bottom to let the water out. There's an assumption that by shifting money into foreign markets, those markets will eventually shift that same capital back to the U.S. However, one has only to look at the U.S. trade deficits -- upwards of $500 billion annually and growing by the minute -- to suspect that might be poor assumption.

How can CIOs support the goals of the business -- one of which is ostensibly to earn revenue -- while sending their customers' income overseas? And if there's not a direct impact on their particular customer base, the income stream certainly impacts other businesses, which are in turn potentially offshoring customers of still other business. Pardon me while I get all Elton John, but we're talking about the circle of life here as it pertains to wallets and take-home pay. You start sending the money outside the circle and other facets start to weaken.

This is where CIOs have the opportunity to support the business' bottom line by thinking nationally but acting locally. While selective offshore outsourcing is a facet of today's business, it pays to cultivate innovation closer to home. You can bank on it.

What do you think? How has offshore IT outsourcing worked for you? Are you finding it worthwhile? Have you seen any negative impacts of offshoring IT? Let's start a discussion in the comments.

Let us know what you think about the story; email Wendy Schuchart, Senior Site Editor. For midmarket IT news and updates throughout the week, follow us on Twitter @ciomidmarket.

This was first published in April 2013

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