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Panel praises benefits of offshore outsourcing

A panel of experts claims that offshore outsourcing may present challenges at home, but the good -- opportunities for innovation and cost savings -- outweighs the bad.

LAS VEGAS -- A panel of experts agreed the opportunities that offshore outsourcing brings to the table -- cost savings and innovation -- outweigh the short-term threats of job loss.

The panel, which was part of a session at last week's BetterManagement Live Worldwide Business Conference, included Nigel Holloway, director of executive services at The Economist magazine, Chip Greenlee, vice president of marketing solutions for Hewlett-Packard Co., Stephen Minton, an analyst with International Data Corp., and Art Cooke, president of SAS International.

Holloway believes that the backlash over offshoring IT services will die down -- much as it has with manufacturing. But it may take a little longer for the benefits to temper the pain.

"The concern is, services employ a lot more people than manufacturing -- about 70% of workers are in services," Holloway said. "In fact, many people in manufacturing went into services. So the issue is, where do they go now?"

But Holloway quickly turned to the overriding benefits of globalization -- benefits he claimed several studies bear out.

Figures from the McKinsey Global Institute, he said, show every dollar spent offshore creates $1.45 globally.

Holloway also mentioned a study from the Information Technology Association of America, which projects that offshoring will save U.S. companies $20 billion over the next four years -- savings that can be invested here at home.

"ITAA also found that while 138,000 IT jobs have been lost in the U.S., 277,000 have been created in IT and non-IT fields, and the disparity between those lost and gained will grow," he said.

Holloway added that ITAA also found the re-employment rate in the U.S. to be much greater than in the rest of the world, with most workers making about 96% of their original salaries. "The reduction in salaries isn't so dramatic," he said. It's clear that the benefits of offshoring outweigh the costs."

The panel brought up another benefit to offshoring, claiming that it clears the way for innovation at home.

"We should be interested in jobs that add real value on a day-to-day basis," chimed in SAS' Cooke.

HP's Greenlee, who brought an outsourcer's perspective to the panel, agreed that offshoring will not only drive the homegrown innovation needed to keep the U.S. a global economic leader, but also will open up high-end applications to firms that otherwise might not be able to afford them.

"It's hard to find and retain people to drive the innovative process," he said. "And when you're spending more money on [for example] processing purchase orders, the investment in innovation declines.

"Outsourcing takes a lot of cost out of the equation and leaves more room for investment and innovation."

Greenlee added that Merrill Lynch & Co. Inc. is an example of a company that turned to outsourcing certain functions so that it could better focus on its bread and butter.

"Merrill didn't want to provide e-mail; they thought it was better to hire brokers than people to do e-mail. The techniques used to provide outsourcing, like utility computing, allow firms to invest in their own business and not have to buy other stuff -- like computers."

For more information

Read what an ITAA official says about offshoring and the U.S. economy

Studies have shown offshoring erodes pay in the U.S.

Check out this debate over the pros and cons of offshoring

Offshoring can be a real morale wrecker if you're too hush-hush about it

Read what one former presidential adviser says America must do to survive the tech exodus

Greenlee admitted that from a social perspective, offshoring has bad points to go with the good. But he believes the doors it can open, especially for small and medium-sized businesses (SMBs), make offshoring worth the growing pains.

"It's made technology affordable to a larger segment of businesses," he said. "SMBs can buy time -- there's nothing outside their range.

IDC's Minton added that the whole offshoring process is moving up the value chain at an inexorable, but not rapid pace.

"It's significant but not a radical change in the way we're doing business," he said.

And it's hardly new, as Holloway pointed out.

"The international division of labor has been going on for centuries. It didn't begin with services."

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