Outsourcing Revisited – Truth and consequences of offshoring: Recent studies overstate the benefits and ignore the costs to American workers

From time to time we look at outsourcing issues (most recently in the comments on this blog entry )

An interesting paper, called Truth and consequences of offshoring
and subtitled Recent studies overstate the benefits and ignore the costs to American workers showed up recently.

I don’t know how to evaluate their conclusions – I have no training and no knowledge in this area. I think the same author wrote something I quoted several months ago, because some of the verbiage and some of the examples are the same.

While blue-collar labor (particularly in manufacturing) has felt a squeeze from global competition for decades, both in terms of employment security and wage growth, white-collar jobs held by well-credentialed Americans have been largely safe from pressures stemming from the global labor market. Recent reports of companies sending work abroad, ranging from call-center operators to software programmers, have changed this feeling of security.

Such insecurity, especially coming from a group that many assumed would be a prime beneficiary of globalization—i.e., well-credentialed, white-collar workers—has generated a potent political anxiety about the implications of global economic integration for American workers.

In response to this anxiety and an incipient political backlash against offshoring, a number of studies have been released by various organizations touting large economic benefits that will accrue to the American economy through the offshoring of white-collar work. A closer examination of these studies, however, shows that the promised benefits of offshoring are far overstated, while the likely economic costs are not addressed at all. Further, even the potential benefits to the American economy from offshoring are likely to be concentrated in the incomes of a relatively select percentage of American households.

The same group also published this report: NAFTA’s cautionary tale, which begins:
The rise in the U.S. trade deficit with Canada and Mexico through 2004 has caused the displacement of production that supported 1,015,291 U.S. jobs since the North American Free Trade Agreement (NAFTA) was signed in 1993. Jobs were displaced in every state and major industry in the United States. Two thirds of those lost jobs were in manufacturing industries.

The report is fairly US-centric. While it laments the jobs lost from the US to Mexico, and the lost environmental and worker protections on the continent as a whole by moving work from the US to Mexico, it ignores similar issues vis-a-vis Canada. Canada lost a *lot* of jobs to the US under NAFTA, manufacturing wages are lower, especially in the southern US (not sure why that is), most US environmental controls are less stringent than Canada’s, and certainly universal health care, for all that we wish it were better in Canada, is infinitely worse in the US.

In an area where I have some practical experience, these people seem to have their own, somewhat unbalanced, agenda. Reader beware, I guess.

Back to Offshoring … CNN Money asked:
Is India’s outsourcing honeymoon over?

Surprise! India’s reign as the world’s “Outsourcing King” may be slipping, even with its rock-bottom call center costs.

A new report from market research firm Gartner, Inc. warns that a labor crunch and rising wages could erode as much as 45 percent of India’s market share by 2007.

Indian industry watchers acknowledge that the country’s outsourcing industry — its golden goose of the moment — is indeed facing a “serious” problem.

But a more cogent discussion comes from, interestingly enough, another Blog. Fog Creek Software has a Q&A Blog, and in it, someone asked:
Have you given any thought to offshoring any of your development?

The answer was:
We will not be “offshoring” our software development because you don’t outsource your core competency. I’m not a software broker, I’m a software developer.

And he goes on to say

Indeed during the recent dotcom mania a bunch of quack business writers suggested that the company of the future would be totally virtual — just a trendy couple sipping Chardonnay in their living room outsourcing everything. What these hyperventilating “visionaries” overlooked is that the market pays for value added. Two yuppies in a living room buying an e-commerce engine from company A and selling merchandise made by company B and warehoused and shipped by company C, with customer service from company D, isn’t honestly adding much value. In fact, if you’ve ever had to outsource a critical business function, you realize that outsourcing is hell.

And he goes on to give a number of cogent examples in the software and e-commerce worlds.

Joel seems like an interesting guy – he wrote a defense of Not Invented Here syndrome, something that most people consider a management pathology (his words), but he argues that it has it’s place, depending on how important to your core business the results are and therefore how tight control you need to keep over the results.
Interestingly, one of his rules is: If you have customers, never outsource customer service. (are you listening, Michael Dell?)

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