The reality of offshoring

I have been writing this column for a few weeks now, and I think it’s time to tackle one of the stickier outsourcing issues: offshore outsourcing. As you probably know, offshoring is a rapidly growing segment of the outsourcing market, although in my opinion it tends to get much more media attention than it actually deserves (in other words, I think that the amount of jobs actually lost to offshoring are far less significant than the amount of time devoted to the subject).

For instance, a Bureau of Labor Statistics (BLS) report last month stated that fewer than 2% of jobs lost in the first quarter of 2004 went to workers outside the U.S.  BLS categorizes those job losses as “extended mass layoffs,” which include companies employing at least 50 workers where at least 50 workers filed for unemployment in a five-week period, and that the layoff lasted more than 30 days. Of the 239,361 private non-farm jobs lost under these terms during the first quarter of this year, 4,633 were associated with movement of work outside the country. A little more than twice that number was lost to relocations within the U.S.

On the other hand, the number of these job losses are increasing over time – some analysts predict that over 3 million IT jobs will be sent overseas in the next 10 years, and these well-publicized predictions have turned offshoring into a hot political issue, especially in this election year. For instance, last year I attended a speech given by former Secretary of State Henry Kissinger in which he indicated that he favors government regulation to help stem this tide. He feels strongly that the offshoring trend is damaging the U.S. economy and that something needs to be done about it very soon.

The economist in me (call it an evil twin) likes to think that offshoring is a good thing overall – even though it results in domestic short-term job losses, the offset is that U.S. enterprises become more efficient, resulting in better profit margins, increased ability to compete, and lower prices for our consumers. It’s really the same process that has happened over and over again in our history – in a free market, whoever can solve the riddle of how to provide the best product for the lowest cost wins the game. Jobs lost offshore should (theoretically) be replaced by higher paying onshore jobs.

The other side of the story is that the reality of offshoring is a hard pill to swallow for those of us who formerly made a good living providing IT services that have now been sent overseas. While most of these people will eventually find employment elsewhere (either by retraining in the field or in another field), the loss of a job and subsequent expenses for retraining are a significant personal impact. I think that if the government was really concerned with helping those who have been affected by outsourcing, it should provide some assistance through tuition assistance, career counseling, and extended unemployment benefits.

I plan on devoting many columns to this subject, and I want to cover both sides of the issues. For instance, I will describe service provider vendors that have experimented with offshoring and decided to bring these jobs back onshore, and I will also take a look at some offshore alternatives – both onshore as well as “nearshore.” I am especially interested in personal stories from those of you who have lost jobs to outsourcing – either on- or offshore.

As always, I welcome your ideas, suggestions and comments on the subject of outsourcing; you can e-mail me at mehr@enterprisemanagement.com Thanks for reading.