Newsweek on Outsourcing

February 28th, 2006

Posted by: Roger Pielke, Jr.

An article about India and concerns about U.S. outsourcing in this week’s Newsweek is relevant to our on going discussion of Rising Above the Gathering Storm and U.S. “competitiveness.” It is titled, “Outsourcing: Silicon Valley East Americans once feared their jobs would be shipped to India, but the backlash was overdone. Now everybody’s winning,” and can be found here. Here is an excerpt:

Not long ago, what seemed most possible was that India would steal the jobs of American workers. But as George W. Bush visits there this week, he’ll find a maturing economy that is no longer all about call centers and basic tech support. Now big American investment banks and drugmakers are joining tech firms on the passage to India. R&D centers are springing up so fast that there’s now a shortage of Indian engineers. And the stigma of outsourcing jobs to India is disappearing. American companies once afraid to put their names on the doors of their Indian offices now issue press releases touting their latest investments there. “American firms have gotten over their anxiety about India,” says financial-services consultant Harrell Smith of Celent Communications. “Now the new anxiety is if you’re not in India.”

What happened to the outsourcing backlash? It has been muted by the fact that India didn’t suck Silicon Valley dry after all. Actually, U.S. tech employment is growing. There are 17 percent more tech workers in the United States today than back in the bubble days of 1999, says a new study by the Association for Computing Machinery. And the Bureau of Labor Statistics predicts that the U.S. economy will add 1 million tech jobs over the next decade, a 30 percent increase. “Everyone was worried about the offshoring bogeyman,” says Moshe Vardi, an author of the ACM study. “But the big whoosh of jobs to India never happened.” Indeed, that gush slowed to a steady stream once American companies realized it’s tough to set up shop in a country with bad roads and a patchy power grid. Lately, American consulting firms that once predicted runaway growth in outsourcing to India have been slashing their estimates by half or more. Now American companies are hanging on to the high-skilled work that requires face-to-face interaction, while everything that can be done “over the wire” gets shipped offshore.

4 Responses to “Newsweek on Outsourcing”

  1. Markk Says:

    Yes, I saw that story a while back. There are a couple things missing from that story:

    - What are the jobs they are discussing – “skilled work”?
    - What is the change in salaries of the jobs created vs. the jobs lost?

    “Outsourcing” per se, always had the issue of working across continents, at least in the software field, aside from t-cons at ungodly hours, the efficiency of someone in India was always taken by me to be about 40% of a local for work estimation purposes. Most of the lack of efficiency wasn’t that they were less talented, just that they were far away and disconnected – bring them onsite and efficiency blossomed.

    Again, the fact is, outsourcing will never take away most of the jobs, but will outsourcing, and more importantly to me, outbuilding, as it were, eliminate growth, and remove career path opportunities here. These are my interesting questions. I feel like they will for some time and there is not much we can do about it. We (the US) should perhaps be looking beyond this to a point where productivity makes the need for skilled people decrease overall. That is, less people are simply needed in design like just like it now takes a tenth (or less) of the people to make the same number of, say, beer cans, that it took 20 years ago. What will the percentages of people in given areas be?

    To change the subject slightly, I actually think things like open source may cause something like that productivity by removing inefficiency in the standard software realm, and allowing resources to be re-allocated. i know one $10B+ company that is spending $30m a year on licenses alone, forgetting support, that’s a lot of resources to re-allocate that are really a brake on growth – this money doesn’t seem to be efficiently used to create new software that would benefit this company, but it does seem to be used by the software companies to expand in other directions, and try to lobby for restraints and Digital Restrictions which will lock in the market. Isn’t that what market inefficiency is?

  2. 2
  3. Paul Says:

    From an economist. “D’oh!”

  4. 3
  5. Brad Hoge Says:

    Does “what’s good for industry” equate to “what’s good for US workers”? Globalization has been touted as both a boon by creating huge new markets, and as a boogie man by encouraging outsoucing of manufacturing and development jobs. One might expect a balance to be struck, but what is most concerning is our increasing trade imbalance. I’m not an economist, but surely wages will have to fall eventually if we cannot rectify this imbalance. Please correct me if I’m wrong.

  6. 4
  7. Michael Hughes Says:

    EVERYBODY is winning? Maybe in cloud cuckoo land but certainly not here in the US.

    I happen to work in Silicon Valley and, sure, for the moment I still have a job, but what has really happened here?

    First and foremost the H-1B visa has been abused. US citizen high-tech workers in SV have been forced to train their H-1B replacements and then they have been fired. Whole departments have been replaced this way. H-1B visa holders are the beneficiaries of the 17% increase in employment over the peak of the dot-com bubble found by David Patterson (President of ACU).

    US citizens who were formerly employed in high-tech find themselves in lower skilled jobs or much lower paying jobs but still with the same family to feed, clothe and educate at US rates.

    The salaries of those of us still employed have not anywhere near kept pace with inflation. (In fact, my fellow workers and I have not seen any pay raises this century). If we try to jump ship we find that the job market is awash with foreigners (mainly H-1B visa holders) and can thus expect an even lower salary and fewer benefits. Those US citizens whose parents that made sacrifices to fund their children’s High-Tech college degrees find that they might just as well have learned to flip hamburgers.

    Almost everyday I hear of huge multinational US corporations investing vast sums of money back into their businesses, but I rarely hear of that investment being made here in the US to benefit the very communities from which they sprung and prospered.