ARTICLES : OUTSOURCING: WHAT’S THE BIG DEAL?

Outside of the continuing efforts fighting the war on terror and politics regarding social issues, the hottest issue is the current and future state of the U.S. economy. Many market watchers and media types reason outsourcing jobs to cheaper locations overseas has and will continue to adversely affect the U.S. economy.Lou Dobbs of CNN calls it “Exporting America.” He cites that the lack of job creation in the private sector, two decades without a trade surplus and the loss of over three million U.S. jobs within 36 months points cumulatively towards further erosion in the U.S. economy and, ultimately, the loss of additional jobs.

Rory L. Terry, a professor at Fort Hays State and contributor to Lou Dobbs Tonight states, “(As a result of outsourcing), we lose our ability to make independent decisions that are in our best interest when we are dependent on foreign debt and foreign manufacturing.”

Former Secretary of State Colin Powell, on a Spring 2004 visit to India, stated “”Outsourcing is a reality in the 21st century global environment. Outsourcing invariably does result in the loss of jobs and we have to do a better job in the United States of creating opportunity in the United States to provide more jobs so that those who have lost jobs will have opportunities in the future.”

State governments are taking action against local companies that plan to outsource. In 2004, Massachusetts Governor Mitt Romney proposed a $29 million dollar plan to curb outsourcing of jobs out of state. His plan will give more than $8 million in capital loans to companies looking to expand or stay in-state. It would provide $10 million in grants to companies who create more than 250 jobs, and distribute over $11 million (in $2,000 increments) to companies that hire long-time residents who lost their jobs more than one year ago. “The reality of today’s business climate is that a growing number of companies are sending their best jobs out of state,” Romney stated. “These common sense initiatives will help slow outsourcing and speed up insourcing.”

Those who value outsourcing as a key component of business strategy will argue that customers – particularly U.S. corporate and retail customers – want goods and services better, cheaper and faster.

According to John Sculley, former CEO of Pepsi Co. and Apple Computer, outsourcing is actually enabling the U.S. economy. He argues that a structural shift is occurring in U.S. corporations – from hierarchical work structures to project-centric virtual teams. This phenomenon coupled with consumer’s immediate demand for the best products and services customized at the lowest price, has spurned companies to embrace outsourcing and low-cost opportunities overseas.

Michael Corbett of Firmbuilder.com notes that outsourcing can lead to a 20 – 55% cumulative cost savings (including labor, IT, management and telecommunications) to companies who plan to or have moved to an outsourcing arrangement. The ability for immediate customer contact through the Internet and rapidly evolving technologies has enabled developing economies such as those in India, China and Philippines to become growth areas for the world economy – and the ultimate parking place for white-collar U.S. jobs.

Nandan Nilekani is CEO of InfoSys, an IT service provider that has added over 9,000 employees during the past year. Almost 70% of the company’s $1 billion in annual revenue is generated from U.S.-based clients. “We’re helping to enhance the productivity and competitiveness of our customers, including our U.S. customers. The only way to raise the standard of living is to improve productivity.”

The premise of outsourcing and moving jobs to lower cost sites is not new. As early as the 1960s, many U.S.-based manufacturers began opening operations, processing and assembly units in Asia moving many blue-collar jobs from the Midwest with them. What is new, though, is the target for job transition. Many white-collar professional jobs – accountants, lawyers, physicians, customer service professionals – are now at risk.

The most telling outsourcing story, however, comes from Chris Larsen, CEO of E-Loan. E-Loan outsources its loan processing. In light of the recent media uproar, Larsen and his team made a decision in late 2003 to allow U.S. customers to choose where they wanted to have their loans processed. Either through the Internet or over the phone, clients were given the option to have their loan processed in Dallas, TX or Bangalore, India. The one caveat was – prior to selecting a processing site – customers were notified all work processed in Dallas would take an additional 48 – 72 hours to complete. Internet applicants were met with flashing confirmation screens. Phone callers were asked to confirm they heard the option and the additional time required. Guess where clients wanted their loans processed? Yep – better, cheaper, faster – in Bangalore. For the first month, 86% of U.S. applicants
(86 %!) requested to have their loan processed in Bangalore.

Herein lays the dilemma that politicians, corporate leaders and average American consumers face. We demand high-quality, low-cost, just-in-time products and services. We want the best – and we want it now – for as little as possible. We demand it as consumers. Corporations demand it from their service providers. It makes for a competitive global economy.

Yet, these demands are coming from the same consumers who are complaining about current job losses and (according to some experts) a bleak future job market as a result of outsourcing.

Unfortunately, we as consumers can’t have it both ways.

Carl Steidtmann, Chief Economist at Deloitte Research, recently published an article entitled “The Macroeconomic Case for Outsourcing.” In his commentary, Mr. Steidtmann states, “Neither outsourcing…nor off-shoring…is the exporting of jobs. Both represent the importing of services. The benefit of importing services is an improvement in productivity. The buyer is able to get more for less. Increased trade also forces domestic producers to be more productive in order to remain competitive. Improving productivity raises the standard of living, puts downward pressure on prices and gives a boost to profitability and wages.”