It was only three years’ ago that I recall speaking at an Outsourcing conference in New York…there were a couple of hundred vociferous protesters outside the hotel, journalists armed with stories of woe about impending doom for the US economy…and that Lou Dobbs guy stirring it all up on the TV at dinner time with his "Exporting America" feature. How times have changed…
In the last few days, we’ve seen both the New York Times and the BBC produce reports on outsourcing that compliment each other to drive a compelling argument: Western firms can embrace the global labor pool to focus on delivering higher-value services – which is not having a significant impact on domestic job losses. The New York times discusses the IBM business model:
“We couldn’t keep building out labor,” Samuel J. Palmisano, the chief executive, said. “The long-term strategic answer was not to have a half a million people working for I.B.M.”
Today, the company’s global work force is organized in clusters of business expertise and connected by high-speed communications links. Project managers can search worldwide for the right people with the right skills for a job. One tool is Professional Marketplace, a Web-based database of people and expertise.
The idea is to build networks for producing and delivering technology services much like the global manufacturing networks that have evolved over the last couple of decades. Look inside a computer or automobile and the parts come from all over the world. High-end technology services projects increasingly will follow that formula, combining skills from across the globe and delivered on-site or remotely over the Internet.
The Times also picks up on one very crucial point:
Jobs in technology services may be particularly vulnerable because computer programming can be described in math-based rules that are then sent over the Internet to anywhere there are skilled workers. Already, a significant amount of basic computer programming work has gone offshore to fast-growing Indian outsourcing companies like Infosys, Wipro and Tata Consultancy Services.
As they increasingly compete for higher-end work, the Indian companies are hiring thousands of workers this year in the United States, adding an odd twist to the offshoring trend. Tata alone plans to recruit 1,000 workers in America, said Surya Kant, president of the company’s American unit, for “the near-shore work that requires regular contact with clients in person.”
The Times makes a compelling argument that only certain IT jobs can be moved offshore and the offshore providers are having to bolster their onshore workforces to compete effectively for the high-end work, otherwise will be left competing for lower-value work on a price competitive basis. So while offshoring in IT created a wide pool of labor talent, it has only fueled the demand for the high-touch labor needed to work close to the customer. Creating these types of jobs onshore only serves to keep IT professionals on their toes to focus their skillsets on more client-centric work, while a lot of the programming work is done offshore.
Meanwhile, the BBC reports on a study by the Work Foundation, a not-for-profit body that aims to promote best working practice, which claims that job losses across Europe due to outsourcing to India are exaggerated:
"Concern over off-shoring has become a surrogate for wider issues about economic insecurity," said Work Foundation chief economist Ian Brinkley. "There is something about exporting jobs to foreigners that does press all the wrong buttons. Fears have been stoked by claims that the Chinese and Indians are coming to get your lunch, but the reality is that it is not happening." He said that figures showed that just 5.5% of all jobs lost across Europe in the first quarter of 2007 were due to work being sent abroad. "Self-serving claims from consultancies and aggressive PR from outsourcing companies themselves has tended to drown out the careful analysis of data regarding off-shoring," added Mr Brinkley.
Lou Dobbs is a first-class political commentator and personality, and there is no doubt he has the US’s best interests at heart. The early phase of outsourcing was clearly focused on body-shopping, with companies eager to slash costs looking to find providers to do the same work at a fraction of the cost through cheaper labor. Lou has every right to stand up to protect US interests in these circumstances. However, times have changed and businesses and governments are changing with these times. You can’t fight innovation, and the outsourcing model has evolved to the provision of business services, not products. Offshoring provides a cost-lever to enable providers to be more innovative and client centric, and while it does impact some onshore jobs in some cases, the wider picture is a developing global IT industry. Moreover, is the job market swamped with unemployed IT professionals? I don’t think so….The next big questions will be how outsourcing to China will impact the global engineering industry, and India the accounting profession. If these follow suit the way the IT outsourcing industry has developed, then it’s not going to be all doom and gloom for the future.