Innocents Abroad

EVER SINCE O+F STARTED A DEBATE on offshore outsourcing in its weekly e-newsletter back in August, we have been deluged with e-mails from readers. Feedback ranges from angry one-liners to several pages of detailed, well-thought-out argument. Clearly, the increasing preference for foreign contractors is shaking up the operations of North American companies.

Although U.S. manufacturers have been farming out work overseas since the 1970s, only now has public opposition to offshore labor become vociferous. With politicians entering the fray — legislators have recently introduced bills to Congress to limit temporary worker visas — the clamor has ratcheted up several notches. “In the case of manufacturing outsourcing, there were no major shifts in jobs,” says Frank J. Casale, founder and president of The Outsourcing Institute, a research and consulting firm based in Jericho, NY. “In the past two years, there have been sudden and dramatic and aggressive job shifts, primarily in IT, but also in back-office operations such as call centers and claims processing.” He doesn’t mince words about the consequences of these trends: “Let’s just say that if you’re a senior applications programmer here in the States, you’re in trouble.”


The issue isn’t so clear-cut for Ron Hira, a professor of public policy at the Rochester Institute of Technology in New York. Although it is clear that more jobs are going overseas, actual numbers are difficult to pinpoint, says Hira, who also chairs the R&D policy committee of the U.S. branch of the Institute of Electrical and Electronics Engineers. What’s more significant, in Hira’s view, is that the kinds of jobs sent abroad are changing. “The thing that concerns me is that more operations and design work is going offshore,” he says. “And once you outsource production, the trend in R&D management is to move higher-level operations closer to production.”

Legislation can stem some of the outsourcing tide, but it isn’t the only solution to domestic job losses, Hira says. “This is different from the manufacturing situation because it has affected people and not companies.” He believes that in the long term, U.S. workers have no alternative but to adjust to new business conditions. “But there are losers in this process and we should compensate them. The people who support free trade should back up their rhetoric with proposals. How does the government create institutions to help the people who are displaced?” He cites the U.S. Trade Adjustment Assistance program, which was created in the 1960s to offset business and job losses resulting from lowered trade barriers. “We’re not seeing that in the technology area.”


So what’s that senior apps programmer to do? Casale suggests moving into project or people management: “The majority of companies are still keeping relationship management in-house.” Another strategy, he says, is to specialize in critical or core technology that most companies are reluctant to move offshore — for example, proprietary systems in a brokerage firm.


To a certain extent, the drawbacks of overseas production may stave off a U.S. labor crisis. Offshore labor’s cost savings — the factor that most employers consider first — may not be as great as they seem. Experts say that the costs of selecting an offshore vendor, travel, infrastructure installation, layoffs, training and retraining, and process management can easily add up to millions of dollars more than expected. In addition, cultural barriers may sometimes prove impenetrable and even turn off customers. “My advice to anyone seeking to outsource … customer management is to look carefully into the skill sets and capabilities of the people who will actually be doing the work,” Richard Andrews, president of, wrote to O+F. “Are they appropriate to your market and your industry? The marketers of these services are very knowledgeable about the outsourcing industry and can speak well to your needs. But can they deliver the right stuff?” Andrews cited the experience of a North American firm that switched its e-mail customer service to an Asian company, but was forced to switch back because of linguistic and cultural obstacles that provoked customer complaints.


Another fulfillment services provider wrote to us that going offshore makes sense only if the product is delivered on time, the parts and materials used fit the specs (“not always the case,” she said), and freight or import/export fees are reasonable. She described the case of a consumer products firm that spent two years shipping off its manufacturing to Asia, only to have a major home store cancel its contract because of the firm’s inability to get stock in on time. “Obviously, it makes one rethink the benefits of outsourcing the manufacturing process offshore.”

Still, offshore outsourcing can’t be wished away, warns Casale of The Outsourcing Institute. “It has already taken place, and what’s happening now is a knee-jerk reaction by a lot of people to stop it. It’s a battle between job conservation and the ultimate well-being of a company and its shareholders.”

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