Drezner collects links on outsourcing
Daniel Drezner has linked to, and excerpted, several useful articles on outsourcing. In "Dissecting the outsourcing hypothesis" he links to and cites from a Clay Risen piece in the New Republic titled, "Is Outsourcing Really So Bad? Missed Target."
Risen makes a number of points; the most important to me is that outsourcing generates productivity gains and competitive advantage:
- "...In a sense, offshoring is simply the radical extension of the "creative destruction" processes that many credit as a driving force behind the '90s boom. Under the mantra "focus on what you do best," companies have been outsourcing non-core operations (such as human resources and call centers) for years; it is only with the emergence of high-quality telecommunications links that those operations have begun to move offshore. Unburdened by such ancillary concerns, companies are free to focus on--and innovate within--their core businesses, in turn creating new jobs, even new industries. "The standard arguments for free trade exist in this case," says Josh Bivens, an economist at the Economy Policy Institute. "I think the United States could see a productivity gain through this kind of trade." Meanwhile, the bulk of jobs that the Forrester survey claims will be outsourced are hardly the sorts of jobs on which the U.S. economy depends. "The lower-level jobs, the programming jobs, a lot of them will not be done in this country," says Stephanie Moore, an outsourcing expert at Giga, an economic research firm. In their place, she says, "New jobs are going to be created. Citibank will never let an Indian vendor manage its retail-banking operations."
Indeed, recent studies delving beyond the Forrester and Gartner numbers indicate that, despite the impact of short-term job loss, offshore outsourcing represents a net economic benefit for the United States. According to the McKinsey Global Institute, for every dollar a U.S. company spends on offshoring to India, the U.S. economy gains $1.14, thanks to a number of factors: savings from the increased operational efficiency, equipment sales to Indian outsourcers, the value of American labor reemployed to higher-wage jobs, and repatriated earnings by U.S. companies that own Indian outsourcing firms. "The recent changes driving offshoring are not that different or radical from the changes that dynamic, competitive, technologically evolving economies have experienced for the last few decades," the report concludes..."
- "...At the individual level, job loss is a painful process, and there is no guarantee that even a relatively mobile white-collar worker whose job is outsourced will be able to find a new one, let alone at the same wage. The response, however, isn't to fight against offshoring but to find ways to alleviate its negative effects. One approach--advocated by Lori Kletzer, a senior fellow at the Institute for International Economics, and Robert Litan of the Brookings Institution--is to require companies to purchase "outsourcing insurance," which would cover a portion of displaced employees' salaries for a fixed period of time in the event their jobs are outsourced. Not only would this help alleviate the pain of layoffs, but it would force companies to internalize the economic cost of their outsourcing decisions. The McKinsey report, which also favors this approach, argues that, "as offshoring volumes rise, the insurance premiums will increase, cutting into the gains from offshoring and, thereby, making offshoring less attractive to companies in periods of high unemployment..." "
- "...like it or not, [we- Ben] will have to adjust. The hints about how to make this adjustment are evident at Patni. As I meet programmers and executives, I hear lots of talk about quality and focus and ISO and CMM certifications and getting the details right. But never - not once - does anybody mention innovation, creativity, or changing the world. Again, it reminds me of Japan in the '80s - dedicated to continuous improvement but often at the expense of bolder leaps of possibility.
And therein lies the opportunity for Americans. It's inevitable that certain things - fabrication, maintenance, testing, upgrades, and other routine knowledge work - will be done overseas. But that leaves plenty for us to do. After all, before these Indian programmers have something to fabricate, maintain, test, or upgrade, that something first must be imagined and invented. And these creations must be explained to customers and marketed to suppliers and entered into the swirl of commerce in a fashion that people notice, all of which require aptitudes that are more difficult to outsource - imagination, empathy, and the ability to forge relationships. After a week in India, it seems clear that the white-collar jobs with any lasting potential in the US won't be classically high tech. Instead, they'll be high concept and high touch.
Indeed, Kirwin, the programmer in Delaware, partly confirms my suspicion. After he lost his job at J.P. Morgan, he collected unemployment for three months before he found a new job at a financial services company he prefers not to name. He's now an IT designer, not a programmer. The job is more complex than merely cranking code. He must understand the broader imperatives of the business and relate to a range of people. "It's more of a synthesis of skills," he says, rather than a commodity that can be replicated in India..."