Friday, June 03, 2005

effect of outsourcing technology jobs

For years, technology jobs such as computer programming and technical support have been outsourced to overseas companies. More recently, less technical functions such as call centers for healthcare and insurance claims have been moved to overseas countries. As recently as last year, college students in India business schools, outsourced through U.S. accounting firms, were completing tax returns for U.S. Citizens. This paper will review what has happened with outsourcing and analyze the effects of outsourcing these technology jobs overseas.
Until recently, technology outsourcing typically meant hiring an outside firm to handle very specific or very technical tasks that were not considered a “core competency” by the business looking to outsource. For example, an insurance company might outsource technology functions in order to focus on their core business: selling insurance. The power of the Internet and the ability to have workers “on-line” halfway across the world has changed the look of outsourcing.
Today, in an effort to reduce costs, U.S. companies import qualified foreign information technology (IT) workers by obtaining temporary visas for the new employees. Once they learn the host company's specific needs, the foreign workers often return home to establish an IT department for the firm. Once the overseas IT department is operational, the workers who trained them are often replaced.
India is one of several countries with relatively low-wage, highly educated, English-speaking populations. Smaller countries such as Ireland and the Philippines are also benefiting from U.S. cost-cutting efforts. Workers in such countries provide a broad range of business services, such as answering customer-service calls, accounting, reviewing insurance claims and processing bills. The export of American jobs has touched so many sectors of the economy that it has generated a new term to describe the trend “offshoring,” which is short for offshore outsourcing
“A lot of these off shored phiositions replace very high-wage jobs,” says Lester Thurow, dean of the Sloan School of Business at Massachusetts Institute of Technology (MIT). “Here in Boston, for example, Massachusetts General Hospital is even outsourcing radiologists. Instead of having a $450,000 radiologist read an X-ray or an MRI here, they send it to India and have it read by a $50,000 radiologist.” Meanwhile, General Electric, Microsoft and other big firms are expanding their operations in India to include everything from basic customer service to high-end research and development.
Business advocates say offshore outsourcing is nothing more than the latest cost-saving technique and that it will benefit Americans in the long run by allowing companies to be more efficient and to invest the savings in more valuable, cutting-edge U.S. jobs of the future. Labor advocates counter that offshoring threatens U.S. living standards by forcing Americans whose jobs have gone overseas to take lower-wage positions. In addition, the debate over whether offshoring helps or hurts the economy is emerging as a key issue in the coming presidential campaign.
“The Web makes it much easier for a skilled job to move to India, where you have plenty of people trained not just at MIT but at various high-tech Indian academic institutions,” says Susan Aaronson, director of globalization studies at the University of North Carolina's Kenan Institute of Private Enterprise, in Washington, D.C. “The only thing that's new about this is that middle-class jobs are now being affected” .
Estimates of the number of American jobs lost to the trend vary widely, largely because U.S. companies are not required to report their offshoring practices. One report blames offshoring for 300,000 of the 2.4 million total jobs lost since 2001. One expert recently went on record to say outsourcing is the big reason why — even though we've got an economic recovery in terms of rate of growth — we do not have an economic recovery in terms of jobs”.
Proponents of offshoring say it simply reflects the way the U.S. economy is evolving and that bumps in the road must be expected. “This trend of moving jobs to other locations, both onshore and offshore, started when we moved from an agrarian-based society to where we are today, and it's been a continuous evolution,” says Robert Daigle, co-founder of Evalueserve, an offshoring company in Chappaqua, N.Y. Evalueserve's far-flung staff includes 270 people in India who conduct market research and write patent applications for corporate clients worldwide. “Companies are outsourcing and offshoring to remain competitive”.
Business representatives say that attempts to block the hiring of foreign workers would hurt the economy, and eventually American workers. In addition to cutting labor costs, they say, globalizing work forces lets companies offer round-the-clock customer service, with workers in the Philippines and other overseas call centers answering customers when American employees are sleeping. Nevertheless, offshoring is a $35-billion-a-year business and reportedly is growing 30-40 percent annually, gobbling up 1 percent of the world's service sector, according to the Financial Times .