Offshore Outsourcing Is Both Friend And Foe
With Election Day a month away, one of the central issues in the presidential race is offshore outsourcing. According to a study released by the Information Technology Association of America (ITAA), approximately 104,000 IT and services jobs were lost to offshore outsourcing from 2000 to 2003. When presented with these figures, I initially take the stance of most Democrats, who believe this loss of jobs to inexpensive foreign labor is contributing to the downfall of the American economy. To my surprise, however, there is strong evidence to the contrary.
A Seed For Economic Growth
While 104,000 jobs in three years may be staggering at first glance, it actually represents only 2.8% of the total IT and services jobs in the United States. Even though Forrester Research estimates that as many as 3.4 million U.S. IT and services jobs will move offshore by 2015, evidence shows that these losses will actually improve the U.S. economy in the long run. A study by the McKinsey Global Institute found that for every $1 corporations spend offshore, the U.S. economy gets $1.14 in return because of lower prices and new job opportunities. Similarly, ITAA estimates that savings from the use of offshore resources will grow from $6.7 billion to $20.9 billion from 2003 to 2008, spurring investment in new IT projects and creating new jobs.
Proof that the offshoring model works is exemplified by Delta Airlines. Delta came under scrutiny for outsourcing a 1,000-seat call center to India. However, the move saved the airline more than $23 million in 2003 and allowed for the creation of 1,200 new jobs in Delta's U.S.-based reservations and sales team -- a net gain of 200 American jobs.
Is Potential Growth Worth Immediate Drawbacks?
Offshoring may increase overall U.S. jobs over time, but these jobs will likely be in sales, marketing, and project management -- not in IT. The ITAA estimates that an offshoring model will create 516,000 IT jobs over the next five years, as opposed to only 490,000 without it. However, in the domestic-centric scenario, all 490,000 jobs would remain in the United States, where the 516,000 jobs created by offshoring would be split, sending 272,000 overseas and providing only 244,000 for American workers.
Also, while the offshoring model makes sense for tasks such as software programming and data mining, I believe it falls short once foreign labor is required to interact directly with American consumers. For example, I recently called for technical support on a laptop I purchased from an American computer manufacturer. I was transferred to a call center in India and connected to a technician who, although pleasant, could barely speak English. A problem that should have taken 10 minutes to resolve ended up taking 2 hours. Because of this frustrating experience, I vowed never to buy another product from that manufacturer. I'm not alone in taking such actions, and this type of backlash can't be good for American business.
Seize The Day, But Prepare For The Future
So, how should a VAR position itself in this politically charged economic climate? My advice: carefully. First of all, VARs should realize that regardless which candidate takes office or how severe the backlash becomes, offshoring does produce benefits when used wisely. Because of this, it will never disappear, and several large corporate entities will demand offshoring capabilities from their service providers. Larger VARs would be wise to invest in their globalization efforts.
Likewise, VARs should be cognizant that, until our struggling economy rebounds, strong opposition to sending American jobs overseas will linger. Many U.S. organizations will attempt to avoid disapproval by temporarily moving their outsourced services from foreign to domestic labor. America's small to midsize VARs can capitalize on this trend by delivering these services.