Fast Change, Slow

By Larry Dignan  |  Posted 2003-09-05 Print this article Print

You want to lower costs. You will be managing projects globally. But the move of programming and other top jobs abroad has implications for national security. And you just might be creating your next rival.

Fast Change, Slow Response
For Ronil Hira, assistant professor at the Rochester Institute of Technology in Rochester, N.Y., the biggest concern about offshore outsourcing is that it's a fast-moving trend with largely unknown implications for the U.S.

"This debate has been cast as 'this is free trade vs. protectionism'," says Hira, who testified before a House of Representatives committee in June. "I don't think that's the right way of thinking about it. That's just one part of what's going on. This is happening so rapidly that the labor market doesn't have time to adjust. There's a long lag for retraining, moving and those sorts of things."

Hira's biggest concern is that research and development for cutting-edge technology moves offshore. This is a development that is not apparent now, but likely in the future, he says. Currently, "commodity" jobs such as programming and coding are moving offshore, but analysts widely expect higher-level careers to also go abroad. Indeed, Forrester Research projects 288,281 management jobs offshore by 2015, up from zero in 2000 and 37,477 in 2005.

Hira says he isn't opposed to offshore outsourcing, but argues it would be in the national interest to look before the economy leaps. "The way I see it right now, we don't have a read on the magnitude, scale or scope of offshore outsourcing and what's actually happening," says Hira.

Before offshore outsourcing gets too far along, Hira says there should be a national fact-finding mission to get the following:
  • Conduct a census of what's happening with the movement of high-level professional and management jobs abroad. The survey should nail down: How many jobs have left in technology, what is the quality of the services, and how is trade affected?
  • Outline how the military would procure technology that originates outside of the U.S.
  • Determine how losers will be compensated and detail retraining efforts.
  • Project short-term and long-term economic impacts, and define winners and losers.
"One fact that's being overlooked here is that there are losers in this equation. There's no free lunch in free trade. You can be principled about free trade, but if you don't say how do we compensate and retool the losers you miss part of the equation," says Hira.

Those who advocate procuring talent wherever it's available at the best rates don't dismiss Hira's worries about moving development of cutting edge technology offshore and short-term pain for an educated workforce. However, they do argue that the U.S. economy will survive and thrive by embracing such globalization of resources and not circling the wagons.

Gerald Hanweck, a finance professor at George Mason University, says U.S. companies would be under pressure by global competitors using cheaper overseas talent, so it makes sense for domestic businesses to keep an edge.

"You may look at it as exporting jobs, but those jobs would be under pressure anyway," says Hanweck. "From a free-market point of view when you have talent around the world that's less expensive, you should be able to hire that talent."

While acknowledging potential job displacement and likely flattening of technology salaries globally, Hanweck notes that competitive U.S. companies will maintain the tax base better than extinct ones that didn't cut costs.

Ray Bingham, CEO of Cadence Design Systems, a chip-design company, has 1,000 offshore workers in India, China, Russia and even France depending on customer requirements and cost. In July, he told employees he was expanding in India and temporarily contracting operations in North America. "It was not a pleasant message," says Bingham.

Nevertheless, that trend will continue even if business improves, he says. There will be more jobs created domestically, but growth won't come close to matching hiring offshore, says Bingham, reflecting a common theme among executives.

Bingham says the short-term pain is worth the payoff of productivity. According to him, the U.S. economy has something the world doesn't—velocity. That means Americans are uniquely suited to rip up a blueprint and reallocate capital to cook up another growth industry. Ultimately, U.S. workers will be more productive with the competition from other pools of talent around the world. The result: They will drive themselves to become more valuable, he says.

"It's two edges of a knife," he says. "Cadence employees realize it's locally inconvenient, but a requirement for winning."

Technology managers in the trenches may not agree completely with Bingham's big picture outlook, but they see using talent on a for-hire basis in locales around the globe as a way to survive.

"You either do it and sacrifice some positions to save the bigger piece, or are you really going to drive the company in a less-competitive position and lose the entire organization," says James Fridenberg, vice president, policy management applications at Farmers Insurance Group. "It's the lesser of the two evils. The U.S. has always prided itself on the survival of the fittest, and if we are not the lowest-cost provider of software services we need to find a new niche."

Christopher Campo, 40, of Phoenix, is struggling to find his new niche. A former technology infrastructure manager, he's been looking for work for 10 months. He may soon choose a new career, going back to school for accounting. Another option: pharmacist, which would require six years of school.

"I like what I do and I'm good at it, but I have to make a decision soon," says Campo, who says the salary at his next job is likely to be lower.

For Hira, tracking workers like Campo is key to determining the effects of offshore outsourcing. "I hear a lot of people say 'look at healthcare; there's a shortage of nurses,'" says Hira. "So you're saying to someone, you have your four-year electrical engineering degree, you've worked in the industry for 15 years and you're in your late 30s with kids and you now have to go back and study nursing. Is that the answer?"

"That is the $64,000 question," says Bradley Clark, manager of global resourcing at LexisNexis. "I don't know how to get around that situation."

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

Submit a Comment

Loading Comments...
eWeek eWeek

Have the latest technology news and resources emailed to you everyday.