Dangerous Currents in Offshored Knowledge Work

By Ed Frauenheim

Oct. 25, 2005

Some observers warn that even if sending higher-level “knowledge” work to countries such as India and China is a good strategy for some companies, it also could harm the United States’ middle class, its tech leadership and even the health of U.S.-based businesses themselves.

    Enlisting outside firms in places like India and Russia can make U.S.-based researchers more effective, says Eugene Kublanov, vice president of neoIT, a management consulting firm specializing in offshore outsourcing. But if the arrangement is managed poorly, he says, it endangers retention efforts in America because key U.S. employees might begin to doubt their future in the firm.

    What’s more, sending too much R&D work to a foreign partner raises the specter of “hollowing out” a business, whereby its creative power erodes, Kublanov argues. “If innovation is core to your company,” he says, “you have to be careful with even the pieces of R&D you send out.”

    While business executives and some economists defend offshoring as being vital to companies and good for the overall global economy, some analysts argue that trade with Asian nations is done on terms unfair to the United States, thanks to undervalued foreign currencies that make U.S. workers less competitive.

    Also of concern to some U.S. officials is the possibility that technological advances by China–resulting in part from American companies’ R&D activities there–could have military implications.

    Then there are questions about the feasibility of tapping foreign engineers for high-level work. A recent report from consulting firm McKinsey & Co. found that while there are twice as many experienced university graduates in low-wage countries as in high-wage countries, “only a fraction of this total labor pool is actually suitable to work for a multinational company’s offshore operations.”

    Among the factors that reduce the potential talent supply in low-wage nations: language abilities and “overall quality of the educational system and its ability to convey practical skills,” according to McKinsey.

    Worker advocates have been the most vocal opponents of offshoring. Marcus Courtney, president of the Washington Alliance of Technology Workers, a Seattle-based labor group, argues that shipping high-level tasks offshore threatens the financial security of U.S. workers and their communities. “The consequence of relentless outsourcing is the driving down of living standards,” he says.

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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