Outsourcing Get Over It

By John Hollon

Mar. 10, 2006

President Bush had a lot on his agenda during his recent visit to India and Pakistan–including letting everyone know exactly where he stands on the issue of outsourcing American jobs overseas.

    “People do lose jobs as a result of globalization, and it’s painful for those who do lose jobs,” Bush told a group at the India School of Business in Hyderabad. “But the fundamental question is, how does a government or society react to that?

    “And it is basically one of two ways. One is to say losing jobs is painful, therefore let’s throw up protectionist walls. And the other is to say losing jobs is painful, so let’s make sure people are educated so they can … fill the jobs of the 21st century.”

    Outsourcing is one of those emotional issues that Americans have a hard time dealing with rationally. Many jobs that were traditionally handled by Americans are now going to places like India, where they can be done a lot more cheaply.

    “This is about how to redesign the supply chain,” Girsh Paranjpe, president of Wipro Ltd., told The Wall Street Journal. Wipro is one of India’s biggest outsourcing companies and recently picked up some additional American business as part of a $7.5 billion computer services contract with General Motors.

    The Journal also pointed out the huge cost differential between India and the U.S. that is fueling the outsourcing boom. For example, a telephone operator makes less than $1 an hour in India and $12 an hour in the U.S. A medical transcriptionist makes $2 an hour in India and about $14 an hour in the U.S. And, an experienced systems analyst in India makes just $11,000 a year, versus $53,000 a year in the U.S.

    Wipro president Paranjpe is right; the outsourcing boom is simply evidence that the global supply chain is changing, evolving and becoming much more efficient. Just as Wal-Mart was able to gain a huge cost advantage by leveraging technology in building its supply chain, so too are other American companies finding that there are big financial savings to be had by outsourcing jobs overseas.

    But the runaway outflow of American jobs to places like India may not be as bad as you think. A recent editorial in The New York Times pointed to a study by the Association for Computing Machinery, an American trade group, that says there are more jobs in information technology today in the U.S. than at the height of the dot-com boom. And, the report added, although 2 percent to 3 percent of American jobs in IT migrate to other countries each year, new jobs are being created here in the U.S. that more than make up for the loss.

    The bigger problem, the report said, was that interest in computer science is falling among American college students. The IT and computer sector is booming, despite the fact that there are fewer and fewer students going into the field.

    This is what President Bush means when he says that Americans need to be educated so they can fill the jobs of the 21st century. But Americans are falling behind in educating themselves for those kinds of jobs. India graduated some 200,000 engineers from college in 2004. China graduated 500,000. The U.S. turned out just 70,000 engineering graduates, according to a report titled “Rising Above the Gathering Storm,” by an advisory panel of the National Academies.

    Like it or not, globalization is here to stay, and the outflow of jobs to places like India is just another adjustment being made in the global supply chain. Americans like the lower prices for goods and services that globalization brings, but they balk at the cost–the outflow of jobs.

    America needs to get over its angst about outsourcing. We can continue to gnash our teeth and complain about the jobs being lost to lower-cost workers overseas, or we can focus on training and getting our workforce better prepared for the jobs that will be left here in the U.S.

    President Bush is right. We may not want to hear what he is saying, but we should be prepared for the consequences if we don’t.

Workforce Management, March 13, 2006, p. 58Subscribe Now!

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