Date:08/10/2004 URL: http://www.thehindubusinessline.com/2004/10/08/stories/2004100800010800.htm

Back Rethinking the US' offshoring conundrum

Kumar Venkat

MUCH of the heat surrounding the debate on outsourcing and offshoring seems to have dissipated in the US, in part because it has been difficult to find hard data on how these trends are taking away jobs. A recent report by the US Government Accountability Office (GAO), prepared at the request of members of Congress, admits at the outset that the available data do not provide a complete picture of the effects of offshoring.

The GAO points out that less than 1 per cent of large layoffs last year could be attributed to overseas relocation of jobs. And most of these layoffs were in the manufacturing sector. This might suggest that white-collar jobs, particularly in technology areas, have not been affected in significant numbers. But the report sheds no light on an emerging trend that may be far more significant.

Most large US-based technology companies already have design and research centres in countries such as India, China, and the Philippines. When these companies expand their workforce at these overseas locations, American workers are not directly displaced.

A semiconductor company starting a new microprocessor design could easily locate the entire project at an overseas facility and staff it with local engineers, without hiring or firing any American worker. This difference in employment growth between the US and its emerging hi-tech competitors is not directly captured in any of the data used to analyse offshoring.

A recent review of job openings posted on the Web sites of technology companies, such as Intel, Cisco, IBM and Oracle, reveals an interesting story. The number of jobs available in engineering research and development at their offices in India and China is becoming comparable to numbers in the US — 20-25 per cent in some cases to actually exceeding the number of US openings in others.

Since most engineers and researchers at these companies are still based in the US, this informal survey suggests that the rate of job growth in those categories is much higher at their overseas offices.

As technology companies stake out market positions in the fast-growing economies of China and India, it makes perfect sense for them to simultaneously use the highly skilled low-cost labour available in those countries to develop some of the products. The only losers at the moment are American workers who are becoming less competitive in a cost-sensitive global economy.

Industry leaders — including CEOs of technology companies that have found great value in offshoring — have called for new public investments in education, training and infrastructure to prop up the job market for US engineers and scientists. Some editorial writers and policymakers have suggested that the US should look to promising new areas such as biotechnology and nanotechnology to provide the jobs of the future.

In a fast-paced global economy, there is no reason to believe that China, India and other rising economic powers will sit back and watch while the US builds leadership in new technology areas and retrains workers who have lost jobs in the old areas — not to mention the difficulty of "retraining" experienced engineers and scientists to work in entirely new areas. US workers should expect more competition, not less, in the coming decades, and some of that will be based on cost. Globalisation has helped commodify skilled technical labour to a point where large differences in wages will eventually vanish.

Perhaps, the most practical way for US technology workers to remain competitive in both existing and new areas is to reduce the cost of their labour. As salaries rise rapidly in Asia's technology centres, some cost reduction in the US could help American workers stay in the game. Reducing the high cost of health-care in the US, which is mostly paid by employers, will have to be a high priority. Wider use of telecommuting could allow many workers to live in less expensive areas at lower salaries. If high-speed communication is the key to outsourcing and offshoring, why not use the same technology to reduce costs within the US?

At the moment, the US has no real strategy to compete in the global labour market. It is time for the US policymakers to rethink the outsourcing and offshoring conundrum. The US should be prepared to compete on cost as well as quality and innovation.

(The author is a US-based technologist, entrepreneur and writer. He can be reached at kvenkatmy-fb@yahoo.com)