Outsourcing's long-term effects on U.S. jobs at issue
By JOHN COOK and PAUL NYHAN
Outsourcing.
That single word has evoked far-reaching emotions in the past year, prompting presidential candidates and labor groups to decry its practice and economists and chief executives to defend it as a natural progression of the economy.
But what is outsourcing?
As a concept it's not new. Companies have chased cheap labor around the globe for decades, making cars in Mexico, plastic toys in Taiwan and shirts in Malaysia.
But in recent years, the effort has crept into higher gear and income brackets, and it shows no signs of slowing down. The latest outcry is fueled by the fact that some service professionals, once insulated from outsourcing, are watching their jobs head overseas during a largely jobless recovery.
It is unclear how many accounting, engineering, technical support and other professional jobs have moved offshore in recent years. But some industry watchers believe as many as 200,000 service jobs could be lost each year for the next 11 years.
That has some American job seekers concerned. But others view it as an opportunity.
"We are on the leading edge of just a transformation of what work means around the world," said Hank Queen, who has watched plenty of work move overseas as vice president of engineering and manufacturing at The Boeing Co.
BOEING
Perhaps no player in the local economy has sent more jobs overseas than Boeing.
The company makes no excuses for sending work to South Africa, Italy, China, Russia and other far-flung parts on the globe.
But unlike the new breed of outsourcers, Boeing isn't only hunting for cheaper labor. Rather, it places work in countries where it is also trying to sell planes or spreads risks on new projects by farming out work to foreign suppliers. Officials are drawn to cheap labor, but sales are more important, Queen said.
And the company argues it has no choice. It must build planes with fewer and more productive workers to remain competitive.
"If we don't change, we die," Queen said last year.
Boeing's longstanding overseas recruiting effort underscores the fact that outsourcing is nothing new. Where once car building shifted to Japan, now financial analysis, telemarketing and software development head to India and elsewhere.
"We should not view this as something that is revolutionary. It is more evolutionary," said Gus Faucher, a senior economist at Economy.com "To a large extent it is inevitable."
It may be an unavoidable chapter in a long-running story, but it's a pivotal one, and one that could remake the U.S. work force.
We are at the beginning of a trend that could end with employers caring little where many employees work, instead connecting with global work forces through networks, Queen said.
That's one possibility, but the future is far from clear because so little comprehensive data exist and because the story is just beginning. The majority of Fortune 1,000 firms, 60 percent, have yet to embrace outsourcing, while 5 percent to 10 percent rely on it as a critical business tool, according to a report from Forrester Research Inc.
The General Accounting Office, a research arm of Congress, will bring the problem into greater focus when it releases a study this spring on trends in information-technology jobs going overseas.
TECHNOLOGY
It is no secret that American technology companies in recent years have benefited from sending work to lower-cost operations overseas. From printer assembly in Taiwan to microprocessor manufacturing in Malaysia, the cost advantages of outsourcing have been on the top of the list for many corporate executives.
About 30 percent of Intel's microprocessors are now built overseas, primarily in Ireland and Israel. Four of the six manufacturing facilities operated by Dell Computer are outside the United States.
The off-shoring efficiencies achieved by companies such as Dell and Intel help fuel the U.S. economy by sparking more innovation, said Bill Miller, a venture capitalist with OVP Venture Partners in Kirkland
"If they hadn't made that decision to keep their costs as low as they are, the two leading companies (in semiconductors and personal computers) would not be American companies," Miller said.
But in the past couple of years, the debate over outsourcing has intensified as technology companies reduce costs by sending technical support, software development, quality assurance and other functions offshore.
Only a few years ago this idea would have been impossible. The world mostly turned to its technology leaders, companies such as Microsoft Corp. for example, when it needed software. But with the growth of broadband Internet connections and e-mail, technical support staff and software developers can respond to questions with the same speed in Bangalore, India, as they do in Bellevue. And they can do it at a fraction of the cost.
A host of Seattle area software companies are taking advantage of the cost differences, with many of them targeting India because of its English-speaking population and wealth of talented programmers.
Bellevue-based Talisma, a maker of customer-relationship-management software, employs about 200 of its 275 workers in Bangalore. Click2learn, Aventail, Watchmark-Comnitel and others have set up centers in India. Last year, Microsoft opened a technical support operation in Bangalore -- a move that angered Seattle labor organization WashTech, which said it would threaten American jobs. Microsoft already operates a software-development center in Hyderabad, India, with plans to staff it with 500 programmers.
Technology companies say they need a global work force to compete and that the current wave of outsourcing follows a trend that began when international barriers started tumbling in the 1990s.
But don't tell that to Myra Bronstein, a Mercer Island resident who lost her software-testing job last year when her company shifted the work to India. Before she was laid off from Watchmark-Comnitel, Bronstein was making $76,500 a year.
Now with her paycheck gone and unemployment benefits exhausted, Bronstein has resorted to selling furniture and collectibles on eBay.
She blames outsourcing.
"The fact that they not only outsourced my job, but my entire industry, makes me feel powerless and paralyzed," said Bronstein. "Frankly, this situation has created problems that are way too big for one person like me to solve."
BACKLASH
Not surprisingly, politicians are rushing to fill the void left by the lack of enough hard data.
Democratic presidential front-runner Sen. John Kerry has already said he will "tear every page from the tax code" that allows "any Benedict Arnold CEO or company to move jobs overseas."
In Congress, Democratic lawmakers bashed top Bush administration economic adviser Dr. Greg Mankiw when he suggested outsourcing could eventually help the economy.
Lost in the Democratic response was that Mankiw also said the administration is committed to helping workers through the change.
Politicians may huff and puff, but there is only so much they can do.
If they erect barriers against countries that grab U.S. jobs, they risk a backlash in which trading partners create their own barriers. They also risk violating global trade laws in the future by imposing tariffs.
So some lawmakers are trying to help by cushioning the blow.
Washington Democratic Rep. Adam Smith is pushing a bill that would allow service workers whose jobs go overseas to claim retraining and income assistance currently reserved for displaced manufacturing workers.
Miller, the Kirkland venture capitalist whose companies are contemplating sending work offshore, understands why outsourcing has become such as hot-button issue. But he also worries that protectionist policies could damage the economy.
"People have lost their jobs, and they may not be coming back," he said. "But the other side of it -- and one of the reasons why business people are concerned -- is that by being reactionary to this emotional issue, we could easily shoot ourselves in the foot."
It may hurt now, but Seattle eventually could benefit from the trend, economists say. More complex and better paying positions could replace disappearing jobs.
Seattle is in a good spot because it already generates those kinds of jobs at Microsoft, local biotech concerns and other high-tech firms, they say.
"I think Seattle will come out a net winner," Economy.com's Faucher said.
WashTech's Marcus Courtney, one of the most vocal critics of outsourcing, doesn't think Seattle has anything to gain when high-paying jobs move.
"There are benefits to trade," said Courtney. "But how does exporting thousands of local jobs, our best-paying and best-skilled jobs, benefit us?"
Courtney disagrees with the theory that outsourcing brings more money back into the economy in the form of research and development, thus creating more jobs.
He points to the manufacturing sector as an example.
"I don't hear many kids today saying 'I want to grow up to be a steel worker,' " he said.
seattlepi.com
Outsourcing.
That single word has evoked far-reaching emotions in the past year, prompting presidential candidates and labor groups to decry its practice and economists and chief executives to defend it as a natural progression of the economy.
But what is outsourcing?
As a concept it's not new. Companies have chased cheap labor around the globe for decades, making cars in Mexico, plastic toys in Taiwan and shirts in Malaysia.
But in recent years, the effort has crept into higher gear and income brackets, and it shows no signs of slowing down. The latest outcry is fueled by the fact that some service professionals, once insulated from outsourcing, are watching their jobs head overseas during a largely jobless recovery.
It is unclear how many accounting, engineering, technical support and other professional jobs have moved offshore in recent years. But some industry watchers believe as many as 200,000 service jobs could be lost each year for the next 11 years.
That has some American job seekers concerned. But others view it as an opportunity.
"We are on the leading edge of just a transformation of what work means around the world," said Hank Queen, who has watched plenty of work move overseas as vice president of engineering and manufacturing at The Boeing Co.
BOEING
Perhaps no player in the local economy has sent more jobs overseas than Boeing.
The company makes no excuses for sending work to South Africa, Italy, China, Russia and other far-flung parts on the globe.
But unlike the new breed of outsourcers, Boeing isn't only hunting for cheaper labor. Rather, it places work in countries where it is also trying to sell planes or spreads risks on new projects by farming out work to foreign suppliers. Officials are drawn to cheap labor, but sales are more important, Queen said.
And the company argues it has no choice. It must build planes with fewer and more productive workers to remain competitive.
"If we don't change, we die," Queen said last year.
Boeing's longstanding overseas recruiting effort underscores the fact that outsourcing is nothing new. Where once car building shifted to Japan, now financial analysis, telemarketing and software development head to India and elsewhere.
"We should not view this as something that is revolutionary. It is more evolutionary," said Gus Faucher, a senior economist at Economy.com "To a large extent it is inevitable."
It may be an unavoidable chapter in a long-running story, but it's a pivotal one, and one that could remake the U.S. work force.
We are at the beginning of a trend that could end with employers caring little where many employees work, instead connecting with global work forces through networks, Queen said.
That's one possibility, but the future is far from clear because so little comprehensive data exist and because the story is just beginning. The majority of Fortune 1,000 firms, 60 percent, have yet to embrace outsourcing, while 5 percent to 10 percent rely on it as a critical business tool, according to a report from Forrester Research Inc.
The General Accounting Office, a research arm of Congress, will bring the problem into greater focus when it releases a study this spring on trends in information-technology jobs going overseas.
TECHNOLOGY
It is no secret that American technology companies in recent years have benefited from sending work to lower-cost operations overseas. From printer assembly in Taiwan to microprocessor manufacturing in Malaysia, the cost advantages of outsourcing have been on the top of the list for many corporate executives.
About 30 percent of Intel's microprocessors are now built overseas, primarily in Ireland and Israel. Four of the six manufacturing facilities operated by Dell Computer are outside the United States.
The off-shoring efficiencies achieved by companies such as Dell and Intel help fuel the U.S. economy by sparking more innovation, said Bill Miller, a venture capitalist with OVP Venture Partners in Kirkland
"If they hadn't made that decision to keep their costs as low as they are, the two leading companies (in semiconductors and personal computers) would not be American companies," Miller said.
But in the past couple of years, the debate over outsourcing has intensified as technology companies reduce costs by sending technical support, software development, quality assurance and other functions offshore.
Only a few years ago this idea would have been impossible. The world mostly turned to its technology leaders, companies such as Microsoft Corp. for example, when it needed software. But with the growth of broadband Internet connections and e-mail, technical support staff and software developers can respond to questions with the same speed in Bangalore, India, as they do in Bellevue. And they can do it at a fraction of the cost.
A host of Seattle area software companies are taking advantage of the cost differences, with many of them targeting India because of its English-speaking population and wealth of talented programmers.
Bellevue-based Talisma, a maker of customer-relationship-management software, employs about 200 of its 275 workers in Bangalore. Click2learn, Aventail, Watchmark-Comnitel and others have set up centers in India. Last year, Microsoft opened a technical support operation in Bangalore -- a move that angered Seattle labor organization WashTech, which said it would threaten American jobs. Microsoft already operates a software-development center in Hyderabad, India, with plans to staff it with 500 programmers.
Technology companies say they need a global work force to compete and that the current wave of outsourcing follows a trend that began when international barriers started tumbling in the 1990s.
But don't tell that to Myra Bronstein, a Mercer Island resident who lost her software-testing job last year when her company shifted the work to India. Before she was laid off from Watchmark-Comnitel, Bronstein was making $76,500 a year.
Now with her paycheck gone and unemployment benefits exhausted, Bronstein has resorted to selling furniture and collectibles on eBay.
She blames outsourcing.
"The fact that they not only outsourced my job, but my entire industry, makes me feel powerless and paralyzed," said Bronstein. "Frankly, this situation has created problems that are way too big for one person like me to solve."
BACKLASH
Not surprisingly, politicians are rushing to fill the void left by the lack of enough hard data.
Democratic presidential front-runner Sen. John Kerry has already said he will "tear every page from the tax code" that allows "any Benedict Arnold CEO or company to move jobs overseas."
In Congress, Democratic lawmakers bashed top Bush administration economic adviser Dr. Greg Mankiw when he suggested outsourcing could eventually help the economy.
Lost in the Democratic response was that Mankiw also said the administration is committed to helping workers through the change.
Politicians may huff and puff, but there is only so much they can do.
If they erect barriers against countries that grab U.S. jobs, they risk a backlash in which trading partners create their own barriers. They also risk violating global trade laws in the future by imposing tariffs.
So some lawmakers are trying to help by cushioning the blow.
Washington Democratic Rep. Adam Smith is pushing a bill that would allow service workers whose jobs go overseas to claim retraining and income assistance currently reserved for displaced manufacturing workers.
Miller, the Kirkland venture capitalist whose companies are contemplating sending work offshore, understands why outsourcing has become such as hot-button issue. But he also worries that protectionist policies could damage the economy.
"People have lost their jobs, and they may not be coming back," he said. "But the other side of it -- and one of the reasons why business people are concerned -- is that by being reactionary to this emotional issue, we could easily shoot ourselves in the foot."
It may hurt now, but Seattle eventually could benefit from the trend, economists say. More complex and better paying positions could replace disappearing jobs.
Seattle is in a good spot because it already generates those kinds of jobs at Microsoft, local biotech concerns and other high-tech firms, they say.
"I think Seattle will come out a net winner," Economy.com's Faucher said.
WashTech's Marcus Courtney, one of the most vocal critics of outsourcing, doesn't think Seattle has anything to gain when high-paying jobs move.
"There are benefits to trade," said Courtney. "But how does exporting thousands of local jobs, our best-paying and best-skilled jobs, benefit us?"
Courtney disagrees with the theory that outsourcing brings more money back into the economy in the form of research and development, thus creating more jobs.
He points to the manufacturing sector as an example.
"I don't hear many kids today saying 'I want to grow up to be a steel worker,' " he said.
seattlepi.com
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