IndusFusion’s Outsourcing Blog

Alan Blinder a professor of economics at Princeton University, vice chairman of Promontory Interfinancial Network and vice chairman of the G7 Group recently penned a Washington Post article raising another Lou Dobbsesque ‘the coming tragic effects of offshore outsourcing to the US economy’ alarm. While Mr. Blinder’s piece (I’ll avoid the pun reference as I am sure he has had well enough) supplies some depth to the more relevant issue (what needs be done), he, like most of the rest, falls short on what we believe should be the conversation: How does the US best take advantage of the inevitability? Turning what we believe already to be actually good news for the US, into an even greater success story.

Some points we feel not represented in the story

(and we won’t even speak to the altruistic values unrepresented as always)

1. With the possible exception of China, most economist agree the other large and expanding offshore outsourcing markets will evolve into huge surplus trading partners with the US.

2. If US corporations are unable to leverage the costing economies of outsourcing to these geographies, it will not be long until their market share and competitiveness against like Japanese and European entities who do outsource will soon fade. The end customers will migrate to lower cost products and services offered by the foreign competitor entities, the US companies will cut jobs, stock prices drop, stock holders lose money… we are not Princeton economist but I think we see the potential negative impact here beyond just jobs.

3. Will somebody please do a study that shows the impact of jobs and capital coming back into the states directly attributed to these offshore service providers!? Our bet is offshore outsourcing is pretty effect neutral with this contribution alone.

4. ‘Time to market’ - the reference always used as to why US corporations utilize offshore resources is always “lower cost than US equivalent staff”. This simply is not true. For example: it is very common, from tech based startups to Fortune class firms, to have a development need arise that requires lots of staff in a short period of time to complete a current project. Going out and quickly hiring a large US based team with high end development skills in short order just is not feasible in many cases. Again, perhaps Mr Blinder can share the economic effect if ManilaSoftwareServices Inc. gets their Microsoft Vista equivalent product to market first? (I know that’s a stretch example, but the point remains).

5. Many sourced efforts are not ‘jobs’ at all. They are simply short term project needs. Would we prefer to develop a societal class of temporary employee’s?

6. It is typical in sourced IT projects that what is offshored is the more mundane, lower end activities. This leaves the true IP class development for the US employees. Thereby leading to a more skilled employee stateside as their efforts are focused on the true sunrise activities versus (his words) “sunset” ones. It is these sunrise teams that allow for the US’s continued leadership position in creating and bringing to market new technologies and industries.

Does the VCR evolutionary cycle ring a bell? Remember when the alarm went off when we had developed a new technology but it was the East who were reaping all the rewards by selling the players? Yet in the end, the low cost players ended up spawning hundred’s-of-thousands of new US jobs based on the growth in related and new industries because of the mass availability of the players.

7. We would also ask that Mr Blinder share some of his expertise as to the effect to the US economy if, for example, consumers have to pay $1800 for their new laptop versus $1400 because Dell, Microsoft, HP, etc have to move out of India and replace those roles with higher cost, greater benefit US employees?

We of course could go on and on. But our objective to comment on the piece is to encourage the conversation be directed toward taking advantage of the marketplace realities versus the same old alarmist propaganda. The article offers a couple of excellent thoughts to that direction: “rethink our educational system”, “invest in our capital markets to keep them strong” “directing future educational activities toward roles that cannot be sourced”, etc.

There are surely a lot more ways to leverage the opportunity, many that even the most protectionist commentators could agree on. For starters, how about more US investment in these growing markets? The bottom line is the conversation needs to change. Leveraging the ever changing global marketplace has been a US forte’, let’s keep it that way, and at the same time enjoy and appreciate the contribution outsourcing provides - both abroad and domestically.

Tags: Outsourcing Washington Post India Offshore

This entry was posted on Thursday, May 24th, 2007 at 6:29 pm and is filed under India BPO Related, BPO Industry News, Outsourcing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.