Offshoring Debate Lacks Hard Numbers

By Allen Bernard

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At Sierra Atlantic, a small IT offshoring company, business is good. The company is on track to make its revenue projections for yet another quarter and Executive Vice President Marc Hebert thinks the company will end the year meeting growth expectations.

Yet Hebert, who is in the offshoring business every day, has no idea just how pervasive the trend is. Yes, Sierra has added 150 employees in the past year and expects to end this year with between 750-800 employees, 83% of whom work offshore in India, but the company is targeted at a small slice of the American economy, manufacturing and distribution companies.

"The motivation for CIOs that hire us is a combination of doing more with less, but it's also freeing up scarce resources in the U.S. so that they can work on new projects by offloading more routine things to the offshore model," he said.

While no one disagrees that anecdotal evidence suggests large numbers of IT jobs -- particularly coding and routine application maintenance work -- are heading offshore, there are two primary forces really driving the debate right now: election-year politics and the emotions upon which it preys.

"If this were not a year of major political debate," said Tom Kucharvy, president of investment consulting firm Summit Strategies, "I contend the issue would not have achieved anywhere near the level of publicity it currently has. Would it be important? Absolutely. Would it be as emotionally charged and high profile? I doubt it."

Just What Is IT?

Dave McCurdy, a former U.S. congressman and now president of the Electronic Industries Alliance, which represents 80% of global high-tech manufacturing and service providers, agrees with Kucharvy, adding that in-sourcing, another offshoot of the same open-trade policies sending jobs overseas, has for years reshaped the American economy and continues to do so today. German manufacturer Siemens, for example, employs more people in the U.S. than Microsoft. Yet the total number of jobs in-sourced by foreign-based companies is as elusive as the offshoring figure.

Also, there are so many more "IT companies" around than in days past it may just seem like a larger proportion of jobs are being offshored. For example, because of its reliance on technology to issue 20 million payroll checks per month, Ceridian, a payroll processing and business process outsourcing company, basically is now an IT company. McCurdy doubts this company's outsourcing numbers are recorded in any category related to IT."There is fire under the smoke in that it's true there is significant outsourcing in the services economy that was not that significant in the past," he said. "What we're finding is those who are trying to make this a binary argument of just exporting jobs versus trade really are not looking at the full and in-depth problem."

A Little Irony

It is ironic that numbers sparked the debate in the first place. In a November 2002 Forrester report, analyst John McCarthy predicted 3.3 million U.S. service jobs would head overseas by 2017, with IT leading the way. Since then, those numbers have taken on the status of urban legend, said Catherine Mann, a senior fellow at the Institute for International Economics.

"They were the first ones to come out with a number and that's why I call it urban legend," she said. "So, if we think that offshoring is a big reason for why we see unemployment today, then what Forrester says is going to happen doesn't match with what's happening today. To the extent that some press releases from companies give numbers, that's the source of some information, but I wouldn't want to add those up and imply anything by them."

According to Hebert, IT offshoring's biggest impact is on consultants, not employees. Some contractors he knows have slashed rates just to get work. An Oracle consultant friend, for example, will now gladly take $33/hour for the same work he did for $100/hour not so long ago.

"From my standpoint, the No.1 impact on the market that's very visible is the market for consultants," Hebert said. "It's a lot harder to see how much impact has been on actual employee job loss in IT. What happens in a lot of cases is, while some jobs may get eliminated from pushing functions offshore, in almost all cases we've seen the employees are not let go, they are reassigned or given opportunities to find something else in the company. And there hasn't been very much job loss in the IT sector."

Shifting Sands

What also clouds the numbers is the ability of white-collar IT workers to retool more rapidly than those in other groups such as manufacturing, said IIE's Mann. These workers find it easier to take advantage of the 400,000 new jobs created quarterly, on average, by the U.S. economy. Because of this, they may not show up anywhere as being displaced by an overseas worker.

And, while IT outsourcing is a fact of life today, McCurdy agrees that basing the debate on Forrester's numbers is folly. Too many factors yet unseen will shape the trend going forward and will probably end up helping the U.S. economy and IT, not hurting it.

"We still are the most innovative, creative society," he said. "We have the most innovative, creative entrepreneurial workers in the world."

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