Competing With Outsourcing

 
 
By Mike DiMartino  |  Posted 2004-02-23
 
 
 

Having read Eric Lundquists column ("Technology May Make Outsourcing Obsolete," Jan. 19) in which he suggested that technology advances will foster new industries that overshadow the outsourcing of mature ones, I would like to make several points.

First, outsourcing the labor of U.S.-owned companies for software development, electronics manufacturing, semiconductor fabrication and call centers has occurred at a level that even former Secretary of Labor Robert Reich would likely admit is significant. It is possible that robotics, speech recognition and nanotechnology could lower the total number of outsourced jobs or even spur growth in U.S. jobs, but regardless, many jobs are being transferred offshore annually, and the trend is irreversible. The transfer will continue unabated as long as specialized, low-cost labor is available overseas.

Second, outsourcing is based on cost. As long as U.S. workers earn higher wages than their foreign counterparts, it wont matter how much re-education, subsidization or political debate there is. The jobs will go where costs are lowest. This practice is mandated for any publicly traded company seeking to maximize its profits. Home Depot, Wal-Mart and Target show that the lowest consumer price is the key driver of modern economy.

One could argue against the social cost and the intellectual property transfer, but without penalties, taxes or dollar-based incentives for U.S. companies to limit the trend, companies will continue outsourcing. Each company is in business to make money and needs to execute at its most profitable level with revenue growth in mind. If the labor-cost savings are big enough, companies will find a way to work around government intervention.

The knee-jerk reaction is to encourage and subsidize colleges and corporations to train displaced workers in skills such as C programming. But once trained, those workers often cant compete with experienced workers in offshore locations with low prevailing wages.

Lundquist notes that outsourcing has a significant cost component in its management. However, most companies have found even that cost is far exceeded by the savings that can be realized. Companies that outsource—and manage outsourcing effectively—have a competitive advantage over rivals. Achieving that advantage is what business is about.

It would be more constructive to think through why we have an edge on a total-cost basis in certain activities and spur investment in those areas. We must identify growth areas that need innovation and capital. Thats where new U.S. jobs will be created.

Mike DiMartino is vice president for business development at SET Engineering Inc., an electrical engineering services and product development company in Morgan Hill, Calif. Free Spectrum is a forum for the IT community. Send your submissions to free_spectrum@ziffdavis.com.

Rocket Fuel