The Politics of Outsourcing

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If you haven’t noticed, 2004 is a presidential election year and this means
lots of rhetoric from the candidates. One of John Kerry’s favorite sound
bites is that American jobs are heading overseas and President Bush is doing
nothing about it.

While this may or may not be true (on both counts), the effect of this
rhetoric on the offshoring debate, particularly in the IT world, where
employment have yet to recover from the boom-times of the late 1990s, is to
water down the issue until it becomes a basic “us” verses “them” argument
that ignores reality on the ground.

“As you expect in an election year, there’s always a lot of backlash about
any kind of job moves, even if it’s for purely logical economic reasons,”
said Alan Fisher, CEO and co-founder of Iron Speed, a code streamlining
product vendor. “It’s not like outsourcing is brand new.”

Yet, as was reported by CIO Update in April, there
are no hard numbers on just how many IT jobs are being offshored to India, Malaysia,
China and elsewhere. And the politicizing of the issue has led many
Americans to believe that all of IT will soon go the way of the carrier
pigeon.

Granted, the outsourcing issue has been making headlines since long before
this election cycle, but politicians from all levels of government are
gladly cashing in on the mileage they can get from politicizing it.
Nationwide, 36 states have anti-outsourcing legislation pending and there
are more than 80 bills in the pipeline at the federal level, said Dane
Anderson, program director in METAgroup’s Outsourcing and Service Provider’s
practice.

Yet, in Michigan, which has a decidedly anti-offshoring stance, he said,
244,000 workers are employed by foreign firms doing business in the state.
Anderson wonders just what effect, if passed, politically inspired
legislation will have on those jobs.

“If Michigan was to move forward with an anti-outsourcing or anti-offshore
piece of legislation, what would that say to those foreign employers?” he
said.

No Numbers

When Anderson tried to find out just how many jobs Michigan had lost
to offshoring, however, those numbers were nowhere to be found.

And therein lies the conundrum: While it is no mystery in the IT world that
software development work is being done in India, Russia, Romania, etc. the
numbers needed to frame a rational debate about the net jobs gains or losses
don’t exist. And, because of this, the issue has become a convenient
political football, said Catherine Mann, a senior fellow at the Institute
for International Economics.

“Job losses are individuals,” she said. “Job creation for the economy, as a
whole, is not. So part of the politicization of the outsourcing and
offshoring debate is that (while) the evidence of individual job loss is
easy to obtain, the generalized gain from global sourcing is hard to
identify and tag to an individual person.”

For example, how many jobs have been lost to technology? This an unknown and
yet many in the banking industry may, at some time, have pointed to ATMs as
the cause of their unemployment. Yet this ignores the fact that today there
are more, better-paying jobs in the financial services industry than ever,
Mann said.

The net result of technology in financial services is better jobs and more
of them — at least that is a counter-argument that could just as easily be
made since the numbers don’t exist. How many employers have put off hiring
in favor of productivity software? By their own admissions, lots. Yet you
don’t see the candidates arguing against advances in technology, said Mann.

“It’s much easier to be anti-globalization than to be a Luddite,” she said.

Sound Bites

In order to politicize an issue as complicated as offshoring and
outsourcing, politicians have to frame the debate in simple terms that can
be carried by media outlets looking for a quick fix. This causes the debate
to quickly devolve into an emotional issue that ignores possible net gains,
if any, from sending certain types of jobs overseas. Or, say, the effect of
in-sourcing of foreign nationals on job creation at home.

In IT today, for example, many jobs that were once slated for offshoring to
India are not going because of cultural differences, time zone issues,
project management issues and, in some call center cases (Dell), customer
backlash, said Iron Speed’s Fisher. In fact, most of the work he sees going
offshore are actually jobs related to maintaining old mainframe applications
that rely on skills sets harder to find at home like COBOL and Fortran.

Most of the work Anderson sees still heading overseas has to do with basic
programming — skills sets that have been commoditized have a
well-established set of best practices that are easily implementable no
matter where the work is done. This leaves the better-paying, more creative
work here at home.

That politicians are more than willing to ignore outsourcing’s subtleties
makes it rather ironic that the net effect of politicizing the debate has
made the decision to outsource more complicated for CIOs, CEOs and CFOs,
said META’s Anderson.

“Regardless of how the debate continues to evolve, the decision to
outsource, in general, and even more so, the offshore outsourcing question
has got to be more thoroughly examined, he said.

“It’s no longer just ‘Can this technological function be done somewhere more
efficiently and still give the right bang-for-the-buck?’ CEOs, CFOs and IT
organizations have to take a more holistic approach. They not only have to
say ‘Is the function able to be outsourced, but is our organization ready to
outsource and potentially offshore?”