Outsourcing - Pros and Cons

Part 1 - Against Offshore Outsourcing

The current trend amoung U.S. companies to ship IT jobs overseas hurts American workers. What is being touted as so-called savings incurred by outsourcers is simply not equal to the cost for U.S. based workers. Instead CIOs within the U.S. should be aware of and searching for financially sound alternatives to the practice of outsourcing. They certainly do exist.

The problems associated with offshore outsourcing are profound and complex, but the most obvious ones - like security issues, language barriers and time zone differences -- can only lead to the ultimate conclusion: Offshore outsourcing is not as practical or as profitable as it's represented to be by those who are proponents of the practice.

A closer look at the depth of the outsourcing problem is presented by the following details:

• Gartner Inc. predicts that 40% of companies with revenue of more than $100 million will be trying to use outsourcing by the end of 2004.
• Gartner also predicts that 1-in-20 IT jobs will be heading overseas by the end of 2004.
• Forrester Research Inc. has projections indicating that more than 3 million U.S. white-collar jobs will be lost due to offshore outsourcing in the next 10 years -- a half-million of those in IT.
• Foote Partners LLC finds that the overall premium bonus pay for certified IT workers fell over 4% in the first half of 2003 and about 6% over the entire year. They also found that a great deal of this money is being used to cover the costs associated with offshore outsourcing.

Many people claim that the current outsourcing trend can be attributed to a natural shift in the job market and should be expected in a capitalist society. Proponents say that the jobs lost by U.S. employees will eventually be recovered by natural market forces and improvements in the economy, which will result from the savings generated from outsourcing.

In the real world: Skilled American IT workers are being forced to switch careers and/or take lower paying jobs in their field.

Additionally, even if the outsourcing trend can be accurately described as a "natural market shift", there are no guarantees that these jobs and the previous wage rates will eventually be recovered. Historically, we didn't see much of that form of recovery taking hold after thousands of U.S. manufacturing jobs were sent overseas in the 70s and 80s. Back in that era, the loss of relatively high-paying, blue-collar jobs hurt that segment of the work force, and real wages for the bottom 25% of the work force were gone forever.

Those highly touted savings associated with outsourcing jobs to places like India and China really aren't as substantial as some would like us to believe. There are tremendous costs in the deployment and management of the infrastructure, and the learning curve for the technical training of overseas employees is showing itself to be problematic and longer lasting than expected.

All other things considered, offshore outsourcing also contributes directly and indirectly to serious problems related to the bottom line. Although there are a multitude of real problems, the ones that need to be prioritized are:

• IT security: How can we really assess the risks posed by offshore workers. Potentially there is no way to avoid the loss of intellectual property and business-process secrets.
  Specifically, China, with no laws to protect U.S. based business secrets and intellectual property, is already suspected of having a major industrial espionage program which siphons off the good stuff from U.S. technology.
• Business continuity: Many U.S. companies are looking to outsource their IT labor to Southeast Asia and the Middle East. How can daily operations be assured in these countries where an armed conflict could halt offshore operations.
• Customer backlash: Customers are already uncomfortable with the changes being made and seek reassurance that their data is safe, even though it is being maintained thousands of miles away in a nation that may be unstable at any time.

At this point, options and replacements for offshore outsourcing need to be looked at. Because choices are available where skilled American workers can be utilized, the companies interested in domestic outsourcing alternatives can find ways to realize financially sound business practices as well as keep U.S. workers employed. In the humble opinion of this author, the CIOs who examine these alternatives will find what they are looking for. And the Americans who have those jobs will remain the highest-quality workers and the most successful at generating profit for their employers...of any employees in the world.

Part 2 - For Offshore Outsourcing

Some Americans don't believe that offshore outsourcing is bad for this country. They seem to be convinced that we can be strengthened as a nation if we are forced to compete in the global economy. Although the statistics on offshore outsourcing are looking pretty grim for the U.S. worker, they feel the way they do because they are sitting at home watching the news on a Japanese-engineered television, wearing clothes that are made in Malaysia or Thailand. They are thinking that it's hypocritical to demand that computer hardware and software should only be made in the USA.

To these folks, offshore outsourcing looks like a smart business strategy. A way to get the job done for less money by:

• reducing and controlling company operating costs
• freeing up internal company resources for more important purposes
• improving the company focus and resultant productivity

They consider that what is even more important than the welfare of their employees...is making money. Lots of it. To them, companies who make lots of money are healthy companies. Healthy companies bring more money back into the economy, which strengthens the economy, which creates more jobs.

The second reason that some people feel that offshore outsourcing is good...is that it's not good for us to get too comfortable. If we get too comfortable, then we get too weak. And a weak culture can't compete with other people around the world.

They believe that, as a workforce and within our industrial interests, we'll grow and expand our skills and by doing so, avoid becoming stagnant. They want us to push our boundries and become more competitive. They want us to remember that when the automobile industry was being threatened by foreign manufacturers, U.S. automakers were forced to build better cars than ever before. Eventually, factories were reopened and jobs were created. America was once again a legitimate competitor in the auto industry.

Even though Americans are hurting in these tough economic times, the proponents of outsourcing think that U.S. businesses need to stay competive, and that outsourcing offshore will help to accomplish that. They feel that their fellow citizens should push harder, do better and create more.

If being an American means all of that, and if we truly have freedom in this country, we should be able to decide and then choose the right path. What do you think?