The Great Offshoring Debate – Does It Cost Domestic US Jobs?

In our continuing coverage of the relationship between manufacturing and government policy, there’s a stark difference of opinion and data over whether business process offshoring has cost domestic jobs in the United States.

The Conference Board, a not-for-profit business and research firm that focuses on helping organizations’ performance and better serving society, teamed up with Duke University to release their January 2011 report on what offshoring is doing to domestic businesses. (The Conference Board also releases the Leading Economic Index LEI one of main economic indicators MetalMiner uses in tracking metal price trends.)

The Center for International Business Education and Research (CIBER) and the Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business surveyed a number of companies, asking a range of questions about their offshoring goals and operations. The survey drew some rather surprising results.

“Over half of the participants in our survey say offshoring has resulted in no change in the number of domestic jobs in most functions, said Fuqua Professor of Strategy and International Business Arie Lewin. So, essentially, they’re saying we’re not losing jobs to overseas workers most of the time.

The Economic Policy Institute is saying the exact opposite. A recent EPI analysis, as relayed by Manufacturing & Technology News, concluded that the US visa programs that allow companies to hire skilled foreign workers the H1B and L-1 programs are “out of control and are “costing Americans hundreds of thousands of jobs. The author mentions four companies, Infosys, Wipro, Satyam and Tata Consultancy, which are specifically contracted to hire foreign workers and bring them to the US, only to get trained and sent back to India. This coincides with the Conference Board/Duke findings: “Manufacturers and high-tech/telecommunication companies are less likely to use captive offshore operations owned by the company and located on foreign soil and are moving increasingly toward the use of third-party providers of offshore labor.

Granted, most of these positions are in the IT sector, a heavy focus for offshoring research. “The finding that the U.S. software sector has the highest ratio of offshore to domestic employees almost 13 offshored jobs per 100 domestic jobs may be a reflection of a scarcity of domestic science and engineering graduates in the U.S, said Lewin of Duke’s business school.

That statistic points to the crux of the matter for offshoring. The report shows evidence that offshore practices are “no longer driven by cost cutting, but by enhancing innovation and increasing speed to market. (This is something Spend Matters, our sister site, has written about extensively.) The average cost savings for companies actually decreases in many cases, as they are increasingly dealing with unexpectedly high costs in developing offshore operations (e.g. training programs, loss of managerial control, etc.)

Just because offshoring news good or bad hits the IT sector first, that doesn’t mean metals manufacturing is immune. Although specific data from the Conference Board/Duke report wasn’t (freely) available for the metals industry, analysts at NASSCOM, an Indian IT trade association, indicate that it’s only a matter of time before US manufacturing workers may be in trouble: “The Indian outsourcing firms are quickly branching out of IT services and into aerospace design, retail, pharmaceuticals R&D, legal and banking systems and systems integration of the U.S. manufacturing sector, according to the Manufacturing & Technology News article. “Outsourcing companies in India are targeting new industrial sectors, new technologies and services “from smaller companies,” says NASSCOM president Som Mittal.

–Taras Berezowsky

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!