Management Case Studies
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The Growing Backlash Against Outsourcing
| posted 09-29-2009 |
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 In a climate of economic entropy, many corporate pundits view outsourcing and globalization as necessary evils. They are seen as the alternative strategies that can rescue the bottom line by cutting operating costs, yet at the same time, they often coldly ax once-stable American jobs. How are corporate honchos grappling with this catch-22? With caution, says Atul Vashishta, the CEO of neoIT, a leading global outsourcing advisory and management consultancy, based in San Ramon, California. “The reason businesses are outsourcing now is because they’re competing with other companies that have a lower cost base elsewhere,” says Vashishta, who co-authored The Offshore Nation: Strategies for Success in Global Outsourcing and Offshoring (McGraw-Hill, 2006). “When the economy is not growing, the human impact is tremendous. People are being laid off, and there is significantly lowered compensation for them.” Within the past three years, offshore outsourcing has become a catalyst for the productivity and growth of some struggling corporations, Vashishta says. CEOs are hiring service and technical professionals to take advantage of the low wages paid in some developing nations, while simultaneously slashing jobs on the home front. Recent college graduates from China, India, and the Philippines are being recruited to do the twice the amount of work as American employees, for about one-fifth the pay. “The downturn has put higher pressure on lowering costs, and companies are desperately outsourcing because their volume is falling,” Vashishta says. “On the flipside, in an economic environment like this, these decisions become more difficult for companies, because workers that are laid off have a much harder time finding something else afterwards.” Globalization and Greed at a Glance In January, BDO Seidman, one of the nation’s most renowned consulting and accounting organizations, conducted its annual “Technology Outlook Survey: Economic Climate Affects International Growth Plans.” The aim: to evaluate America’s current demand for outsourcing and to gain insight into how intelligently businesses are handling it. Researchers tapped 100 chief financial officers (CFOs) at technology companies throughout the U.S. and found that nearly two-thirds of them were outsourcing services or manufacturing. The companies in the random sample all had revenues of up to $30 billion, according to Doug Sirotta, the head of BDO Seidman’s West Region tax practice and an advisor to companies in the technology and manufacturing sectors. One-third of survey respondents said their primary concern about international growth was the shaky business and political atmosphere. Because of this collective hesitancy to globalize, international outsourcing could be on the downswing this year as CFOs push for more in-country options, Sirotta says. Less than half of the CFOs in the survey claimed they held operations outside U.S. boundaries, compared to nearly double that amount the previous year. Twenty-two percent said they were inclined to seek outsourcing avenues inside American territory, as opposed to combing China and India for workers. “We are seeing global factors that are causing U.S. technology companies to pull back from traditional outsourcing locations,” Sirotta says. “These range from terrorist attacks in India to shipping cost issues in China.” Seeking an in-country approach Of late, the most common non-U.S. locations for outsourcing are India (50 percent); Southeast Asia, including the Philippines (31 percent, down from 50 percent in 2008); China (19 percent, down from 46 percent in 2008); and Western Europe (19 percent), the BDO Seidman report states. If American companies can afford to keep outsourcing within country lines, the U.S. economy will enjoy greater buoyancy and fewer jobs will be lost, Sirotta says. While global outsourcing can result in greater labor savings for some companies, the long-term cons may actually outweigh the pros, Vashishta says. Executives are looking deeper at the potential effects offshore outsourcing could have on their corporate reputations. In the short-run, CEOs may earn more money by taking advantage of cheap wages overseas, but they may also be scrimping on their quality of staff and, ultimately, losing worldwide prestige. Still, Procter & Gamble, Cisco Systems, DuPont, and Marriott have respectively struck billion-dollar outsourcing deals in recent years with India, Mexico, and the Philippines. Information technology companies, from IBM Global Services to Microsoft, as well as Fortune 500 companies such as American Express, Citibank, Bank of America, and General Electric, are all firmly on the outsourcing bandwagon. Meanwhile, disgruntled American employees are waving farewell to their overseas-bound jobs and an anti-globalization uproar is brewing. Outsourcing on the outs Before it folded in 2007, the Organization for the Rights of American Workers (TORAW) spoke out against this type of American job give away. TORAW held a two-day demonstration in 2002 outside the Strategic Outsourcing Conference at the Waldorf Astoria hotel in New York City to protest rampant outsourcing. Today, the American Rights Network, a nonprofit organization that supports workers’ rights to free choice, is standing up against outsourcing alongside advocacy groups like the Coalition for the Future American Worker. One of the looming questions among protestors is this: When it comes to job loss in America, should the blame be placed solely on cash-hungry corporations? Vashishta says no. The burden, he says, belongs to the government and the individuals, too. “There has to be a renewed focus in our country regarding how we take on roles that may be getting globalized,” Vashishta says. “How do we take those workers and skill sets and transition them to jobs that are much more in demand in the U.S.? By creating new industries.” Possible jobs in the fields of social services, education, and biotechnology are becoming more available, and it is up to the government to continue offering companies incentives to retain American employees. If a worker is laid off from the automobile industry, for example, the parent corporation should compensate that employee for schooling so that he or she may enter another industry with comparable skills. Out-placement, extended severance packages, and retraining opportunities must all be part of that bargain, Vashishta says. “The government has to come up with a tax credit to make businesses grow—and make it possible for employees to move from one industry to another,” Vashishta says. “Outsourcing is creating a much bigger human impact right now than people may even realize.” ______________________________ Is outsourcing to blame for the lack of jobs? Outsourcing to India ______________________________  COMMENTSWhat are the human costs of outsourcing, both in the United States and abroad? Leave your response in the comments below. |
