May 17, 2004 4:15 AM PDT

Study supports controversial offshore numbers

A new report by Forrester Research defends the company's controversial assertion that more than 3 million U.S. jobs will move offshore by 2015, and even raises the estimate of positions at risk in the near future.

The report, being released Monday, projects that 3.4 million jobs will move overseas in the next 11 years, roughly the same as the 3.3 million long-term figure it estimated in its original study two years ago. The 2002 survey by the Cambridge, Mass., firm contributed to the political firestorm surrounding offshore outsourcing after its findings were widely circulated in the press and elsewhere.

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What's new:
Forrester Research took some heat for predicting the loss of 3.3 million jobs by 2015 through offshoring. They're sticking close to that number in a new report.

Bottom line:
Forrester's latest numbers go further by saying that the trend of high-tech jobs moving out of the United States will be an even greater near-term problem than expected. What's making it worse? Talking about it.

More stories on offshoring

Forrester also increases its near-term estimate of lost jobs by 240,000 in its new report, projecting that a cumulative total of 830,000 positions will have moved offshore by 2005. The research reinforces earlier Forrester findings that were cited by Sen. John Kerry, before he became the all-but-official Democratic presidential nominee, in introducing legislation last year to regulate the call-center industry.

Ironically, the new report said, vocal opposition and other attention has helped accelerate the shift of jobs overseas by making businesses aware of the trend. It concluded that the media's focus on so-called offshoring--which defenders call healthy for the economy and critics blast as a threat to workers and U.S. technology leadership--has led companies to look more closely at it.

"While the press visibility has spurred offshoring's emergence as a political third rail, it has also fostered an increase in overall offshore initiatives," wrote John McCarthy, author of the report.

McCarthy also said such publicity had skewed the findings of the initial Forrester report. In an interview with the Wall Street Journal in April, he said he was disturbed about how his long-term numbers, which admittedly represented an "educated guess," had been hyped.

"People quote the 3.3 million figure as if it were (happening) today," McCarthy said while responding to questions about the new report.

Although the number may sound dramatic, Forrester noted that it represents less than 7 percent of jobs in the categories covered by the study, which include "management," "computer" and "legal." What's more, a separate Forrester survey of 139 North American firms in April found that 58 percent are not using--or planning to use--offshore information technology service providers.


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The conclusions did not surprise Tom Weakland, a managing partner at consulting firm DiamondCluster International, which also has studied offshore outsourcing. "Our observations are that individual companies may be ramping up slower, but there's more of them that are doing it," he said.

In addition to publicity, other reasons cited by Forrester as factors contributing to offshoring are expansion of services by Indian companies, increased operations in lower-wage countries among U.S. technology companies such as IBM, and businesses setting up facilities abroad to handle claims processing and other tasks. The report predicted that Vietnam, North Africa and Belarus will become more popular as offshore destinations, making India less dominant over time.

The political hot potato
Regardless of specific findings, the trend of offshoring in general remains a hot-button issue. After the recent recession and a recovery with slow job growth, the notion that high-skill jobs are vulnerable to export has touched a nerve in the United States and made it a campaign topic.

Among the concerns is that the flow of programming and other technology work abroad, combined with U.S. educational system problems and slowing research and development investment, puts the country's technical prowess in jeopardy.

In March, the Institute of Electrical and Electronics Engineers said offshoring "poses a very serious, long-term challenge to the nation's leadership in technology and innovation, its economic prosperity, and its military and homeland security."

A number of analysts and business groups have disputed this view. A recent study sponsored by the Information Technology Association of America concluded that offshore outsourcing of software and IT services tasks not only is boosting the U.S. gross domestic product but also helping to generate U.S. jobs.

Technology leaders also have argued that protectionist measures result in lower economic growth and higher unemployment.

McCarthy agreed that exporting software application work raises a legitimate issue about technology leadership. "If you don't have the entry-level programmers, how do you get people to become system architects--the high-level skills that we think are going to stay on shore?" he asked.

Rather than try to slow the offshore trend through protectionist policies, McCarthy said he prefers education programs that could help Americans obtain the right mix of skills. One of the benefits of the offshore trend in services, he said, is that this sector of the economy should become more streamlined, similar to the way Japan improved the manufacturing process.

"After more than 30 years of continuous expansion in the services sector of the U.S. economy, offshoring will be the catalyst for turning attention from growth to efficiency," McCarthy wrote.

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Has anyone noticed the political chnages in India?
Or didn't you notice that the umpteen gazillion poor folk in India have just evicted the nasty, brutish party who subsidized the IT industry at everyone else's expense?

American CEO's and CIO's are so out of touch.
Posted by furl12 (50 comments )
Reply Link Flag
Offshore
Hmmmm....

Offshore. America has lost it's scientific lead.
(Last weeks New York Times.)

Hmmmm.

Wonder if there's a connection there...

In 5 years 75% of Americal will be working at Wall-Mart and the other 25% will be burger flipping for them when they're on their lunch breaks.
Posted by waynehapp (52 comments )
Link Flag
You called it - political/policy volatility
Good observation. It will be interesting to see what the coalition gov't in India with its communist contingent and general very left leaning practices do with India's economy. This is yet another reason to be *very* judicious in the use of offshoring. Frankly, I hope a bunch of large selfish conglomerates get burned bigtime - and I'm a republican...
Posted by (2 comments )
Link Flag
Notice how the pro-offshoring crowd is never specific?
Pro-offshore types never tell us which industries are ramping up to deliver the jobs that they keep telling us will be generated by taking away IT and service industry jobs. We all must apply pressure to get them to answer a simple question: SPECIFICALLY, what industries are currently, or soon will be, ramping up their business and begin creating jobs that will directly replace or improve upon the salaries and benefits of those jobs now leaving this country. Second, they are responsible for explaining how their actions - which are primarily responsible for the erosion of America's capabilities in the technology arena - will not result in not only loss of technological leadership, but of even fundamental technological and scientific capabilities. We the people must hold the politicians, CEOs, Boards of Directors, shills like the ITAA, and overseas businesses responsible. It starts with us beating the drum constantly by asking questions in forums like this, in letters to our political leaders and heads of business. We have to do it, no one else will. If we fail, America is headed directly toward being a "fourth world" country. That's my term for a former first world nation that loses its economy to the world economy. Look up "Ricardo's Iron Law of Wages" if you want to see how it is beginning to happen.
Posted by (2 comments )
Reply Link Flag
being short sighted
is exactly the who and what of politics and labor distribution,,LOL this is how the USA was built by creating a mecca for all to come, for jobs and a superior way of life for religious freedom, and freedom from persecution.
So now our new masters the bottom line of the week is selling off all our physical assets shipping manufacturing plants and tools off shore, we are becoming Britain of the 19th,& 20th century.
Our primary asset is the brains, ingenuity and talent of our peoples, our unique way of doing things.
Now as soon as an idea is conceived someone in book keeping or banking wants to send it out of the country for processing, development, & production so that the idea will then come back as a finished product. But, who the hell will it be sold too when there is only %5 of the population who have all the disposable income, the rest being minimized out of existence.

Within 20 years this nation could be balkanized by the ego maniacs who are selling away America in bits and pieces allowing unfettered immigration with dual citizen ship

It all comes down to money and that assault is being financed by the bankers who are lend out our monies for the short term percentage of a commission on the transaction
Posted by iconoclastic_thinker (1 comment )
Link Flag
Everything old is new again?
Sorry, but I fail to see how this off-shoring
issue is really substantially different from any
other aspect of business globalization. In the
1970s and 1980s we heard a steady stream
of whining about how the US automobile
industry was going to evaporate if we started
building cars (or even parts of cars) in Europe
and Asia. Did that happen? No, of course not!
We did learn that cheaper is not always better
and necessary adjustments had to be made
to cope with that reality. However, we also
learned that quality is important to consumers,
a factor that the US auto industry was prone to
increasingly ignore prior to that exodus of jobs
and plants.

Those realities notwithstanding, would the
naysayers have us pass laws making it illegal
to have an innovative thought or idea outside
US borders? Look, this is going to happen; it
is not an issue that can be - or will be -
resolved through debate and certainly not
through regulation or litigation. The best
defense is what it has always been:
Excellence Rules. Indeed, there are always
those who will go cheap. That's why Wal-Mart
is now the world's largest retailer. (And yes,
Sam Walton would turn over in his grave if he
could see the amount of Chinese imports on
his once BUY AMERICAN store shelves!) But
we are already seeing call centers and other
offshore businesses returning home because
consumers have spoken, and the smart
companies (i.e., the ones that will survive this)
are listening!

Mike Marullo
New Orleans, LA USA
Posted by oncfari (31 comments )
Reply Link Flag
Offshoring to a bright future?
It is so easy to get caught-up in the US-centric view of offshoring that you can miss the effect on other countries. That is why an excellent article by William Pesek, writing on Japan's woes for Bloomberg should grab your attention.

"To compete, Japan's only option may be to adjust its economy in China's direction. It's a provocative suggestion, admittedly, but one that officials here in Tokyo may have to consider. Japan's problem is not unlike Hong Kong's. Its process of integrating with the mainland may leave living standards lower than they are today."

From this, it appears that what the US is experiencing today is nothing against what Japan's experience will be.

Western countries are in two minds about offshoring, on one side it is *bad* because, on the surface jobs are leaving for foreign shores. But conversely, it has been proven that it is *good* for the economy as a whole.

Politicians may have protectionist tendencies, but I see that the main issue is one of perception. Economies change, jobs change; appear and disappear. It does not matter if those jobs are in the US or Europe, or in Russia, China or India, the work will ultimately move to where it is most efficiently carried out. And it is right and proper that it should do so.
Posted by (17 comments )
Reply Link Flag
Offshore Numbers
I can not beleive that this pro offshore propaganda fell back on "education".

The individuals who used to build auto's in America are now sweeping up in Pizza Hut

Once high skill labor is gone...What do you propose we "educate" for? The WaWa maybe?
Posted by waynehapp (52 comments )
Reply Link Flag
 

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