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Week of February 16 - 20, 2004Welcome to the National Dialogue on Entrepreneurship and E-News, an electronic newsletter sponsored by the Kauffman Foundation of Kansas City for followers of the entrepreneurial economy. Through E-News, we bring you short summaries and analyses of various trends driving the innovation economy. Please feel free to share this with friends and colleagues. To subscribe, visit www.publicforuminstitute.org/nde/join/ |
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Understanding Overseas Outsourcing: Overseas outsourcing of jobs to China, India, and other countries has become one of the most contentious issues facing the American economy today. While outsourcing creates lots of new opportunities for both American and foreign entrepreneurs, it also creates a challenging environment for US-based businesses, workers, and communities. This issue of NDE e-News highlights some recent reports, web sites, and other resources that might be helpful to readers interested in learning more. |
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Offshoring: Is it a Win-Win Game? The global consultancy McKinsey has been an aggressive supporter of the use of offshoring by many of its clients. In a report released in late 2003, the McKinsey Global Institute (MGI) makes a strong case for why offshoring makes sense not just for developing economies, but for the US and other developed economies as well. It’s pretty easy to understand why India, China and other nations like offshoring. It provides jobs, an upgrade of skills, and access to new business opportunities. But, what’s in it for America? McKinsey researchers have concluded that this process benefits the American economy even more than it helps developing economies. Offshoring allows American businesses to redeploy labor, reduce costs, create new markets, and repatriate earnings back to the US. Overall, according to MGI’s analysis, for every dollar that is spent on moving a job abroad, roughly $1.45-$1.47 of value is created. Seventy-eight percent of this value (roughly $1.13) is captured in the US. The remaining 22% (roughly 33 cents) is retained in the receiving country. Thus, MGI claims that offshoring is not only a good idea. It’s a profitable idea as well. House Small Business Committee Evaluates Downsides of Offshoring House Small Business Committee Chairman Donald Manzullo (R-IL) is no fan of offshoring – as is evidenced by his remarks at a recent hearing, "It is crucial that the US stop exporting jobs to other countries. Our continued prosperity depends on keeping jobs here." But don’t accuse Manzullo of ignoring all of the implications surrounding these practices. His Committee has held a large number of hearings that have examined all sides of the offshoring debate, with particular attention on how offshoring affects America’s small businesses. Hearings held in the past few months include “The Offshoring of High Technology Jobs” and “Lowering the Cost of Doing Business in the United States: How to Keep our Companies Here.” All of the hearings have included interesting testimony and lots of discussion about the pros and cons of offshoring. The Committee’s website is a good place to gain an introduction into Congressional views on this topic. IT Globalization and Productivity Growth If you’re looking for another pro-offshoring perspective, check out a recent report from Catherine Mann of the Institute for International Economics. Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth examines the practice of IT offshoring and argues that these practices account for 10-30% of the price reduction for leading IT hardware. Mann asserts that the practice of outsourcing IT hardware offers a template for how outsourcing of IT software and services will proceed. During the 1990s, outsourcing for IT hardware production expanded rapidly. The result was increased productivity, lower costs, and increased job growth in the IT sector. As offshoring moves from hardware to software and services, a similar pattern should emerge. As globalization becomes more pervasive, Mann predicts a second wave of major productivity growth in the IT sector, with massive benefits for US economic performance. The Risks of Offshoring The practice of overseas outsourcing is creating lots of business for the various consulting and research groups. If you want detailed analyses of what’s happening in the world of IT offshoring, check out recent research by Forrester (www.forrester.com), Gartner (www.gartner.com), and IDG Research (www.idg.com). In addition to these organizations, the META Group has completed some very useful studies. For example, META Group’s 2004 Worldwide IT Benchmark Report finds that 41% of all new IT development activity is now outsourced. India is still the preferred destination for outsourcing, but activity in China, Russia, the Philippines, Ireland and Israel is also growing. Registration is required. Offshoring: Notes from the Field No matter where you stand in the debate over offshoring, it’s clear that this is not just an issue about numbers. Real people with real jobs are affected in the process. The February 2003 issue of Wired magazine includes a fascinating look at offshoring from multiple perspectives. The New Face of the Silicon Age profiles Indian entrepreneurs and workers who are leading the computer revolution in that country. The article also examines these issues from the perspective of US corporate executives and irate American programmers who have lost jobs due to overseas competition. If you want to hear multiple perspectives on the offshoring debate, check out this excellent series. |
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