Offshoring

Overview Offshoring is a controversial business practice, which makes use of foreign, or "offshore," labor that is typically less expensive than home-grown workers. Offshoring is an extension of a business practice called outsourcing, in which a business uses workers from outside firms. EDS (Electronic Data Systems), founded by H. Ross Perot, was built on the outsourcing model by providing payroll and other data processing functions so that businesses would not have to maintain costly computer equipment and technicians required to perform these tasks in-house. Even though outsourced jobs are not necessarily shipped overseas, outsourcing is not without controversy. State governments, in particular, have pulled out of outsourcing agreements in favor of using in-state workers, even though costs to taxpayers are higher.

Technically, outsourcing can refer to using labor or materials from any outside firm, foreign or domestic. Offshoring is a subset of outsourcing that uses foreign labor. The extent of offshoring and its economic impact have not been measured to everyone’s satisfaction. A report on offshoring sponsored by the Information Technology Association of America (ITAA) concluded that offshoring software and information technology services boosted the U.S. gross domestic product and actually generated U.S. jobs. However the report might be biased because ITAA's members include IBM and Electronic Data Systems, which practice offshoring. In contrast, the Washington Alliance of Technology Workers, claims that more than 469,900 jobs were offshored between 2000 and 2006, creating a bleak job outlook for IT careers.

In 2004, the U.S. congress passed a bill that included $2 million to study the impacts of offshoring on the economy and work force of the United States. Read about this bill in the article "Offshoring study funded by new bill" at News.com.  Refer to the National Academy of Public Administration for the results.

Offshoring "pros" Offshoring proponents claim it reduces costs and makes businesses more competitive—factors that keep a business in business, prevent layoffs, and benefit stockholders. In addition, cost reductions keep product prices low and help consumers save money. Offshoring has even been credited with keeping inflation low. Daniel W. Drezner, Assistant Professor of Political Science at the University of Chicago, offers a well-balanced overview of offshoring.

Offshoring "cons" Detractors claim that offshoring is putting increasing numbers of American workers in unemployment lines. Although the United States has lost manufacturing jobs to overseas labor for over 50 years, a new trend in offshoring white collar professional jobs is causing renewed concern. Computer programming, customer service, and even legal jobs are now being offshored.

CNN commentator Lou Dobbs has made outsourcing something of a personal crusade. Watch Lou Dobbs Tonight to get a feeling for the anti-offshoring argument. A visit to his site http://www.cnn.com/CNN/Programs/lou.dobbs.tonight offers links to a blacklist of companies exporting jobs, and transcripts of interviews with pundits who argue the evils of outsourcing with corporate executives who try to defend the practice.

PBS has also taken interest in the offshoring debate. A Web page associated with the show Bill Moyers NOW contains tables comparing the salaries of U.S. and Indian workers.

Buy American Several Buy American campaigns have punctuated U.S. history. Dana Frank explains in her book, Buy American: The Untold Story of Economic Nationalism, that the Boston Tea Party was, perhaps, the first organized movement to reject foreign products. In the 1930s, a wave of nationalism in response to the Great Depression helped Americans feel they were taking action to end massive unemployment. In the 1970s, the International Ladies’ Garment Workers Union ran advertisements asking consumers to look for "Made in USA" labels. Another wave of "Buy America" peaked during the early 1990s. You can read an interview with Dana Frank and find out how NAFTA and 9/11 affected the Buy American campaign. If you are interested in spending your money on American-made products, check out the site How Americans can Buy American where you can find a list of American-made clothing, furniture, footwear, and so on.

As America’s largest retailer, Walmart sometimes gets abuse from offshoring detractors. Ironically, WalMart once encouraged customers to look for the Buy American tags on many of its products. A Fast Company article, www.fastcompany.com/magazine/77/walmart.html, highlights the issue as it describes what happened when WalMart began to sell a gallon of Vlasic pickles for $2.97.

Outsourcing sources The Outsourcing Institute describes itself as the "neutral" source for information on outsourcing. Its Web site offers sections for people who seek help establishing outsourcing connections, outsourcing providers, and those who track and report on outsourcing trends. The CIO Web site offers an Outsourcing Resource Center with links to many interesting articles. 

Insourcing Offshoring is a two-edged sword. Although jobs from the U.S. moving offshore, there is a growing trend for foreign companies to hire skilled U.S. workers. A report, Insourcing Jobs: Making the Global Economy Work for America, claims that foreign companies employ nearly five percent of those working in the private sector and have paid American workers $307 billion. Can insourcing balance offshoring? That question is still open for debate.