"It would be foolish to stop companies from outsourcing," says Robert Reich, former U.S. labor secretary.
In the critical debate about outsourcing as a business strategy, let us consider its real effect on the United States' economy and its people in the long run.
In today's global marketplace corporations search for the most cost-effective and value-added service and product providers. Outsourcing is not merely to "send jobs abroad" for extra profits - it may be critical for corporate America to survive. Wired News recently quoted a representative of the Department of Commerce as saying outsourcing "is necessary to help U.S. companies remain competitive."
However, outsourcing also may have become a scapegoat to divert people from addressing the real economic issues in this country.
Of course, it is imperative to focus on the plight of the laid-off. We need strategies and resources for the retraining of these workers, creative insurance protections and seed money/incentives for innovative activities. This will help hasten the next wave of employment (funded partially by some of the profits of outsourcing?).
Also, the public should be reeducated about the possible damage to the economy and the labor force if outsourcing is curtailed - increasing layoffs, escalating economic woes and hastening the shutting down of companies.
What might be some of outsourcing's tangible benefits to the United States?
Outsourcing saves and creates other jobs. When some jobs are cut, it allows companies to survive and retain other jobs. As the McKinsey Quarterly recently reported, with the savings from outsourcing, "U.S. companies can focus on creating higher-value jobs." Business Week has reported that the most innovative tech jobs are not going overseas. It's also been said that wealth created outside of the United States translates into more jobs here.
Outsourcing prevents the United States from being at an economic disadvantage with countries in Europe and Asia that will continue to outsource.
As Harvard economist Robert Z. Lawrence has said, "It is a better idea for us to be part of the action, not out of it."
Many qualitative benefits ensue to U.S. consumers because of the affordability of better services. Experts have said that for every worker who loses a job, dozens of invisible consumers benefit.
Outsourcing rescues financial institutions. Deloitte Research projects that outsourcing will save the world's top 100 financial services companies $138 billion by 2008. This keeps inflation at bay, helps interest rates stay low and makes capital available.
Can we create laws that would force corporations to give up savings that can be as high as 80 percent? General Electric saves $340 million a year through its India operations, according to Deloitte. By outsourcing, Citigroup increased its revenue by $35 billion in the last five years, with cost increases of only $12 billion.
Outsourcing non-essentials and having access to worldwide innovation and technologies should inspire the "next wave," and enable the United States to maintain its global supremacy. This supports the process of "creative destruction" - in which people must make a transition from what they're used to to the next big thing - as capitalistic markets progress.
The United States has had a proud tradition of promoting free enterprise and has been a champion for open markets and the World Trade Organization. Any curtailment of outsourcing could be seen as protectionism and "restrictive trade practices." Any barriers by the United States now may be met with barriers from other countries when the United States needs to import workers in the future.
However, long-distance outsourcing can be fraught with many (avoidable) risks. Ongoing professional, cultural orientation can help immensely to minimize these.
This needs to be a critical part of any outsourcing strategy, since accountability is often diminished, offshore project management compromised and the forecasted return on investment delayed because of the subtle cultural/communication barriers in outsourcing relationship management.
Non-U.S. companies will continue to outsource and sell their goods at much lower rates, and America would lose its markets, perhaps irrecoverably. Can any economy today succeed domestically, if it is not competitive internationally? Might some companies then shift their headquarters out of the United States? Any senator proposing a bill against outsourcing could be responsible for aiding the decline of the U.S. economy.
As the McKinsey report says, the inflexibility of protectionism "would endanger the economic wellbeing of the United States."
Were outsourcing curtailed, how could those already outsourcing continue, while others are restricted?
The progress of globalization is inevitable and cannot be reversed. The United States might be wasting energy in trying to turn back the clock.
It must find ways to assist the quality of life of its people, better utilize and enhance its domestic resources, while being able to utilize the best worldwide talent and resources to create a dynamic economic future.
(Zareen Karani Araoz is president of Managing Across Cultures in Winchester, Mass. She has been a professor of cross-cultural management and was international president of the Society for Intercultural Education, Training and Research. She can be reached at zareen@managingcultures.com).