Politics and Economics of Offshore Outsourcing
Offshore outsourcing is forcing major changes in terms of job content, location, wages and job security--it's an economic reality and many are completely unprepared. Instead of debating its impact on the economy, experts suggest that the U.S. transform its social safety net (unemployment insurance, tax credit, health insurance, pensions etc.), prepare the workforce for the future, and climb up the comparative advantage ladder through innovation.
CIO — There are two hot topics in the offshore outsourcing industry today—first, what the likely impact of the recession will be and second, what will be the likely impact of Barack Obama's presidency. While the former has attracted some good intellectual debate, with sound arguments and evidence to support both sides of the story, the latter has received pretty naive coverage, mostly from senior executives of offshore outsourcing or advisory firms desperate to allay their customer's concerns. One fundamental question that they fail to address is why Obama should care about offshore outsourcing. If it was so simple and so straightforward that offshore outsourcing is good for corporations, good for countries, good for economies, then why would Obama even consider doing anything about it?
The debate began when Obama campaigned, "I will stop giving tax breaks to companies that ship job overseas and I will start giving them to companies that create good jobs right here in America." This was subsequently detailed in October 2008 as a $3,000 tax credit for the next two years to businesses, for each new full-time employee they hire onshore. The general response to this scheme has been that it hardly matters and will not make any difference to companies engaged in offshoring. The credit amount will be made up by just one month due to the wage differentials. Some concerns also arose about whether Obama will cut the current H1B visa cap of 65,000. But this fear is largely unfounded—Obama in fact favors a temporary increase in limit and a permanent reform of the system, as stated in a pre-election interview.
Recently, as if to allay all concerns about potential adverse impact of his stance on outsourcing, Obama filled some of his top White House posts with people who not only support expanding the H-1B visa program, but see offshore outsourcing as a plus for the U.S. economy.
But is offshore outsourcing a plus for the U.S. economy? This is a question being asked increasingly not just by economists, but also by ordinary U.S. citizens impacted by the surge in unemployment .
When offshore outsourcing started, it was at a micro level. Companies were happy with this new supply of high quality, low cost labor, and no one was complaining. Then companies started offshoring in droves and it became a macro level phenomenon. McKinsey recognized this trend, built up a consulting practice around it and won many projects in advising governments on how to tap the global labor market using outsourcing, and advising companies on how to get their global sourcing strategies right. Offshore outsourcing works for all was the general perception.
