The Rise of White Collar Outsourcing
We all know that outsourcing continues to dramatically impact the manufacturing sector in the U.S. But quietly, over the past 12 months, we’ve seen a dramatic increase in white collar outsourcing as well in areas ranging from IT to design engineering. Forrester Research, an analyst group in Cambridge, Massachusetts, predicts that 3.3 million service jobs will leave the U.S. over the next 15 years. But we believe that white collar outsourcing is not the doom and gloom for the U.S. economy that many think it is. In fact, it might provide new areas for opportunity for U.S. workers.
By now, chances are you’ve heard about at least one recent scandal involving Wall Street financial analysts. But what you probably haven’t heard is that many of the next generation of equity research professionals will conduct their number crunching from a desk in Bombay. Already, J.P. Morgan Chase has hired nearly fifty stock analysts in India. Bear Stearns, Morgan Stanley, and others, will closely follow suit. Why? Smart, young MBAs with financial modeling skills and a few years research experience earn between $10,000 and $20,000 in India versus $200,000+ in the U.S.
But white collar outsourcing is not limited to Wall Street. Increasingly, U.S. manufacturers are looking to Asia to help engineer their next generation products. And we’re not just talking low-tech toasters. Both G.E. and United Technologies Corp (UTC) have contracted with Indian companies to improve their next generation jet engine designs.
UTC has based their decision to move engineering jobs to India, in part, on the success of their IT outsourcing initiatives, which has enabled the firm to cut 50% of IT workers the firm directly employs since 1996. George David, UTC’s Chairman, told a group of analysts recently that he expects India to “have the potential for the same kinds of transitions in our engineering work force.” Already, the firm has moved 200 engineering jobs for its Pratt and Whitney jet engine group to India. So where is the good news in this?
First, the outsourcing of these jobs will enable US companies to remain leaders by providing the cash and liquidity to thrive in the global market. True, while more jobs offshore might mean fewer jobs here on a short-term basis assuming the status quo. If U.S. companies did not move parts of functions offshore, they would not be able to compete effectively for price and margin, and would be forced to downsize in the end, in any event.
Second, the outsourcing of some white collar positions to Asia will enable companies to more effectively deploy capital to enable new job creation here. Due to cost-cutting elsewhere in their operations, companies like GM and Daimler-Chrysler have been able to significantly invest in their on-shore U.S.-based design and research groups to significantly improve their overall competitive position through improved products that more accurately reflect the needs and desires of their target market segments both domestically and abroad. And finally, the outsourcing of some of these white collar positions also enables the domestic organization to focus and develop several areas critical core competencies, specifically, marketing, sales and in the case of consumer packaged goods, merchandizing. While these types of changes might bring some near-term shifts in the domestic job market, without them, we’d be doomed as a global leader (unless of course we aspire to look more like France). Sanctions and protectionist policy to “save” U.S. jobs are not the answer. Need an example why? Look no further than the U.S. steel industry, which after decades of U.S. protectionist policy, only has broken pensions and broken lives to show for it.