Offshoring – Stephen Shu, PhD

In my professional career in and about software companies, I’ve primarily run into offshoring of things like call center & customer care, documentation, quality assurance and testing, and R&D. In software, such stuff may be so commonplace that it can be considered Offshoring 1.0 and behind us – a done deal. And from a macroeconomic perspective the US may even be all fine after Offshoring 1.0. Dr. Daniel Drezner blogs that the World Trade Organization’s recent annual trade report release indicates:

The
strength in the rebound in [IT] employment in 2004, and the resilience
of wages of computer occupations, do not support the view that
offshoring services of high-skilled IT specialists had a marked impact
on overall US employment in these occupations up to the end of 2004 …

So what’s in Offshoring 2.0?

If InformationWeek’s July 18th issue and article, "Behind The Numbers: Customer Satisfaction Not A BPO Priority" is a hint of what is to come next on the offshoring front (note that in BPO the "O" stands for outsourcing, which should be differentiated from offshoring), more than 30% of respondents in a June 2005 study said that they outsource sales & marketing to some extent. This is the second item in a list behind call center or customer care (which is close to 45%). Note: my intent by pointing out this article is simply to cites the stats, not reflect my personal opinion on either customer satisfaction or outsourcing in business.

Well just last week (and for the first time), I was approached by an MBA friend involved with business development for an offshoring company in India that provides services related to product lifecycle management, customer lifecycle management, and strategic brand management. This is my first, personal introduction to Offshoring 2.0.

Steve Shu

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Update (7/21/05): Uptick in IT wages in tight labor market …

As far as business goes and in terms of how life is affected, I often think about macroeconomic history in three areas: 1) the Industrial Revolution, 2) the Information Technology Revolution, and 3) The Offshoring Revolution. Not necessarily the perfect model but a working model that highlights key periods delineating changes in the way things are produced.

Offshoring is a big subject that has ranged from simple areas to more complex areas like the outsourcing of innovation.

In the first two areas of revolution, the output of the United States (in terms of GDP) went up drastically. Some economists and statisticians have estimated a "productivity constant" (which directly relates the GDP to key macroeconomic factors) and have determined that substantial (non-linear) increases in the productivity constant (and hence, the GDP) have occurred due to these first two revolutions. (See the second link in this post for one example of how this was done for the IT Revolution.)

Now as for the offshoring revolution, Mike Nevens (ex-McKinsey blogging at the Sand Hill Group) highlights,

The proximate cause of the offshoring phenomenon and ensuing debate is the addition of 300 to 400 million highly educated workers to the global economy over the span of less than a decade.

That’s the "far from home" aspect. Remember that there are approximately 290 million people in the United States. Keep the numbers in perspective though – the US Department of Labour shows that only 2.5% of all job losses during the first quarter of 2004 were the result of offshoring.

Mike goes on to write:

Offshoring is simply the first step in an inevitable process as companies in highly competitive businesses seek to lower their costs by moving work to where it the value, quality, cost tradeoff is best. We are already seeing the second step: wages are rising in those countries that are the recipients of outsourcing and working conditions are improving as the demand for local workers rises …

That’s the "close to home" aspect. While the offshoring revolution may not yield the non-linear increase in the productivity constant like the other revolutions (the future lies before us), there is a significant shift in deployment of capital coming.

The "in your driveway" aspect is this … Mike continues:

I believe the third step is happening as well, but it is harder to see in the available data. The third step is stagnating or declining wages in the U.S. and other industrial economies.

Mike offers some advice that workers should make investments in education and skill building. They should make investments in areas that are less vulnerable to global market forces.

In any case, everyone needs to keep their eyes open and stay renewed. The offshoring revolution is here.

Continue reading “Offshoring: Far From Home, Close to Home, and In Your Driveway Aspects”

Tag: Offshoring

New Person Comes Knocking At My Door On Offshoring 2.0

Offshoring: Far From Home, Close to Home, and In Your Driveway Aspects