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Offshore outsourcing creates jobs
from: John ParkerAccording to Infoworld,the economic benefits from offshore
outsourcing will create more than 337,000 jobs by 2010, on top
of jobs lost through outsourcing, according to the study, by
economic analyst Global Insight Inc. ITAA called offshore
outsourcing a "net positive for American workers and the U.S.
economy." But the Institute of Electrical and Electronics
Engineers-USA (IEEE-USA), representing U.S. IT workers, disputed
the study, saying Global Insight failed to factor in concerns
about outsourcing such as national security and the future IT
innovation in the U.S. Both national security and the future of
innovation will be at risk if the U.S. continues to export
high-tech jobs and lose expertise in creating new defense
systems and new IT products, said Ron Hira, chairman of the
IEEE-USA's research and development policy committee. "It should
also weigh out the costs and the downside," Hira said of the
study. "They ignore national security and technological
innovations in these studies." While the study seems to assume
that displaced IT workers will quickly find jobs, that's often
not the case, added Hira, a professor of public policy at the
Rochester Institute of Technology. A U.S. Bureau of Labor
Statistics survey, released in July 2004, found that of the 5.3
million U.S. workers who lost their jobs between January 2001
and December 2003, 35 percent had not found jobs by January
2004, Hira noted. Combined with a push by the ITAA and many tech
vendors for the U.S. to increase the number of foreign workers
allowed under H-1B visas, offshore outsourcing hurts many
workers, Hira said. "The bottom line result from the simulation
is that U.S. software workers are losers," he said. "And ITAA
continues to undercut U.S. software workers by arguing for more
H-1Bs." But Global Insight and outsourcing provider Sierra
Atlantic Inc. defended the study, saying the economic benefits
of offshore outsourcing are real. Large companies outsourcing
their IT support and maintenance functions can eventually expect
cost savings of 30 to 50 percent, while companies outsourcing
portions of their new IT projects can expect savings of up to 40
percent, said G.K. Murthy, vice president of enterprise
solutions at Sierra Atlantic. The study links those savings with
benefits to the overall economy. Currently, about a third of
Sierra Atlantic customers tell Murthy they plan to hire
additional workers with the savings they achieved with
outsourcing, Murthy said. "In some cases, they actually go and
hire new people to launch a new initiative," Murthy said.
Offshore outsourcing, or "global sourcing," as the study calls
it, helps raise U.S wages and raises the nation's gross domestic
product. Offshore outsourcing will contribute to a US$0.06
increase in U.S. hourly wages in 2005, climbing to $0.12 in
2010, the study says. At the same time, spending on offshore
outsourcing of computer software and services will grow from
about $15.2 billion in 2005 to $38.2 billion in 2010, according
to the study. During the same time period, total cost savings
from offshore outsourcing of computer software and services will
grow from $8.7 billion in 2005 to $20.4 billion in 2010, with
much of those savings reinvested in the U.S., the study said.
Offshore outsourcing can cause lower wages in the outsourced
industries, but the cost savings create other economic benefits,
said Nariman Behravesh, Global Insight's chief economist. "[Wage
increases] don't necessarily occur in the IT sector, but it does
happen in other parts of the economy," he said. "You can see the
pain; it's a bit tougher to see the gain, but it's there."
Addressing concerns about national security and IT innovation,
Behravesh said national security could be a concern in the long
term. "We have to be very careful of the national security
concern," he said. "Having said that, national security is often
the last refuge of protectionists." IEEE-USA's Hira questioned
the objectivity of the study's authors, saying the study is more
of an advocacy document than an unbiased research report. This
is the second year ITAA has worked with Global Insight on a
study about the benefits of offshore outsourcing. "Running a
computer simulation is just an exercise when you've set up the
exercise to get the results you want," he said. Behravesh
acknowledged that the study makes several policy
recommendations, including more assistance for displaced U.S.
workers and a bigger government focus on research and
development. "We wouldn't do it from an advocacy standpoint
unless it makes sense," he said.
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