Reply
Tue 22 Jul, 2003 12:47 pm
I.B.M. Explores Shift of White-Collar Jobs Overseas
By STEVEN GREENHOUSE - New York Times - 7/22/03
With American corporations under increasing pressure to cut costs and build global supply networks, two senior I.B.M. officials told their corporate colleagues around the world in a recorded conference call that I.B.M. needed to accelerate its efforts to move white-collar, often high-paying, jobs overseas even though that might create a backlash among politicians and its own employees.
During the call, I.B.M's top employee relations executives said that three million service jobs were expected to shift to foreign workers by 2015 and that I.B.M. should move some of its jobs now done in the United States, including software design jobs, to India and other countries.
"Our competitors are doing it and we have to do it," Tom Lynch, I.B.M.'s director for global employee relations, said in the call. A recording was provided to The New York Times recently by the Washington Alliance of Technology Workers, a Seattle-based group seeking to unionize high-technology workers. The group said it had received the recording ?- which was made by I.B.M. and later placed in digital form on an internal company Web site ?- from an I.B.M. employee upset about the plans.
I.B.M.'s internal discussion about moving jobs overseas provides a revealing look at how companies are grappling with a growing trend
that many economists call off-shoring. In decades past, millions of American manufacturing jobs moved overseas, but in recent years the movement has also shifted to the service sector, with everything from low-end call center jobs to high-paying computer chip design jobs migrating to China, India, the Philippines, Russia and other countries.
Executives at I.B.M. and many other companies argue that creating more jobs in lower cost locations overseas keeps their industries competitive, holds costs down for American consumers, helps to develop poorer nations while supporting overall employment in the United States by improving productivity and the nation's global reach.
"It's not about one shore or another shore," an I.B.M. spokeswoman, Kendra R. Collins, said. "It's about investing around the world, including the United States, to build capability and deliver value as defined by our customers."
But in recent weeks many politicians in Washington, including some in the Bush administration, have begun voicing concerns about the issue during a period when the economy is still weak and the information-technology, or I.T., sector remains mired in a long slump.
At a Congressional hearing on June 18, Bruce P. Mehlman, the Commerce
Department's assistant secretary for technology policy, said, "Many observers are pessimistic about the impact of offshore I.T. service work at a time when American I.T. workers are having more difficulty finding employment, creating personal hardships and increasing demands on our safety nets."
Forrester Research, a high-technology consulting group, estimates that the number of service sector jobs newly located overseas, many of them tied to the information technology industry, will climb to 3.3 million in 2015 from about 400,000 this year. This shift of 3 million jobs represents about 2 percent of all American jobs.
"It's a very important, fundamental transition in the I.T. service industry that's taking place today," said Debashish Sinha, principal analyst for information technology services and sourcing at Gartner Inc., a consulting firm. "It is a megatrend in the I.T. services industry."
Forrester also estimated that 450,000 computer industry jobs could be
transferred abroad in the next 12 years, representing 8 percent of the nation's computer jobs.
For example, Oracle, a big maker of specialized business software,
plans to increase its jobs in India to 6,000 from 3,200, while Microsoft plans to double the size of its software development operation in India to 500 by late this year. Accenture, a leading consulting firm, has 4,400 workers in India, China, Russia and the Philippines.
Critics worry that such moves will end up doing more harm to the American economy than good.
"Once those jobs leave the country, they will never come back," said Phil Friedman, chief executive of Computer Generated Solutions, a 1,200-employee computer software company. "If we continue losing these jobs, our schools will stop producing the computer engineers and programmers we need for the future."
In the hourlong I.B.M. conference call, which took place in March, the company's executives were particularly worried that the trend could spur unionization efforts.
"Governments are going to find that they're fairly limited as to what they can do, so unionizing becomes an attractive option," Mr. Lynch said on the recording. "You can see some of the fairly appealing arguments they're making as to why employees need to do some things like organizing to help fight this."
The I.B.M. executives also warned that when workers from China come to the United States to learn to do technology jobs now being done here, some American employees might grow enraged about being forced to train the foreign workers who might ultimately take away their jobs.
"One of our challenges that we deal with every day is trying to balance what the business needs to do versus impact on people," Mr. Lynch said. "This is one of these areas where this challenge hits us squarely between the eyes."
Mr. Lynch warned that with the American economy in an "anemic" state,
the difficulties and backlash from relocating jobs could be greater than in the past.
"The economy is certainly less robust than it was a decade ago," Mr. Lynch said, "and to move jobs in that environment is going to create more challenges for the reabsorption of the people who are displaced."
The I.B.M. executives said openly that they expected government officials to be angry about this trend.
"It's hard for me to imagine any country just sitting back and letting jobs go offshore without raising some level of concern and investigation," Mr. Lynch said.
Those concerns were pointedly raised on June 18, when the House Small
Business Committee held a hearing on "The Globalization of White-Collar Jobs: Can America Lose These Jobs and Still Prosper?"
"Increased global trade was supposed to lead to better jobs and higher standards of living," said Donald A. Manzullo, an Illinois Republican who is the committee chairman. "The assumption was that while lower-skilled jobs would be done elsewhere, it would allow Americans to focus on higher-skilled, higher-paying opportunities. But what do you tell the Ph.D., or professional engineer, or architect, or accountant, or computer scientist to do next? Where do you tell them to go?"
The technology workers' alliance is highlighting I.B.M.'s outsourcing plans to help rally I.B.M. workers to the union banner.
"It's a bad thing because high-tech companies like I.B.M., Microsoft,
Oracle and Sun, are making the decision to create jobs overseas strictly based on labor costs and cutting positions," said Marcus Courtney, president of the group, an affiliate of the Communications Workers of America. "It can create huge downward wage pressures on the American work force."
Mr. Mehlman, the Commerce Department official, said companies were
moving more service jobs overseas because trade barriers were falling, because India, Russia and many other countries have technology expertise, and because high-speed digital connections and other new technologies made it far easier to communicate from afar.
Another important reason for moving jobs abroad is lower wages.
"You can get crackerjack Java programmers in India right out of college for $5,000 a year versus $60,000 here," said Stephanie Moore, vice president for outsourcing at Forrester Research. "The technology is such, why be in New York City when you can be 9,000 miles away with far less expense?"
Company executives say this strategy is a vital way to build a global company and to serve customers around the world.
General Electric has thousands of workers in India in call center, research and development efforts and in information technology. Peter Stack, a G.E. spokesman, said, "The outsourcing presence in India definitely gives us a competitive advantage in the businesses that use it. Those businesses are some of our growth businesses, and I would say that they're businesses where our overall employment is increasing and our jobs in the United States."
David Samson, an Oracle spokesman said the expansion of operations in
India was "additive" and was not resulting in any jobs losses in the United States.
"Our aim here is not cost-driven," he said. "It's to build a 24/7 follow-the-sun model for development and support. When a software engineer goes to bed at night in the U.S., his or her colleague in India picks up development when they get into work. They're able to continually develop products."
Kismet, BumbleBeeBoogie!
As I was looking through the various areas all over A2K; after 10, count them, 10 calls to MSN, about connectivity problems with our computers, I ran into this article you have posted.
8 out of the 10 people I spoke with are based in call centers in India! They are Technical Engineers for Microsoft and they provided assistance to me (all of which failed) and I also spoke with a Tech based in Seattle and North Carolina, that one having the correct answer to our problems. However, that is a different rant. This rant is the fact that I want to say, shout actually, that we need all of these jobs in the United States. My goodness, look at the unemployment here! Look at what 'free trade' has done for us! I am really outraged; I was before, of course, but today, it hit me square in the face!
Back to the soup kitchens, will it be then?
BBB et al, This is only the beginning, and the reason why the US economy is in big trouble. We're shifting high tech jobs to other countries to reduce labor costs, but that decimates the people earning decent salaries in our country. These people at home have mortgages, car payments, and college tuitions to pay for their kid's education, but without jobs, many will declare bankruptcy. Consumer spending is now struggling from high debt, but without jobs for the skilled engineers, the middle class will begin to hurt more. It wasn't that long ago that high tech jobs were the top jobs in Silicon Valley. We now suffer from 8.5 percent unemployment - one of the highest in the country. That doesn't bode well for everybody else that depended on these middle class families for their spendings on goods and services. One more thing; I can almost guarantee that the Bush tax cuts will not help our economy - and that's in difference to what many financial pundits have said only last week. c.i.
As anyone old enough will remember, this whole process only repeats in the computer software industry what happened in the computer hardware industry during the 80s. (Your hard disk, for example, is more likely than not to have been made in Taiwan.) The export of hardware manufacturing during the 80s proved to be a great benefit for the overall American economy, though the people who happened to be in hardware manufacturing took some painful hits and had to retrain. Exactly the same thing is happening in the software industry now. That's bad if you happen to work in the software industry, but American consumers and businesses will benefit because they can slash their IT budgets and have more money left over for other purposes.
America as a whole has a lot of reasons to worry about its economy, but competition from Indian software engineers is not one of them.
-- Thomas
Thomas, I disagree. It's the totality of everything that hurts our economy; SARS, Iraq war, huge consumer and government debt, lost jobs (and this includes import of jobs to India and other third world countries), consumer confidence, over-valued real estate and stock market, and the downturn of the world economies. c.i.
Two comments:
1) Perhaps if the top jobs start to move off shore -- the problem will come home to people who have the power to do something about it.
2) If you think off-shore competition for jobs is rough -- keep in mind that robots, computers, and other machines make third world labor look positively sky high.
The problem is much worse than anyone wants to imagine.
Frank, Many of the repetitive jobs are already automated. It's still hard to compete against third world labor costs. For example, China pays it factory workers about $80 per month. Trying to build a machine to replace that is very difficult. c.i.
I really can't understand what the hullabaloo is all about ?
Simple formula : Profit = revenues - cost.
In the age of stagnant revenues, the only way to increase profits is to cut costs. A very logical conclusion, which does not take a genius to understand. And this is exactly what the companies are doing. And I really can't blame them for it.
As the world gets more connected, our self imposed boundaries will disappear. And more and more people will explore the opportunity of shifting service type jobs to low cost centers like India and far east. The manufacturing industry has been doing it for ages - how much of a BMW is manufactured in Germany ? How many of computers are manufactured in US ? Don't most of yr clothes come from India ? And toys from China ?
Remember, not a long time ago, when e-commerce was being touted as the way forward, similar anxieties were expressed. A lot of people were in danger of losing their jobs, as more and more processes were shifted to the web. Unfortunately, the bubble burst - which in part has contributed to the stagnant revenues for the corporations and forced them to explore other ways of containing the cost of operations.
The other thing to note is that this model is fairly new. Companies have just started to realize the cost savings by shifting operations to low cost centers. The money saved will/should be channeled for more innovation/creating of more jobs. This will happen over time - this is a cycle, the wheels will turn. I really don;t see the need to panic.
Yes, losing one's job is horrific. But whenever business models change, this is inevitable. This is a fact of life, and one must learn to accept it, and move on.
The other thing which we might need to consider is that quality of service which is provided by the staff so called "first world" countries. The workers here are so used to being protected by the government and the unions, that the quality of service being provided has started to suffer. A recent example was the impromptu strike by the BA check in staff because BA introduced electronic swipe cards for time in/time out !!!!
In the "third world", which you people are so quick to berate, competition is tough for getting a good job. People have to *work* in order to keep them. And this directly affects the quality of service being provided to us, the consumers.
Just random thoughts .....
I also disagree, Thomas. Manufactoring moved overseas while we went to the information age, as it's called. While no slouch when it comes to manufactoring, India is basically leapfrogging into the information. I think we need to be looking around for a new and profitable turf. One in which we again have some comparative advantage.
I realize this is somewhat the same as your statement, but I do not believe that new turf has been identified, and there is no assurance that we, or UK are going to be the ones to stake out the first claim.
CI:
I agree about the "totality of everything part"; all I'm saying is that the US wouldn't be any better off if India and other third world countries didn't exist. The main problem for the US economy is that labor productivity is currently rising at about 4% per year, while consumer demand isn't keeping up. (It isn't keeping up because the Fed can't reduce interest rates below zero, and because the Bush administration's has focused its tax cuts on the very rich, who are least likely to spend it.) The result of this gap between productivity and demand is an American economy that grows at 2% while losing jobs at the same time.
All of this would be true with or without international trade. For the economics of it, I suggest a web search for "comparative advantage" and "pauper labor fallacy". The theory implicit in the above article has been debunked 150 years ago, and it hasn't become any truer since then.
-- Thomas
Two more points:
1) As Frank indicates, increasing trade between nations isn't much different from technical progress. And while both can destroy many jobs in the industries in which they occur, they create just as many jobs in the other industries.
This Slate column by Paul Krugman, one of the leading economists in the field of international trade, explains the logic of the subject for the case of technical progress. The case for trade is analogous.
2) Outsourcing work to third world countries has the effect of gradually bidding up wages there, which has two consequences: first, it limits the amount of work that can profitably be outsourced. Second, as these countries grow richer, they import more stuff from the United States, offsetting the adverse effects. One of the big problems I have with articles like the above is that they dramatize the adverse parts of the story while totally ignoring the beneficial ones.
-- T.
Thomas, That's true to some degree, but it's a very slow process. China has been working towards capitalization of their economy for over ten years, but most are still struggling in their country. On the positive side, I have seen much progress between my first visit to China in 1992, then in the year 2000. On my first visit to Beijing, we stayed at the tallest hotel in the city. On my return eight years later, that same hotel is now one of the smallest. Many international companies are investing in China, but they are doing so cautiously, because of the non-protection of capital by foreign investors. Even car companies from Japan are going into partnerships with Chinese auto companies, so the potential is there. The question is, when will the Chinese be able to buy those products in mass? It will not be those factory workers earning $79 a month. There are many "rich" Chinese in the large cities like Shanghai. They frequent the best restaurants, and the prices are comparable to the best in the world. c.i.
cicerone imposter wrote: Thomas, That's true to some degree, but it's a very slow process. [...] The question is, when will the Chinese be able to buy those products in mass? It will not be those factory workers earning $79 a month.
Sure, it will take decades until the Chinese become as rich as the Americans. But that's because it will also take a long time before the average Chinese worker becomes as productive as the American worker. To the extent the Chinese can't buy American goods en masse, they also can't match the Americans' productivity, which makes them unattractive for outsourcing. And to the extent they
are catching up and
do attract outsourcing, they can also import American goods.
It's exactly same thing as what happened between Mexico and the US under NAFTA. As you may remember, in 1992 Ross Perot predicted "a giant sucking sound as American jobs move south of our border" if NAFTA were to become a reality. Now it has been a reality for 10 years, and nobody has heard a sucking sound yet. The economics is exactly the same between America and China.
Another way to see this is by remembering the accounting identity that a nation's real income is always the value of what it produces. Trade improves the efficiency of production for all sides involved (or else people wouldn't volunteer to trade), but it can't make a productive nation like the US as poor as a relatively unproductive nation like China, which is what the scare stories about foreign imports frequently insinuate.
Thomas, I fully understand the concept of "comparative advantage." At least from what I learned in Economics. I also believe in free trade, but the handicaps the third world countries have is that their educational system is lacking. For example, in 1992, only 10 percent of Chinese high school grads were able to attend college. Eight years later, that increased to 30 percent. Education is one of the fundamental requirements for any country to advance economically. As for NAFTA, I never believed Ross Perot and his "sucking sound" thesis. However, with the downturn in the US economy, many factories created by American companies have been closed down for lack of work. As for identifying a countries real income, one must be careful how that is calculated. In China, many government programs are included that does not produce any consumer goods or services, and many have been big capital failures such as overbuilding of apartments and hotels which now sit empty. c.i.
cicerone imposter wrote: Thomas, I fully understand the concept of "comparative advantage."
Roger that. I hope I didn't talk down on you too much. In online forums, it can be hard to figure out just how much you have to explain. So it looks like it's really just details we disagree about. Still ...
cicerone imposter wrote: However, with the downturn in the US economy, many factories created by American companies have been closed down for lack of work.
Sure. When economies turn down, companies close. This is true with third world trade and without. Maybe I'm just belaboring this point so much because I'm annoyed by the way Congress blames the consequences of its very own fiscal policy mess on foreign competition, and Congressmen rather discuss protectionist measures than get their fiscal house in order.
cicerone imposter wrote: As for identifying a countries real income, one must be careful how that is calculated. In China, many government programs are included that does not produce any consumer goods or services, and many have been big capital failures such as overbuilding of apartments and hotels which now sit empty.
Point gotten, thanks for the warning. But note that this doesn't change the conclusion: Trade can't make a productive country as poor as an unproductive one. Even if the unproductive country is even less productive than it looks on paper.
Strange as it seems, the thing we ought all to be dealing with these days is not...
...how can we put more people to work...
...but rather...
...how can we keep as many people out of the workforce as possible.
Thomas, I believe we're in agreement on all the important points. c.i.
A mere twenty years ago I wrote code which used as little memory and as few CPU cycles as possible. Many in my field used position independent and re-entrant coding techniques with recursive algorithms to squeeze every bit of efficiency out of the system. But within months, hardware improvements rendered all our artistic engineering trivial.
There is a tremendous vacuum in the software industry which is formed by the increasing functionality of hardware. The need for functionality exceeds the need for efficiency, and software is now written with little respect for elegance or efficiency. It is a frenzy of wasteful coding, designed to return the most immediate gain; the technical equivalent of the cambrian explosion in biology.
Within this environment, those which can produce quantity instead of quality are more viable. But things will eventually change, just as they did eons ago. When resources reach their limit, efficiency once again endures, and the value of true skill and knowledge begins to replace quantity.
Education is the key in the final analysis. The US is still ahead in true skill, but we are slipping, and India is doing itself a favor by taking the business it can while the opportunity is available. Their programmers are no better than ours right now, but they cost less. Eventually there will be many different programmer classes (skilled to non-skilled), just as there are in blue collar jobs. But for now, the value of quantity exceeds the value of quality, and cheap quantity is viable.
rosborne, Thank you for sharing that insight in the high tech industry. It's my belief that efficiency and wide ranging tasks will be necessary to keep the hardware as small as possible in the future. We're seeing huge increases in capacity of our computers and other tech devices such as cell phones. This is the future for the high tech industry - IMHO. c.i.
Stumble It!
Tweet This
Bookmark on Delicious
Share on Facebook
Share on MySpace