Into Thin Air

Maybe offshoring is good for the economy in the long run. Maybe it will boost productivity and save companies. But it's causing real pain to real people. And they never thought it would happen to them.

It was Saddam Hussein who broke the news to Myra Bronstein that her job was gone forever.

A 48-year-old senior engineer at WatchMark Corp., a Bellevue, Washington, software company, Bronstein had spent three years running tests and hunting for bugs in the company's software. She knew that things weren't going so well at work; she'd been asked to pull 12- to 18-hour shifts frequently, her boss reiterating that the company's success depended on her "hard work and efforts." So when Bronstein received a brusque email in March 2003 instructing her to come to a 10 a.m. meeting in the boardroom the next day, she began to worry. "No way can that be good," she thought.

Looking for guidance, Bronstein logged on to a Yahoo users' group for WatchMark employees. And there it was, in a post written by "Saddam Hussein": "Here's what's going to happen tomorrow," Bronstein remembers the post read. "For all the quality assurance engineers reading this, your jobs are gone." At that very moment, it said, their replacements were on their way here from India for training. It listed their names, then concluded with sadistic glee: "Make sure on Monday you welcome your replacements with open arms, because your company has chosen them over you."

Bronstein says she felt an icy chill. "It's a feeling of horror and panic because there's nothing to be done," she says. "Saddam Hussein's" intelligence proved absolutely right. The next morning, a Friday, Bronstein and some 60 others were told that they were being terminated. Some left immediately; others, like Bronstein, were asked to stay on for several weeks to train the new folks. "Our severance and unemployment were contingent on training the replacements," she says. "It was quite explicit." WatchMark's new CEO, John Hansen, says an additional payment beyond the severance was offered to those who stayed on.

And so the next week, Bronstein walked into a room to find her old coworkers on one side and the new group from India on the other. "It was like a sock hop where everyone's lined up against the wall blinking at each other," she says. "People were trying not to cry." In an attempt to lighten the mood, her boss said she would like to introduce the old staff to the new staff, while the VP of engineering chimed in with familiar words. "We're depending on you to help this company succeed," he said. Bronstein spent the next four weeks training her two replacements who then went back to India--two people whose lives were suddenly bettered in exchange for one whose life had taken an unexpected turn for the worse.

Since leaving WatchMark (now called WatchMark-Comnitel), Bronstein, who made $76,500 plus bonus, has been out of work, making ends meet with unemployment and by cashing out her 401(k). With both of those gone, she's turned to selling her collection of antique women's compacts on eBay. "It's the difference between hopeful and hopeless," she says. "If you're just laid off, you can tell yourself that the economy swings back and forth, but if it's outsourced offshore, it ain't coming back. It still exists, but it just exists in another place. The IT industry in the United States has gone from being a very high-level, well-paying industry to being very low-paying sweatshop labor, and that's an inexorable trend."

Bronstein's story is increasingly common in a global economy where labor is crossing borders almost as freely as capital. Starting decades ago with low-skilled manufacturing jobs in basic industries, followed by textiles, cars, semiconductors, and now, services, the nimbleness of the world's economy has allowed us to reduce costs by moving production to wherever it's least expensive. The benefits to our economy--in increased productivity, lower prices, and greater demand for American products--are touted by corporate America as the only way to remain competitive. "This is the next iteration of the global economy," says Atul Vashistha, CEO of neoIT, an offshore advisory firm. "The story is what would happen to these companies if they did not go offshore."

Whether you believe such dislocations are ultimately good or bad, they're here, they're real, and they're happening at speeds and levels unforeseen just a few years ago. In December 2003, IBM decided to move the jobs of nearly 5,000 programmers to India and China. GE has moved much of its research and development overseas. Microsoft, Dell, American Express, and virtually every major multinational from Accenture to Yahoo has already offshored work or is considering doing so, with 40% of the Fortune 500 expected to have done so by the end of this year, according to the research firm Gartner Inc. The savings are dramatic: Companies can cut 20% to 70% of their labor costs by moving jobs to low-wage nations--assuming that the work is of comparable quality.

Equally dramatic are the displacement, downward mobility, and suffering of the people left behind. So far, at least, that enhanced productivity hasn't translated into jobs at home. Offshoring is steadily eating its way into the educated classes, both in the United States and elsewhere, affecting jobs traditionally considered secure. People whose livelihoods could now be at risk include everyone from IT experts to accountants, medical transcriptionists to customer-service representatives. In IT alone, Gartner estimates that another 500,000 positions in the U.S. may leave by the end of this year; in one scenario, as many as 25% of all IT professional jobs could go overseas by 2008. If just 40% of those people never find another job in their field, that could be more than 1 million whose careers are altered forever.

The implications of this colossal transformation are only just beginning to be understood. This time around, these categories cover a much greater share of our economy; manufacturing accounts for just 14% of U.S. output, while services provide 60% and employ two-thirds of all workers. "It's happening much faster [than in manufacturing]," says Cynthia Kroll, senior regional economist at UC Berkeley's Haas School of Business. "There are fewer capital investments required in outsourcing a services job." Kroll cowrote a recent study that pegged the current number of jobs vulnerable in some way to offshoring at a stunning 14 million.

Wait a second. Wasn't it this transition to a service economy that was supposed to give us a lasting edge over our global competition? And weren't technology jobs supposed to offer a secure refuge to other displaced workers? So far, things haven't worked out that way. There are now millions of trained and educated people abroad who can do many of our jobs at a fraction of the price. And this upheaval has many people worried. "Industrialization happened and people moved from farms to factories," says Marcus Courtney, president of the Washington Alliance of Technology Workers. "In this round of globalization, people aren't moving to anything. Skills do not grant one immunity." Some argue that the shift will free resources for the innovations that will create the next big boom; others see it as an admission that our competitive advantage is gone. "More than just outsourcing IT or anyone's job, we're outsourcing the American middle class," says Bronstein.

It's no surprise, then, that offshoring is suddenly one of the hottest topics around. Presidential hopefuls like John Kerry have waded into the debate, and the media have leaped onto the subject. Even CNN's Lou Dobbs--hardly a bleeding heart--has jumped in with his "shame on you" list of companies that have moved jobs overseas. Blogs and Web sites such as YourjobisgoingtoIndia.com have sprung up to rail against evil corporate interests, and some antiforeigner groups have seized on this issue as a way to promote their beliefs. Offshoring has reenergized an ugly strain of nativism in the United States, with anti-immigration groups using it to argue against work visas. Other groups, often company-sponsored, use the dirty word "protectionist" against opponents. The din grows louder every day.

Yet much of this discussion is beside the point. Offshoring is here to stay (as long as the cost savings are for real) and there's little point in hand-wringing over whether it should or shouldn't take place. Equally useless--and disingenuous--are the bland, marginally empathetic statements of business leaders alluding to the "short-term pain" as if it were a stubbed toe or a nick from shaving. When contacted, some companies refused comment, while many confirmed that they had moved some jobs overseas or said some losses were simply the result of layoffs. A Microsoft spokesperson, for example, disputed one person's claim to have been offshored, saying it was just "part of the ebb and flow of business." Drowned out in all the hype are the voices of those on the bleeding edge of the change--the real people caught in the crosswinds of this massive global shift. The macro outlook seems irrelevant when the goal is to pay the rent.

That's the challenge faced by both Roxanna Sieber and Doug Hill every day. They come from different backgrounds--Sieber, 58, was an $11-an-hour keyboarder in Villisca, Iowa, for a company that helped make textbooks, while Hill, 60, worked as a contractor in automotive design at Lear Seating in Dearborn, Michigan, and earned six figures. But both saw their jobs move overseas and neither has found permanent work since. Hill works part-time in the veterans' benefits office of American Indian Health and Family Services; Sieber is unemployed.

"I'm done," says Hill. "I know that. Who's going to hire me? I'm 60. I'm just living one day at a time, and I do a lot of praying." Both Hill and Sieber are philosophical about the offshoring trend, saying that's the way the world works, but they worry about the long-term impact on the middle class. "I believe in free enterprise," says Sieber, "but personally, I think that the government makes it too easy to do it."

Sieber's argument is gaining support among some politicians, who are writing legislation that may make offshoring more difficult. One bill that passed the Indiana Senate on February 2 by a vote of 39-10 would require that any state government work be performed in the U.S. The measure was a reaction to a contract--later canceled by the governor--that gave Tata America International Corp., an American subsidiary of the Indian multinational, $15 million for a computer upgrade of the unemployment insurance program, of all things. It's just one of several initiatives addressing offshoring. "It's a national crisis," says the bill's sponsor, Republican state senator Jeff Drozda.

Even some corporate leaders are looking to the government for guidance. "In the absence of a public policy that tells me what to do," former Intel CEO Andrew Grove told an audience last October, "I have no choice as corporate manager, nor do my colleagues . . . [but to make decisions] that very often involve moves of jobs into other countries."

But most companies see such laws as the worst kind of protectionism. Ultimately, these measures will lead to more job loss, not less, critics say. "A lot of times [offshored people] don't think about people that are still left here," says Hansen, WatchMark's CEO. "What about those companies that didn't survive?" In an economy where "There is no job that is America's God-given right anymore," in the words of Hewlett-Packard CEO Carly Fiorina, they believe that job security is up to the individual.

Fiorina probably never had the chance to meet Debi Null. A 49-year-old former system administrator at Agilent Technologies who worked for the company and its former parent, Hewlett-Packard, for more than 20 years, Null was laid off in January 2002, then was hired for less money as a contract employee to do the same job. When her contract ended last year, Null got the news that her job was moving to Singapore. Although she says Agilent treated her with respect throughout the process, finding a new position in her field has proven impossible. In order to get by and pay her health insurance, which costs some $650 a month for treatment related to a liver transplant, she sold her two cars, cashed out her 401(k), and took on three jobs. One, at Foley's department store, pays $6.50 an hour; a second, as a real estate saleswoman, depends on commission. She has yet to sell a house.

To qualify for benefits, Null has also taken a job as a $12-an-hour call-center operator at T-Mobile. But with call centers one of the most commonly offshored jobs in the country, it's hardly a secure gig. "I'm part of history, I guess," she says resignedly. "I worked for high tech in the glory days, but I would not encourage my kids to go into [it]," she says. "Right now, my oldest son is a furniture salesman and my younger one is an apprentice plumber. I don't think they can send those things overseas yet."

It's easy to argue that people like Null should have seen it coming and ought to have constantly upgraded their skills. But as offshoring eats away at ever more sophisticated jobs, is it safe to assume that there is a skill level or point in the food chain at which jobs can no longer be outsourced? "No one's immune," says Frances Karamouzis, a research director at Gartner. "We as analysts have had internal discussions, [wondering] are we next?"

Job insecurity, of course, is hardly limited to victims of offshoring. And there is less sympathy for well-educated IT workers, many of whom benefited from a dramatic run-up in salaries during the bubble. "The cost of technology inside the U.S. and the salaries along with it are outrageous," says Michael Mullarkey, CEO of Workstream Inc., a Canadian-based tech company. "I'm paying $65,000 Canadian for developers that were making $147,000 [in California], and they're smiling ear to ear. People are a dime a dozen."

With that kind of pressure, even those who keep their jobs are feeling the squeeze: A January 2004 study by Foote Partners shows that IT compensation has fallen for four straight quarters in the areas most vulnerable to outsourcing, dropping an average of 7.6% in 2003 alone. "There's no way to stay competitive, no matter how hard you work, when you can get 8 to 16 heads for the price of one," says Bronstein.

So is there any such thing as a safe refuge? Melissa Charters was a data security administrator in Los Angeles with five kids and a freelancer husband. Her $70,000 job was first outsourced to a local company and then offshored to India in May 2003. It's an increasingly common pattern. Full-time jobs become contract work, without benefits, and then vanish overseas. Thanks to a state-funded program for displaced IT workers, Charters is going back to college--to learn to teach home economics. "I seriously considered going back to school to do data or network security," she says. "But then I thought, how could I invest my own money in a career to have it taken away again? I'm pretty sure teachers can't be offshored, but if I start seeing big-screen TVs in my classes, I am going to be worried."

Charters is lucky to have found some government help. While the Trade Adjustment Assistance Reform Act of 2002 provides federal aid for those whose jobs have moved overseas, it is aimed at manufacturing jobs; most software developers and other white-collar workers aren't eligible. In January, a group of former IBM programmers filed a class action suit against the U.S. government to change that.

Corporations bear some responsibility to the workers they leave behind, argues Ray Lane, the former COO and president of Oracle Corp. and currently a partner at Kleiner Perkins Caufield & Byers. "Take some of your expected profits from offshoring and make your severance packages higher or retrain the employees . . . in known growth industries," he says. "But don't kid them. My cousin worked as a bartender for eight years while he waited for his $22-an-hour steel mill job to 'come back.' These jobs never come back."

In an August 2003 report entitled "Offshoring: Is It a Win-Win Game?" McKinsey Global Institute concludes with great specificity that every dollar of offshoring results in 58 cents of savings to the American economy. But even that report acknowledges that 31% of workers who lost their jobs in earlier waves were never fully reemployed, with 80% taking pay cuts. That's the reality for Clifford Paino, a systems analyst whose job moved to Ireland in December 2002. After six months, he found a new job as a contract worker for the same company--earning 40% less, with no job security. "They can tell me they can get rid of me tomorrow," he says.

The situation is particularly acute in certain cities--often the very ones that were a little slice of heaven in the 1990s. In the Colorado Springs area, a thriving IT industry was powered in part by Agilent, the company that was spun off from HP in 1999. The retrenchment that resulted from the decline of the Internet economy has led to the loss of thousands of jobs in the area, many of which went overseas. Agilent won kudos for handling the difficult process as gracefully as possible. Yet its status as part of the original HP--a place once famous for treating its workers with loyalty and respect and for fostering lifelong careers--makes the human impact all the more poignant.

"I walked to work when I was seven months' pregnant in a blizzard and stayed for three more shifts," says Joan Pounds, an IT representative at Agilent who lost her job in July 2003. "I did that because I cared about the company." Pounds wasn't surprised to get the bad news--she'd already survived seven layoffs--but she was surprised to learn that she had to train her replacements in India via teleconference.

One of the Indian replacement workers did, however, congratulate Pounds on her new job. "I said, 'I don't know where that is,' and he said that they had been told we were going on to much better positions," she remembers. "It was emotional on both sides." Shocked to learn that they were, in fact, putting Pounds out of work, both replacement workers tried to back out of the contract, Pounds says. But their employer, a contractor in India, told them they couldn't. As for Pounds, a single mother, she sent out 25 resumes a week with no luck before taking a 13-hour-a-week job as a senior-citizen caregiver. The pay: $7 an hour. She has no medical benefits and must pay the costs of treatment for a son with bipolar disorder. A few months ago, she sold her house at a loss just two days before it was scheduled to be foreclosed.

After his job on Agilent's Windows NT support team ended up in Singapore, William V. Grebenik decided to set up a company that would help smaller companies move offshore. He thought he could help clients with the cultural issues that often create problems, but he blew through his severance before the company could get any traction. "I'm living on one-fourth of what I was making," says Grebenik, who now runs a part-time technical training company. "I've got to make the rent in five days. I'm going to be borrowing it off somebody."

It took courage for people like Grebenik and Pounds to share their stories, because many others whom Fast Company contacted refused, terrified that speaking out would further harm their chances of finding work. "People are really frightened about potential blacklisting," says Natasha Humphries, a former senior software engineer for Palm who was laid off last August. Humphries says she was sent to Bangalore to train some contractors, only to find out later that they were her group's replacements. (Palm disputes Humphries's account, saying her work was split between two local managers.) One man we contacted who had spoken to a local paper about being offshored was told he'd be fired from his new position if he was quoted elsewhere. His wife spoke to us instead.

Many U.S. companies are also doing their best to stay out of the spotlight on this issue--even as they rely increasingly on overseas workers. Rather than loudly proclaiming the benefits--or, alternatively, opting not to shift those jobs overseas--many are simply continuing their offshoring as quietly as possible. "Nobody wants to be the poster child for this," says Vashistha of neoIT, who says publicity-shy clients asked him to take their names down from his Web site. Even McKinsey, which extols offshoring's benefits publicly, didn't respond to a reporter's request to learn more about its own offshoring efforts.

For many multinationals, in fact, offshoring can be a public-relations nightmare at both ends of the pipeline. They fear being associated with the loss of U.S. jobs, of course--but they also worry about offending huge markets if they pull back from employing workers in places such as India, China, and Indonesia. Dell, for example, has tried hard to downplay its decision to bring back some of its call-center operations to the United States from India after criticism about the service quality. According to Barry French, a Dell spokesman, it was "a lot of flurry over something reasonably insignificant. The climate is pretty intense, so what was a small action got blown out of proportion. We remain absolutely committed to India." And at Lehman Brothers, questions about a recent decision to bring back its help desk, which had been outsourced to Indian tech company Wipro Ltd. in January 2003, brought the following clipped response from a spokeswoman: "We're not getting into the details of it. We don't want to be quoted on this. It was a management decision."

The irony is that offshoring is not an American-only concern. In manufacturing, the jobs have trampolined from country to country. In a world where people are treated as any other factor of production, scapegoating one country is pointless. Already, jobs that just five years ago went to Ireland are now done in India; as wages rise there, new, cheaper sources of well-trained workers are springing up in such places as the Philippines and, of course, China. "People in India, of course they're happy, they're getting more money," says Andres Urv, whose job as a quality assurance engineer was offshored in 2003. "But when companies pull out and say, 'Thank you so much but we found someone cheaper,' will they be feeling like we do?"

Where will it all end? Some people believe that population trends make the whole debate a waste of time. Even if the worst-case scenario for offshoring comes true, they say, the departure of boomers from the workforce will create a demographic earthquake so severe that filling, not finding, jobs will pose the biggest challenge.

But other observers see a bleaker prospect ahead. "As centers of skilled high-tech professionals build up in other parts of the world, the U.S. . . . may no longer dominate the next wave of innovations," a fall 2003 Berkeley study on outsourcing reads. Or perhaps it doesn't matter. "Anyone who is looking at this current debate isn't looking down the road far enough," says Tim Chou, president of Oracle Outsourcing. "The future is HAL [the superintelligent computer in 2001: A Space Odyssey]--a computer sitting in a dark room spitting out money. It won't involve any people, because [computers] are way more repetitive, reliable, and much lower cost than any human."

Perhaps Pounds, formerly of Agilent, sums it up best: "We've had throwaway clothes, throwaway cars, and now we have throwaway people." Is that what globalization was supposed to be all about?

Sidebar: Going, Going, GONE?

Offshoring jobs is an old story in the manufacturing sector. Now, service jobs once considered safe are being shipped overseas. Lawyers, accountants, journalists, engineers, take heed. "Any knowledge-worker job is at some risk," says Michael T. Robinson, president of Careerplanner.com. Working with his firm and our own research, we've come up with a list of jobs and their relative vulnerability.

Extreme Risk | Accountant | Industrial Engineer | Production Control Specialist | Quality Assurance Engineer | Call-Center Operator | Help-Desk Specialist | Telemarketer

High or Moderate Risk | Automotive Engineer | Computer Systems Analyst | Database Administrator | Software Developer | Customer-Service Representative | CAD Technician | Paralegal/Legal Assistant | Medical Transcriptionist | Copy Editor/Journalist | Film Editor | Insurance Agent | Lab Technician | Human Resources Specialist

Low Risk | Airplane Mechanic | Artist | Carpenter | Civil Engineer | Headhunter | Interior Designer

Data: Careerplanner.com, UC Berkeley Fisher Center for Real Estate and Urban Economics, Fast Company

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