Is Offshoring Good? [Full-text]

Ashok Soota

Cofounder and managing director of MindTree Consulting in Bangalore, India

Marcus Courtney

President of WashTech/CWA, a Seattle-based union for high-tech workers

Resolved: Offshoring is good for America.

Soota: My observations: "Offshore" is a term borrowed from the manufacturing economies of the last century. In the knowledge economy, the terms offshore and onshore have no relevance. At MindTree, we have substituted these with the term "OneShore."

There are two forces at work in shaping the OneShore paradigm: Globalization and technology. These enable every nation to sell globally and source globally. This is not without transitional pain. The pain is equal for a small retailer in India edged out by a global giant or a farmer who must buy genetically modified seeds from U.S. sources and an American whose programming job may go to Bangalore.

No nation is as well equipped to take advantage of the emergent phenomena as the U.S., because it is a champion of free markets and has a large immigrant work force with global connections. Finally, American people are by nature, more adaptive. These give the country timeless resilience with which it reconfigures itself and leads the next wave.

Hence, I have no doubt that the new paradigm is good for America.

Courtney: Thanks for your observations. No question that technology and the Internet have enabled anytime, anywhere production that could not have been imagined 100 years ago. The idea that at a flip of the switch that production of high-tech products and services could be moved around the globe is a significant shift in how production gets done.

But there are consequences for this shift. The drivers that are currently moving the global economy are focused on driving down wages and benefits of U.S. employees as the work moves overseas. It is the cost differences combined with technology that makes offshore outsourcing a serious threat to U.S. high-tech workers. Also, tech workers in India are not immune from the forces around driving down costs. More and more Indian companies will be seeking ways to "offshore" their work to gain additional competitive advantage. The U.S. high-tech industry has seen very little job growth more than four years after an economic recession. The slowest job growth after a recovery since the great depression. If outsourcing is so great for the U.S., why are not more jobs getting created in the industry?

The other issue that makes offshore outsourcing unique is the impact it has for the U.S in terms of technology competitiveness. Companies are sending both high and low level work overseas, so it increases the chances of the U.S. losing its competitive advantage. Furthermore, as products and services that were once done in the U.S. are done overseas only to be reimported, it increases our trade deficit and balance of accounts which further jeopardizes our global competitiveness.

Soota: You raise very interesting issues. I have a basic disagreement with your observation that "the drivers that are currently moving the global economy are focused on driving down wages and benefits of U.S. employees."

The drivers moving the global economy are focused on two things: selling and servicing the global customer and driving down the total cost of business. It is not just about wages of U.S. workers. One part of that may be wages--and if so, it is not a one-country issue. As you rightly pointed out, it will affect Indians as well if wages are earned disproportionate to the value they add. It will be subject to pressure, irrespective of the country of origin.

In all this though, what is the fundamental truth? By nature, "value" is migratory. Once, it was India that was known for textiles--a time came when the power loom killed the homespun textile industry. Now the same power loom has to compete with international imports. Germany led the world in steel making at one time. Then it went to the U.S., then to Japan and then to Korea and now it has gone to China. You pick any industry, it will prove to you the migratory nature of value. Software programming, whether U.S. or Indian, is part of this reality.

Now I want to de-link low growth in programming jobs from high-tech leadership. I have no doubt in my mind that the U.S. will remain at the forefront of innovation. The U.S. has unique advantages that will be very difficult to replicate anywhere else, anytime soon.

U.S. competitiveness comes from its inherent diversity, intellectual infrastructure and access to long range capital. Having said that, the future will be such that the process of innovation will be borderless and cooperative. A genomic concept may be developed at Stanford, beta-tested in Bangalore and see first deployment in Beijing.