Is Offshoring Good? [Full-text]

Apart from being the innovation capital of the world, the U.S. will continue to be the leader in unusual value creation in areas like capital management, health, space, energy, entertainment and defence.

So, the argument that offshoring will take away U.S. competitiveness ignores the nature of competitiveness and creation of sustainable, competitive value.

Courtney: One issue that is very different between India and the U.S. is the questions around market access and export driven policies. India has a national policy around IT that it be export driven. Most of the software services generated in India are exported. It is not consumed in the domestic market. In the U.S., what is happening is that once services that were done in the U.S. domestic market are increasingly getting done overseas only to be imported back into the U.S.

Our national policy should be different. I would argue the U.S. tech industry could go the way of the steel industry, if we do not create national policies, like in India, that promote a more export driven IT industry. The U.S. should follow India's lead in creating national policy around tech that just doesn't let market outcomes dictate everything. This can not only promote more fair competition but also avoid a race to the bottom in core labor standards.

Soota: The success of the Indian software industry is about having the right skills at the right time at the right cost. It has nothing to do with export incentives. Neither are export incentives an answer for what you perceive as the problem for the US.

You have earlier expressed concern on job losses due to offshoring. Let me give you an example where offshoring leads to job increases for the U.S. Most venture capitalists today require that product design be distributed across continents. The result? R&D dollars get stretched. When that happens, more projects can get funded. Projects that would fall "below the line" because of engineering costs become viable. In reality, offshoring (though I prefer the term OneShoring) is not a zero-sum game. It is to the advantage of free enterprise, hence to the advantage of the U.S.

Courtney: WashTech runs an offshore tracker on our techsunite.org website. Since January 2005, we have tracked more than 103,000 jobs have been offshored. These are only numbers that have been reported in the media, so we know the real total is much greater.

This is a significant number of jobs getting exported from the U.S. to other countries by multinational corporations to take advantage of the skilled low cost labor. I know of many tech workers that have lost jobs and when they have found new jobs they pay significantly less. The way offshoring/ OneShoring is currently getting done is a zero sum game, because the jobs getting created in India are mostly serving the U.S. domestic market--the worlds largest market. As more and more R&D gets done offshore, it is going to disadvantage investment in the U.S. market place--why invest in the high-cost center when you can go to the low-cost one. The Indian government invested heavily in creating the workforce with the right skills.

Soota: The issue has to be seen at a micro level and a macro level.

At a micro level, one must empathize with anyone who loses a job whether due to offshoring or obsolescence. Assistance in reskilling such persons must be available at a social and structural level.

At a macro level, jobs lost in one part of the economy are replaced by gains elsewhere. A well-known McKinsey study shows that the U.S. economy gains $1.14 in return for every dollar of offshoring spend in India.

These numbers don't take into account the additional gains from Capital investment. For example, the majority of the funding for MindTree and many other companies is from U.S. sources (institutional and individual) who will benefit when we go public.

The U.S., as the world's largest exporter of services, is the largest beneficiary of open markets. Also, countries with more open approach to offshoring like the U.S. and UK have lower levels of unemployment than relatively conservative economies like Germany and France. All of the above reconfirm that offshoring is good for America.

Courtney: If the current trends continue the U.S. will soon be running a trade deficit in its service category. At one time, the thinking was that U.S. should not be concerned with the loss of manufacturing jobs, or our trade deficit in these areas because the service sector would be the holy grail. How can the U.S. be the world's greatest tech innovator when it is importing more services than it is exporting?