Offshore Equations
VIEWPOINT
by Francis D. Tuggle
Lately, there has been considerable controversy over the increasing number of companies that have been moving jobs overseas. Some decry these actions as “un-American.” Others argue that it is a necessary step in order to remain competitive in today’s global economy. Here in Orange County, many high-tech jobs have been so exported, and more are on the way. Nationally, estimates are that 500,000 of the roughly 10 million U.S. high-tech jobs could move overseas in the next two years.
It is unarguable that businesses today operate in a global economy. The net result of this is that consumers benefit with high-quality goods and services for which they pay increasingly lower prices.
It is also a reality that most consumers could not care less where something is made.
These realities have led to severe cost pressures, and many companys are responding by outsourcing what they deem to be noncore competencies. It even makes sense for a company to outsource its core competency when another company can execute the activity more inexpensively and when consumers do not care where the good (or service) is produced.
For example, textile companies have moved the bulk of their manufacturing jobs overseas to compete with foreign manufacturers on cost grounds for the production of thread, fiber, fabric or clothing. However, much of the design work for clothing (i.e., creative jobs) remain in the U.S.
That’s all clear enough, but things get trickier when you turn to higher skill (and higher pay) technology jobs such as call center operations and computer programmers.
The economics are undeniable: In the U.S., it is common for a computer programmer to earn $50,000 per year plus benefits. A similarly skilled programmer in India or Russia is willing to work for $5,000 per year with no benefits. Exporting 10 or more of those jobs quickly adds up to real money.
To help make the proper decision as to when to export jobs and when not to, several interconnected factors must be examined:
n How much of the job under consideration for export is an information-handling job and how much of it is a “thinking” job? A call center worker whose main task is to follow a script or a computer programmer whose main task is to write code to a specification is a prospectively moveable job. A call center worker who solves a customer’s novel problem or a computer programmer whose task is to interact iteratively with a client to write code to a changing set of customer requirements is a job that’s less mobile.
n What is the company going to do with the money that is “saved” by moving jobs overseas? It’s one thing to export jobs so as to declare an extraordinary dividend; it’s quite another to do so in order to save a company from bankruptcy and to strategically add jobs in another arena.
n To what extent do the jobs being exported touch a customer directly? Jobs that involve interaction with customers mean that the opportunity is there to market, to cross-sell and to up-sell. Inwardly looking jobs that involve expense control do little to affect the company’s bottom line.
n Is the whole task being exported or only part of it? One huge mistake that some companies make is to just export part of a task for some quick cost savings. The coordination costs (getting modules to work together, the time required to get the two groups to work together, quality issues regarding each group’s work) can swamp the cost savings from exporting jobs.
Note that the skill level required to perform the job is not one of the essential factors to be weighed. In today’s global economy, everybody’s job, ultimately, is at risk.
Long-run job security comes only from having expertise that is not easily duplicated and that has market value.
Tuggle is dean of the Argyros School of Business and Economics at Chapman University.
