Offshore Sourcing Insights

This is one you will want to read if your community is feeling the effects of job exporting, which many communities are today. This story centers on offshore sourcing decisions by Chicago area companies for the most part, but the lessons apply to other cities.

For several years, Western companies have been shifting ever-larger and more complex operations offshore, starting with basic data processing or code writing in the early 1990s and quickly moving up to customer services, such as the Indian call centers that answer questions about your Dell laptop or your American Express bill.

The trend toward using inexpensive labor overseas, even for white collar jobs, has hit communities nationwide - and Chicago's suburbs are no exception. Lucent Technologies, with operations in Naperville and Lisle, and Schaumburg-based Motorola Inc. are two of the largest suburban employers that have eliminated thousands of jobs in the last three years, in part, to take advantage of the less expensive work force overseas. Both Motorola and Lucent have overseas plants as well as partnerships with foreign companies that help them produce products there for less.

Now, panicked at cost pressures from a sluggish economy and global competition, some companies are getting even more aggressive in their offshore ambitions, shipping payroll accounting, loan processing or human-resource departments off to India. You can now get a pink slip in Manhattan sent by a clerk in Mumbai.

A bandwagon effect has taken hold over the past six months as companies rush into what used to be a slow and careful decision. Many are emboldened by headlines trumpeting moves by the likes of Bank of America and EDS to shift more back-office jobs offshore.

JPMorgan Chase recently unveiled plans to set up an off-shore equities-research unit in Mumbai with 40 analysts and support staff.

General Electric already has 11,000 agents in its Indian call centers, and recently created a division of 400 people to analyze credit-card data and trends.

The technology research firm Forrester predicts that 3.3 million U.S. service-sector jobs will move offshore during the next 15 years. TPI consulting estimates that in India alone, the value of Western outsourcing deals will rise from around $10 billion today to $80 billion by 2008.

Roughly 27,000 technology jobs moved overseas in 2000, according to Forrester. It predicts that number will mushroom to 472,000 in 2015 if companies continue to farm out computer work at today's frenzied pace.

Companies in the United States and Europe will spend 28 percent of their information technology budgets on overseas work in the next two years, Forrester said.

Jean-Marc Hauducoeur, a senior vice president at Cincinnati-based human resources consulting firm Convergys, said his 47,000-employee company will employ 6,000 customer service representatives and network engineers in India by year's end. Convergys' average technical employee in India stays on the job for nearly three years - more than double the U.S. average, saving tens of thousands of dollars in recruitment and training per employee per year, he said.

We are no longer just losing low-skilled jobs to developing countries. Now, an increasing number of knowledge jobs are marching offshore. We need some new thinking on this issue. While some scream "protectionism," these actions are likely to come back to haunt us in the long-run. Economic developers in Cleveland, Pittsburgh, Phoenix, Louisville, Indianapolis, Dallas, Denver and many other cities are trying to combat this rush through new talent retention and recruitment efforts. Will they succeed? We won't know for a while, but we have to keep trying.

We will be following the offshore sourcing issue closely in the future. Stay tuned.

Read more here.