The Outsourcing Game

From: Report to the President on the Use of Technology to Strengthen K-12 Education: March 1997

"While the continuing expansion of international trade has the potential to confer substantial long-term benefits on American companies and workers, it also presents certain challenges. As trade barriers fall and cross-border transaction volume increases, our children will find themselves competing more directly with the citizens of other countries to provide goods and services within the world marketplace. Indeed, the effects of international competition have already become evident in the (permanent or temporary) loss of U.S. market share to European and Asian economic competitors within certain industries and in competition-induced productivity improvements which, while beneficial in the long term, have been accompanied in some cases by "corporate downsizing" and economic insecurity on the part of American workers. "
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The 2000 U.S. Census indicated that 37% of Hispanics, 43% of African Americans, and 77% of Whites have access to computers in their homes.
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And What About The Teachers?

Although almost 30% of school leaders believe that at least one in five students soon will receive a substantial portion of their instruction over the Internet, about 80% of district leaders report that the primary instructional use of the Internet is for research, including teachers’ research for their lessons. Internet use for students in subject areas is primarily for history/social studies (76%) and science (58%).

“More than half of school leaders report that students are providing technical support in their districts,“ often assuming major responsibilities for troubleshooting hardware, software, and infrastructure problems and for technical maintenance.

“There is significant variation in perception of new teacher competence with technology integration, depending on district size. Overall, 43% of district leaders rate new teachers as only “average” in competence to integrate technology with instruction. School leaders from smaller districts rate 35 percent of their new teachers expert in contrast to school leaders from larger districts who rate only 18 percent of their new teachers expert in technology integration with instruction.
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More College Students Drop Out Than Graduate By Leslie Gevirtz

BOSTON (Reuters)8/15/01 - Fewer than half of U.S. college students make it to graduation, which means that Americans have a better chance of getting an accurate weather report than they have of getting a university degree.
Less than 50 percent of students entering four-year colleges or universities actually graduate, Council for Aid to Education (CAE) researchers said in a report. ''And that's a conservative estimate,'' said Richard Hersh who co-authored the report on the quality of higher education for the National Governors Association.
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Some Stats:

90% - Of All Children Aged 5 -17 Using Computers Regularly
84% - Adults 25 Yrs + Who Graduated from High School
80% - Of Total Population Lives in Urban Areas
77% - Of White Population with Access to Computer at Home
60% - Of All College Students are Female
62% - Total Employment/Total Population Ratio
56% - Of Total Population Are Married
54% - Of Total Population Using the Internet Regularly
47% - Of 2005 US Budget Classed as Discretionary Spending
47% - Of the Nations Wealth Owned by Top 1% of the Population
46% - US Population "Unchurched"
45% - Percent of Population Using Email
32% - Of Total Employment is Classified as Blue Collar
26% - Of Total Adult Population with at Least A Bachelor's Degree
25% - Of Households are Single Persons
21% - Of Total Population Over 65 Years Old
13% - Portion of All US Businesses With More Than One Employee
11% - African American Portion of Total Population
12% - Hispanic Portion of Total Population
11% - Portion Of Total Pop Living in Poverty
10% - Foreign Born Portion of Total US Population
6% - Portion of All Adults with at Least A Master's Degree
2% - Corporate Taxes as Percent of GDP
1% - Portion of All Adults with a Professional Degree (Law or Medicine)
0.2% - Percent of All US Businesses with More than 500 Employees
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I.B.M. Explores Shift of White-Collar Jobs Overseas
Tuscaloosa News
By STEVEN GREENHOUSE
July 22, 2003

With American corporations under increasing pressure to cut costs and build global supply networks, two senior I.B.M. officials told their corporate colleagues around the world in a recorded conference call that I.B.M. needed to accelerate its efforts to move white-collar, often high-paying, jobs overseas even though that might create a backlash among politicians and its own employees.
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U.S. jobs jumping ship
Cheap overseas labor is not just for manufacturers any more -- is your job headed offshore too?
January 19, 2004: 2:20 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - As painful as the labor market has been lately, what's even more painful is that many of the 2.5 million jobs lost in the past few years are never coming back. That's because U.S. employers in a wide range of industries are moving more and more jobs overseas.

That may be old news for manufacturers, who have been cutting jobs and moving them offshore for decades, but it's starting to gather steam in services, especially information technology, formerly one of America's best-paying industries.

"By 2004, more than 80 percent of U.S. executive boardrooms will have discussed offshore sourcing, and more than 40 percent of U.S. enterprises will have completed some type of pilot or will be sourcing IT (information technology) services," Gartner Inc. (IT: Research, Estimates), a technology consulting firm, said in a study late last year.

In fact, some of the biggest firms in the United States have been seriously discussing outsourcing recently. On Monday, the Wall Street Journal reported that officials at IBM (IBM: Research, Estimates), the world's biggest computer maker, discussed saving about $168 million beginning in 2006 by moving thousands of programming jobs overseas, according to internal documents the paper obtained. An IBM spokesman wouldn't comment on the documents, according to the journal, but acknowledged IBM plans to move about 3,000 U.S. jobs overseas this year.

In July, a labor group called the Washington Alliance of Technology Workers published on its Web site a link to a Power Point presentation given by Microsoft (MSFT: Research, Estimates) Senior Vice President Brian Valentine on July 2, entitled "Thinking About India." In the presentation, Valentine cites all the advantages to moving operations to India, including the chance to "leverage the Indian economy's lower cost structure," where a company can get "two heads for the price of one."

Valentine's presentation said several firms -- including Cisco (CSCO: Research, Estimates), General Electric (GE: Research, Estimates) and Dell Computer (DELL: Research, Estimates) -- already "have this religion" and that it was "time for Microsoft to join the party." Microsoft spokeswoman Stacy Drake told CNN/Money Valentine's presentation was simply an effort to encourage employees "to think globally and explore ways to improve our customer reach."

"We will continue to have the majority of our core development work in the United States," Drake said.

A developing taste for offshore labor
U.S. businesses, battered by the recent three-year bear market in stocks and an economy struggling to find its footing, have already developed a taste for super-cheap labor in developing countries, where workers are increasingly better-trained -- especially if they've spent significant time working in the United States on temporary visas.

A February survey of 145 U.S. companies by consultant Forrester Research found that 88 percent of the firms that look overseas for services claimed to get better value for their money offshore while 71 percent said offshore workers did better quality work.

That's news that can't stay quiet for long, and companies like Hewlett-Packard (HPQ: Research, Estimates), Intel (INTC: Research, Estimates) and CNN/Money parent company AOL Time Warner (AOL: Research, Estimates) already are responding.

"Over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China and the Philippines," Forrester analyst John McCarthy predicted in a 2002 report. "The IT industry will lead the initial overseas exodus."

How will it affect the economy?
Though Gartner has said the impact of overseas outsourcing could be "significant," many economists doubt the trend is big enough yet to disrupt the broader U.S. economy. Imports of business services account for less than 1/20 of 1 percent of gross domestic product, the broadest measure of the nation's economy. The nation's unemployment numbers are a lot worse than you think. CNNfn's Kathleen Hays takes a look at the grey zone in a very grim labor market.

But economists are starting to take note. "If it's not a big story yet, it could become one," said Josh Bivens, a labor economist at the Economic Policy Institute, a Washington think tank that focuses on labor issues.

At the least, it's not doing much to end the longest U.S. labor-market slump since World War II. More than 9.3 million people are unemployed, giving employed workers less leverage when seeking a raise. As a result, wage and salary growth has begun to slow, threatening consumer spending, which fuels more than two-thirds of the economy.

IT workers feel the pain
In few areas has the competition for jobs had a bigger impact on wage growth than in the IT industry. In the 1990s, it seemed all one had to do to buy a ticket to Easy Street was learn a programming language or how to manage corporate computer networks. Those days are gone, with unemployment rising, IT spending in a slump and software services moving offshore.

What's more, some IT professionals and immigrant groups complain that U.S. employers manipulate H-1B and L1 visas, which let college-educated people from overseas work in the United States temporarily. They're supposed to be paid a "prevailing wage," but many employers pay them as little as possible. With such cheap labor available right here in the United States, there's even less reason for IT wages to rise.
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Note: If the US is going to promote the ideas of universal free trade, a global economy, unrestricted maximazation of shareholder stock value, and a market based value on all goods and services it cannot exempt certain industries or classes of workers without creating resentment.

However, the US Government certainly can, and should, regulate the excesses of these processes for the benefit of all it's citizens, not just the IT domain.That is one of it's primary roles; but it should not be done a la "Steel Tariffs", rather it could be incorporated into the Sarbanes/Oxley law since the majority of such excesses occur with large corporations.