The rhetoric against offshore outsourcing continues to build momentum. A look at any chat room shows that the anti-BPO backlash is very alive and kicking. This month's Wired Magazine's cover story details India's rise as the capital of computing revolution, with an exclusive focus on offshore outsourcing. In recent weeks, even apolitical and non-business publications (not including the likes of TIME and Newsweek) have carried an occasional piece on how American jobs are being affected, due to outsourcing of services, specifically IT services and business processes. At least 19 US State Legislatures have sponsored bills that would ban offshore outsourcing. Organizations rallying against outsourcing include Seattle-based Washington Alliance of Technology Workers and the Delaware-based Information Technology Professional Association of America and among others. Most recently, President Bush quietly signed the Thomas-Voinovich amendment, which forbids certain segments of the Federal government to use foreign companies when outsourcing some government work (the amendment is limited in scope and duration - it sunsets after a year). Even the director-general of the Confederation of British Industry, Digby Jones, recently commented," If the British industry is not careful, India will eat our lunch and China our dinner."

At the 2004 World Economic Forum in Davos, Switzerland, one of the workshops was titled," Would the Last Department to Be Outsourced Please Remember to Turn Out the Lights?" (When Boeing, the only major employer in the Puget Sound region in the early '70s, experienced a severe crisis and started massive lay-offs, an infamous Seattle billboard displayed "Will the last person to leave the city please turn out the lights?"). It is safe to assume that the opposition to offshoring will in fact climb as this presidential-election year progresses and the candidates include this issue in their campaigns, all the more if unemployment rises or even remains near its current levels. But, as Fortune Magazine's senior editor for Internet and technology David Kirkpatrick writes, "Seldom have so many had such strong opinions about something they understand so poorly."

As America shifted from a manufacturing economy to a service economy to a knowledge-based economy, the types of jobs in demand have also changed. The hype and fear of offshoring is rooted in the fact that high-end, professional and white-collar jobs are being exported from developed countries, for the first time. The unfortunate and highly visible outcome of this phenomenon is the loss of American jobs. Emotions run high when people lose jobs. What remains buried under this controversy though, is the fact that businesses continue to outsource not just because it is more cost-effective to do so, but the quality of work is often higher than, or at least at par with, their expectations. "Redistribution of the middle class" is one phrase being increasingly used to describe the outcome of this (outsourcing) phenomenon. Offshoring has typically been a strategy to reduce labor costs, but is now being used by companies to get a foothold in emerging markets or to take advantage of expertise centers such as for software development in India, according to Geoffrey Moore, Managing Partner, TCG Advisors.

Gartner Inc.'s CEO Mike Fleisher has described the "hype-cycle" for IT offshoring. "A hype-cycle tracks the publicity surrounding a brand or technology. As in the case of dot coms, what hypes up, must come down. When it does, disillusion sets in. Over the last ten years, technology has replaced people. What is being outsourced today will be replaced by technology tomorrow. So training programs need to focus on the next generation of technology." India, and Asia in general, have been accused of usurping the latest innovations and production techniques from the West, investing in the latest technologies, and after introducing low-cost labor, start to produce. According to Soumitra Dutta, Professor and Dean of Executive Education, INSEAD, France, "The question for the Indian software industry is whether it can follow the lead of Japan's automakers and graduate from a supplier of high quality products to a producer of innovations."

At this same Forum in Davos, Infosys CEO Nandan Nilekani, pointed out that "the offshoring trend is the result of decisions in the West. India was goaded by the West into becoming a free market. Plus the technology and quality processes used by Indian software firms all come from the West." In his Wall Street Journal editorial, Dartmouth College economist Douglas Irwin wrote, "As long as the American workforce retains its high level of skills, and remains flexible as firms position themselves to improve their productivity, the high-value portion of the service sector will not evaporate." From a market perspective, the American reaction couldn't be more misguided; half of the $500 Billion total worldwide spending on IT services belongs to the U.S., with outsourcing's split being less than $25B, while India's share of this pie is $12B and $ 3B respectively; we've only barely begun to scratch the surface. Columbia University professor and leading international trade theorist Jagdish Bhagwati's column in Asian Age describes why outsourcing is good for America, "The fact is, when jobs disappear in America it is usually because technical change has destroyed them, not because they have gone anywhere. In the end, Americans' increasing dependence on an ever-widening array of technology will create a flood of high-paying jobs requiring hands-on technicians, not disembodied voices from the other side of the world."

President Bush's Chief Economic Advisor referred to an offshore outsourcing example in his 2004 Annual Economic Report - a call center, in this case - saying, "It makes more sense to import the good or service than to make or provide it domestically, when produced more cheaply abroad." In effect, comparative advantage makes it a "win-win" for both, the exporter and importer. Two leading think tanks, the New America Foundation and the National Foundation For American Policy are both of the opinion that while the Federal and state governments in the US talk the language of globalization, none were "walking the talk." In yet another report, published by The Computer Systems Policy Project (CSPP), the strengthening of America's innovation pipeline is accentuated, investment in technologies and infrastructure that favors competitiveness and fuels entrepreneurship is encouraged, and improved education and training for American students and workers is emphasized. (CSPP is a high-tech industry advocacy group comprised of CEOs from Dell, HP, IBM, Intel, NCR, Unisys and Motorola). In a roundtable convened by International Herald Tribune three months ago in New York, to discuss how job migration is changing the U.S. employment landscape, the participants included the director of McKinsey's Global Institute and Morgan Stanley's chief economist, among others.

All espoused similar sentiments: As long as we maintain the engines of innovation and productivity, [America] will continue to have a very high standard of living. Not to mention McKinsey Consulting's famous publication last October, that conservatively estimated a direct savings of 58 cents for every dollar invested in the offshore space.
US Senators Conrad Burns (R-MT) and Ron Wyden (D-WY) published a special report last December, on why offshore development "may well wind up rescuing the U.S. software industry." An excerpt: "To remain competitive in the global market, U.S. software companies must continue to drive innovation.

However, innovation today is being strangled through insufficient R&D budgets on the company side and an overspending hangover on the customer side. Offshore development can help on both fronts.

As the offshore trend evolves, many jobs will stay in the United States, especially jobs that are tied to customer needs and linked to product innovation. Some new jobs may be also created. But some jobs will almost certainly disappear, and those changes will be hard to swallow.

One thing that won't change is that the United States will always be a nation of inventors and innovators." In an analysis of 125 regional knowledge economies, San Francisco was ranked first, plus another 42 U.S. regions made it to the top 50 worldwide list, according to British think-tank Robert Huggins Associates. Tokyo, the top-scoring non-U.S. region, ranked 15th.

As Americans become more conscious of how India's economic progress is making it a better market for U.S. goods and services, complaints will end and the rhetoric will indeed disappear. Fortune's Kirkpatrick recommends, in the same vein as the aforementioned experts, that although "displaced workers have legitimate gripes, they ought to be demanding not an end to offshoring but better education and retraining to compete in a global marketplace, as well as social programs to cushion the blow of inevitable job losses."

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