Financial Resource

style=”text-align:justify;”>BACKGROUND: Off shoring – the transfer of high wage U.S. jobs to lower cost overseas locations especially in Banking Industry is enabled by improved communications technologies and driven by the desire of corporations to establish a business presence in potentially lucrative foreign markets as well as to take advantage of the lower costs of production and skilled labor in those markets. Forrester Research has projected that as many as 3.3 million white-collar jobs of all kinds and over 6 billion in wages will be moved from the United States to lower cost, offshore locations by 2015. Although the initial emphasis has been on routine service and technical support positions, the trend is expanding to include more complex engineering and design services. It is abundantly clear that many of the jobs being sent offshore were formerly held by U.S. engineers, computer scientists and other information technology professionals.

The off shoring trend is particularly unsettling for American high-tech workers. The economy lost 3 million manufacturing jobs in the past decade. American high-tech firms shed 560,000 jobs between 2001 and 2003, and expect to lose another 234,000 in 2004. The Commerce Department reports that the number of U.S. IT workers employed in all industries has declined by 8 percent since 2000. Although initially concentrated in the manufacturing sector and in low-skilled jobs, the Commerce Department says that “recent job losses have been widespread across most IT-goods and services producing industries, and across all IT skill levels.” Some jobs are expected to return with a stronger economy, but the majority is probably gone for good. Offshore outsourcing will further compound that shrinkage.

The strong push for off shoring of high-tech jobs also comes at a bad time for U.S. electrical engineers, computer scientists, and information technology professionals. Unemployment among U.S. electrical engineers, computer scientists, and information technology professionals has been increasing over the past three years, and reached historically high levels in 2003. The unemployment picture is further clouded by uncertainty about the numbers of high-tech workers who are currently under-employed, or who have left engineering or information technology for jobs in other fields

Introduction: As we start to learn about outsourcing, its impact and the way it is perceived by society and the Information Technology industry, we come across some issues that seem to define outsourcing. Some of the issues are positive about outsourcing and some are negative. One negative issue has been identified as the problem statement for this study. The outsourcing industry in United States has been a target of political ideologues and a fair amount of fear. During the course of this study we will try to explain the social and political environment that affects outsourcing. Also, many American companies have suffered losses in outsourcing because the infrastructure in the host nation is not up to the standard. We will attempt to address that issue too.

History of Outsourcing: Looking at the history of human development, the history of outsourcing dates back to the industrial development that began in the late 17th century. For instance, the making of America’s covered wagon covers and clipper ships’ sails was a job outsourced to workers in Scotland, with raw material imported from India. England’s textile industry became so efficient in the 1830s that eventually Indian manufacturers could not compete, and that work was outsourced to England. (Kelly, 2003, p.3) The ancient Chinese empire and the Japanese were also adept at outsourcing to their conquered nations. Looking at recent times, in the USA many computer companies used to outsource their payroll processing in the 1970s and 1980s. Learning that outsourcing existed since the early days of our civilization, one may wonder why no one talked about it, let us say, 10-15 years back? The reason outsourcing stayed out of the news is because it used to happen on a small scale and was concentrated in some specific regions, like the USA, Europe. But now outsourcing is a 0 billion a year industry and the world cannot afford to ignore it. Globalization, explosive growth of Internet, and the development of information society in every region of the world has made outsourcing an integral part of the world economy.

In our study we are focused on Information Technology (IT) outsourcing. IT outsourcing gained momentum after the Internet started bringing together every corner of the world, and globalization brought down national barriers. Nowadays American companies such as Intel and Sun Microsystems have larger research and development outside the United States than within the nation, Citibank has card processing outsourced to India, and customer support at Dell comes from the Philippines.

Some look at outsourcing as a way in which developing nations can have access to the new technology enjoyed by the developed nations and a way towards economic and social empowerment.

Relevant Research on Outsourcing: The most relevant research conducted is that done by LOMA, which explores the pros and cons of outsourcing and offshoring. The focus of the research report is on information technology (IT) outsourcing and offshoring to IT service companies in the Unites States and India. Sources for the report include SEC filings, Internet sites, press reports, and government research. The topics in the report include: a) Explanation of Outsourcing, b) Explanation of Offshoring, c) Process of Selecting Providers, d) Reasons Why Outsourcing and Offshoring Are Rising, e) Evidence of Impact of Outsourcing and Offshoring on Jobs.

However, it must be stated here that we found a lack of theoretical research on outsourcing. The knowledge base of the industry does not focus on theoretical research but on financial data and global economic and political trends. What we have observed is that the IT industry is looking at outsourcing as an economic phenomenon and is not focusing on research the way it has for the field of software, microprocessors, the Internet etc.

Why is outsourcing an important issue? Referring to our problem statement, we would like to stress that the problem is significant not only because of its impact on IT outsourcing industry but also because of its impact on the global economy as whole. We know that outsourcing is a 0 billion a year industry and IT outsourcing is a vital part of the industry. A slump in IT outsourcing would mean a loss for the global economy. Since the problems facing IT outsourcing (such as political pressure in the USA and lack of infrastructure in the host developing countries) can seriously slow down the growth of IT outsourcing, the problem facing this industry is significant. In conclusion, we would like to state that nothing should be judged in a void. If we judge outsourcing by itself we would not be able to say whether it is good for society or not, but if we view outsourcing from the perspective of the global economy, increasing globalization, rising cost of production in USA, and lower costs in developing countries, we can see that outsourcing has a positive side too. Although fewer than 20% of the total American software companies outsource their jobs, in general offshore outsourcing (“offshoring”) is seen as something bad for America. We hope that with this study we would be able to present a balanced picture of outsourcing.

Inside The Outsourcing Debate: How DuPont Benefited from Outsourcing to China: When we began looking at the debate surrounding outsourcing, we came across DuPont, which has outsourced its project of creating online database of fabrics to China. The report published in Outsourcing Asia’s website said that by outsourcing to China the company was able to create a 24/7 operation and complete the project before schedule. The report also pointed out why the company had selected China as its destination and also talks about China’s future as outsourcing destination. 

How US Government Can Benefit From Outsourcing: Looking at the example of DuPont, where outsourcing helped the company to complete a project in time and also saved costs, we decided to look at how outsourcing might help the government. We came across a report on the US government’s IT challenge and how outsourcing can be of help in Outsourcing Asia’s website. The report said that, in the year 2005, 50 percent of the federal government’s 70,000 IT workers would become eligible for retirement, according to a 1999 study. Also, the Government is IT legacy systems have also aged. So even if young people join the work force they are not trained in the old system. They have to be trained, which means increase in cost and expenses for Government. This gap has opened doors to the suppliers to offer outsourcing as a solution to the problem. (Harney, 2005, p.2) The report mentioned that many Unions and Government workers are against outsourcing because they fear that it will raise unemployment in USA. Although there is a general fear of outsourcing among the public, we believe that if we are able to create a mutually beneficial outsourcing relationship between the two parties and show the benefits to the people, they will begin to feel positive about it.

Creating a Mutually Beneficial