U.S. IT jobs jumping off-shore

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "Robert J. Berger" <rberger () ibd com>
Date: Sat, 15 Mar 2003 13:24:35 +0900
To: Dave Farber <dave () farber net>, Dewayne Hendricks <dewayne () warpspeed com>
Subject: U.S. IT jobs jumping off-shore

U.S. jobs jumping ship
Cheap offshore labor is not just for manufacturing any more -- is your job
heading overseas, too?
March 13, 2003: 3:50 PM EST
By Mark Gongloff, CNN/Money Staff Writer
http://money.cnn.com/2003/03/13/news/economy/jobs_offshore/index.htm

NEW YORK (CNN/Money) - As painful as February's big job cuts were, what's
even more painful is that many of those jobs are never coming back, as U.S.
employers in a wide range of industries move more and more jobs overseas.

That's old news for manufacturers, who have been cutting jobs and moving
them offshore for decades, but it's a trend that's also starting to gather
steam in a number of service industries, 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.

U.S. businesses, battered by a three-year bear market in stocks and an
economy that can't seem to find its footing, are developing a taste for
super-cheap overseas 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 recent 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 than from U.S. providers, while 71
percent said offshore workers did better quality work.

That's news that can't stay quiet for long, and companies like Microsoft
(MSFT: 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 report
last year. "The IT industry will lead the initial overseas exodus."
What spending slump?

While tech spending by U.S. businesses has been underwater since the tech
bubble of the late 1990s popped in 2000, countries such as India, China,
Ireland, Israel and the Philippines all are experiencing a boom in exporting
IT services.

"Analysts who predicted India's software exports to the United States would
drop on account of shrinking IT spending in that country were surprised to
see exports actually rise to this region," the National Association of
Software and Services Company, an IT industry association in India, said
recently.

NASSCOM predicts that the Indian "business process outsourcing" industry --
a narrow category that includes customer-support call centers -- will export
$21 billion to $24 billion worth of services by 2008 and employ more than
1.1 million Indian workers.

Those workers -- in one narrow segment of the outsourcing industry in just
one country -- would replace about 1 million U.S. workers, according to
consulting firm Gartner.

"This is not counting the offshore services provided by other countries such
as the Philippines, Ireland and Jamaica, or the other IT services that are
likely to [use] offshore resources," a Gartner study said. "The scale of job
migration potential is quite significant."

To be sure, these countries all compete with each other for business -- in
its 2002 annual report, Indian outsourcing firm Wipro Ltd. (WIT: Research,
Estimates) warned "wage increases in India may prevent us from sustaining
[our] competitive advantage and may" hurt profits -- but they all provide
cheaper labor than the United States.

The Contact Center Association of the Philippines, an industry group for
suppliers of customer support call centers, boasts that Filipino workers'
salaries are just a quarter to a fifth of those in the United States, with
programmers earning $250 to $700 a month, compared with $1,600 to $3,600 in
the U.S., and project managers making $700 to $1,150 a month, compared with
$3,600 to $7,100.

Irresistibly lured by such rock-bottom costs, a wide array of companies --
including Microsoft, Intel, Citigroup (C: Research, Estimates),
Hewlett-Packard (HPQ: Research, Estimates), Procter & Gamble (PG: Research,
Estimates), AT&T (T: Research, Estimates) and AIG (AIG: Research, Estimates)
-- all have turned to Filipino companies for call center and other IT
services.

In one call center in Pampanga province, 850 Filipinos answer customer
service calls for Internet service provider America Online, a member of the
AOL Time Warner family.
Broader impact still distant

Most economists believe the offshore outsourcing trend is not substantial
enough yet to have a big impact on 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.

But economists are starting to take note of the trend.

"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 making the weak job market in the United States any
better. Employers cut 321,000 jobs in February, bringing employment outside
the farm sector down to 109.2 million, the Labor Department reported last
week, ringing alarm bells about the health of the U.S. economy.

Nearly 8.5 million people are unemployed, which gives workers who do have
jobs less leverage when asking for a raise; as a result, wage and salary
growth has begun to slow, and that in turn is 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 good old days are long gone, with unemployment rising, IT spending in
a deep slump and software services moving offshore.

What's more, some IT professionals and immigrant groups complain that U.S.
employers manipulate the H-1B visa system, which allows college-educated
people from overseas to work in the United States for up to six years.
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.

"I talked about salary with a company last week, and they were paying
between $30 and $35 an hour," said Donna Bradley, an IT specialist in Mesa,
Ariz., who's been out of work since August 2002. "In August I was making $45
an hour."

It didn't matter; Bradley, 49, didn't get the job and is selling her house
and moving to Maryland to live with her daughter while she continues to look
for work.

"The irony is that I was a single mother, and I raised five kids by myself
and put myself through school," Bradley said. "I bought my first house in
1999 -- that was a very big deal for me -- and now I have to sell it, only
because they won't hire Americans. It's devastating."

Still, Bradley's experience is not yet the norm in this country. Many firms
have found that there are difficulties -- including the risk of inspiring
anger among their U.S. workers -- in moving white-collar jobs offshore. For
that reason, most U.S. companies are still just dipping their toes in the
water.

"We saw this in manufacturing -- firms started off slow and stayed close to
home," said labor economist Heather Boushey of the Center for Economic and
Policy Research, another Washington think tank. "But then it hit a 'moment,'
and many more firms started doing it because it became impossible to compete
without workers overseas.

"We're not there yet in the non-manufacturing sector, by any stretch of the
imagination," she said.

-- 
Robert J. Berger - Internet Bandwidth Development, LLC.
In Tokyo as Glocom visiting research fellow through April 2003
Cell: +81 80-3121-6128 Work: +81 3-5411-6613 http://www.glocom.ac.jp
eFax: +1-408-490-2868 rberger () glocom ac jp rberger () ibd com


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