Is the Answer to Offshoring... Insourcing?

While debate rages about the number of American IT jobs being offshored, some analysts are turning their attention to the jobs that foreign-based companies are moving onto U.S. soil. Could this insourcing movement help offset major job losses?
Posted November 11, 2004

Kate Stoodley

As the flood of U.S. IT work continues to flow toward foreign shores, some analysts are watching a trickle of jobs starting to move back in this direction.

And they're starting to speculate if these incoming jobs actually could help compensate for the high-paying, high-tech jobs that are being offshored, leaving behind a troubled IT workforce and a dampened industry.

''Outsourcing has crowded out the globalization topic,'' says Matthew Slaughter, associate professor of business at Dartmouth College's Tuck School of Business. ''It is important to understand the contribution of these [foreign] companies to the U.S. economy.''

Slaughter recently released a study, Insourcing Jobs: Making the Global Economy Work for America, which describes the impact of foreign companies hiring workers here in the U.S. -- in all industries, including IT. It also states that these companies employ nearly five percent of those working in the private sector and have paid American workers $307 billion.

While a lot of attention is being paid to the American jobs that are being offshored, largely to countries like India, China and The Philippines, Slaughter says the number of insourced jobs is growing rapidly here in the U.S.

But that insourcing movement is greatly overshadowed by the offshoring trend, which has garnered national debate and has raised considerable ire inside and outside of the IT industry. At first, only base-level jobs, like call center positions and programming, were being offshored. Now mid-level jobs seem to be finding the same path out of the country. Only top-tier jobs, like CIOs and team and administrative leaders, seem to be swimming against the current.

And it's not a current that is showing any signs of slowing.

Six years from now, one quarter of traditional U.S. IT jobs will be done offshore, according to new predictions from researchers at Gartner, Inc., one of the top industry analyst firms. Today, an estimated 5 percent or fewer of U.S. IT jobs have been offshored. By 2010, 25 percent will be situated in emerging countries.

With these kind of numbers behind the offshoring trend, few have paid any attention to the much smaller number of jobs being insourced. But regardless of the numbers, it's a trend that is gaining a toehold in the industry.

U.S. subsidiaries of foreign companies setting up camp in the U.S. is a trend that many analysts are calling a vital aspect of globalization, or the increasing interdependence of the world's markets and economies. Many of the foreign IT companies hiring U.S. workers are based in India, the frequent destination for so many U.S. IT jobs.

U.S. subsidiaries of foreign-based companies employ 5.4 million Americans and pay these workers 31 percent more than all other U.S. companies, according to Slaughter's survey.

Slaughter says insourcing and outsourcing are two vital aspects of the global economy, adding that while both processes have been going on for up to 30 years, insourcing is picking up speed here in the U.S. -- maybe just not at the same rate as that of offshoring.

Ashutosh Sheshabalaya, author of Rising Elephant: The Growing Clash with India Over White Collar Jobs, says the large-scale shift of U.S. IT jobs overseas is an enormous problem for American IT workers, as well as for the American economy. However, he adds that many of the foreign-based firms that are setting up camp in the U.S. could help curb this trend by creating mid- and high-level management IT positions.

Stan Lepeak, vice president of the META Group, an industry analyst firm based in Stamford, Conn., says numerous foreign companies, particularly Indian firms, are not only creating IT jobs, but are altering the impact outsourcing has on globalization.

''Insourcing is not going to balance outsourcing,'' Lepeak says. ''IT jobs are becoming globalized, and the result is a lot of jobs are going to be moved. Some jobs will be created here, and overtime there will be a balance.''

Andy Efstathion, program manager at The Yankee Group, a Boston-based analyst firm, agrees with Sheshabalaya that the rapid growth of Indian IT firms moving to the U.S. is creating numerous new high-tech jobs. He says, though, that many of the new jobs are not on the same level as the ones that moved overseas.

''Most functions that are offshored tend to be simpler,'' Efstathion says, referring to the early stages of outsourcing, when mainly entry-level and commodity IT positions left the country. ''Many of the Indian firms that are opening up shop in the U.S. must now hire higher-level managers and sales executives.''

Is it Enough?

However, some industry analysts are unconvinced that foreign companies are creating enough IT jobs or opportunities to counteract the numerous high-tech positions lost to offshoring.

President and co-founder of the Organization for The Rights of American Workers (TORAW), John Bauman says he doesn't think insourcing is impacting the high-tech sector. TORAW is a worker advocacy group aimed at keeping American jobs inside U.S. borders.

Bauman says 90 percent of TORAW's members are IT workers, and 70 percent of those members lost their high-tech jobs over the past few years. He adds that many of those workers now are working in other industries -- selling cars or insurance -- making 50 percent less than they used to.

''When there is a high-tech worker who used to make six figures working for Fed-Ex last Christmas for $10 an hour, you know there's a problem,'' Bauman says.

Lepeak disagrees with Bauman's assertion that foreign companies are not creating American IT jobs. However, he says while jobs created by insourced companies are at higher levels and higher pay, there just aren't as many insourced jobs as offshored jobs.

Sheshabalaya encourages IT workers to ride the insourcing wave.

''If you don't accept this as inevitable, and try to resist it, you are fighting against a historical tide,'' Sheshabalaya says.

Sheshabalaya also says the U.S. government should try to attract foreign companies to the U.S. by doing things like creating tax breaks and other benefits, similar to the tax breaks awarded to U.S. companies that send jobs out of the country.

Terms like insourcing and outsourcing will not be used as much in the future, Efstathion says, adding that the entire process will be referred to as ''global sourcing.''

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