Is the Answer to Offshoring… Insourcing?

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.”