U.S. firms sending work to low-wage nations
Maria Garriga, Register Staff
April 13, 2003
Everything that can go digital, wireless or Internet is going overseas: computer software development, financial analysis, copy editing, architecture, engineering, human resources, even payroll and other back-office functions.
The computer guru who solves your software problem may work out of a call center in India. Your insurance calls could be answered by a claims handler with an Irish brogue.
India, China and other low-wage countries are drawing information technology and services jobs out of the state and the nation, and the consequences could be even more devastating than the exodus in manufacturing jobs of the 1960s and 1970s, experts say.
"You would not believe the number of people here who have lost their jobs because they sent the work overseas," said a General Electric Co. employee who asked to remain anonymous.
American companies hire foreign firms to perform these jobs because workers overseas earn far less than their U.S. counterparts, and education and skill levels overseas have improved dramatically in recent years. The jobs range from computer help desk call takers to computer scientists.
So after making a wrenching transition from a manufacturing base to a high-tech economy, Connecticut and the rest of the nation face the prospect of going through the same type of upheaval all over again.
"First they took blue-collar jobs to China, Mexico and elsewhere. Now they’re taking middle-class jobs to other countries," U.S. Rep. Bernard Sanders of Vermont told the Register.
Sanders sits on the House subcommittee on domestic and international monetary policy and trade. He has long opposed the Export-Import Bank’s practice of making loans to corporations to help them expand outside the United States.
Job losses mount: In 2001, Connecticut lost more than 30,000 jobs to globalization, including 5,000 service jobs and 2,000 jobs in the finance, insurance and real estate sectors, according to the Economic Policy Institute in Washington, D.C.
While it’s not clear how many of those losses were the result of offshore outsourcing, economists say the practice will accelerate job losses in coming years.
Nationally, more than 3.3 million jobs and $136 billion in wages will be lost to offshore outsourcing in the next 15 years, according to the Forrester Group, a consulting firm in Cambridge, Mass.
That number will eclipse the 3.2 million jobs lost to global trade since 1992, based on estimates by Robert Scott, an international economist at the Economic Policy Institute in Washington, D.C.
"You have to ask yourself, Where is our job base for the future?" said Charles Johnson, chief executive officer of Trans-pro, a New Haven-based manufacturer that makes heat-transfer parts for cars and trucks.
Johnson has traveled extensively in connection with his business, and he said the outsourcing trend has been made possible by tremendous educational advances in Third World countries. He said many of his suppliers are turning to outsourcing.
"Education levels have improved dramatically in the so-called developing countries," Johnson said. "Our work force will have to be more creative to remain competitive."
IT jobs drying up: The economic recession that is driving companies to send work offshore also makes it harder for laid-off workers to find jobs in the United States, especially in the information-technology arena.
And that could have a long-term impact on Connecticut’s economy.
"If you are taking a software engineer out of a job because you are replacing him with someone out of the area, you are taking him out of the work force. He goes on unemployment, he can’t pay taxes, he can’t spend money.
It affects the entire economy," said Mike Haburay, owner of Madison Technology Resource, an employment agency in Madison.
But U.S. corporations say they can’t afford to stand by while competitors take advantage of the availability of low-wage workers overseas.
Michael Critelli, chief executive officer of Pitney Bowes in Stamford, said he may end up with little choice in the matter.
"We do not have a specific plan to move Fairfield County jobs offshore, but we have to look at all our options," Critelli said.
Pitney Bowes so far has limited work done by international workers to parts that will be used by Pitney Bowes for goods sold within those countries.
One New Haven-based employment firm sees the trend happening one employee at a time.
Donald Kaiser, chief executive officer of Kaiser-Whitney, said he was asked to find an Ecuadoran manager for a Quito, Ecuador, site instead of an American.
"We can get several people here, but we have to pay them $80,000 a year," he said. Hiring someone from Ecuador means finding a manager now earning $20,000 and paying them $35,000, he said.
Wage pressure hits home: To stay competitive, U.S. employees will have to accept lower pay, especially in the information-technology fields, economists say.
Globalization already has forced American wages down an average of 15 percent to 20 percent in some sectors, according to economist Jared Bernstein at the Economic Policy Institute.
Bruce Morgan, managing partner of Cententia, an employment agency in Glastonbury, said he routinely sends IT workers out to jobs where they earn half of what they did four years ago.
He said they rarely turn down the work because of low pay.
"Employers know there is a surplus of IT talent out there, and they’re pushing back what they will pay," Morgan said. "It’s a combination of a bad economy, better technology and offshore outsourcing."
As corporations seeking better bottom lines outsource white-collar jobs, there is no guarantee that Americans who lose their jobs will find better or equivalent jobs here, said Transpro’s Johnson.
"You may see lots of people with high education levels doing jobs they never thought they would do," Johnson said.
The other side: For globalists, white-collar outsourcing represents an opportunity to wipe out global poverty and usher in a global middle class.
"I’m convinced that’s the only way the world can work — everyone has to be in the game," said Awo Quaison-Sackey, founder of AQ Solutions, a New Haven- based outsourcing company with 30 software developers in Accra, Ghana.
Global outsourcing is playing a strong role in boosting the gross domestic product of developing countries such as India and China.
"Job by job, it’s bad for Connecticut," concedes David DeRosa, an international economist at Yale University.
"But there is a perpetual problem — what do you do about countries that are laggards in growth and drowning in poverty?"
Other supporters say the United States will ultimately benefit, as well.
"As countries like Ghana and India get more of these jobs, they are able to buy more from the United States — that creates jobs in other industries," said Dan Griswold, associate director of the Center for Trade Policies at the Cato Institute, a Washington, D.C., think thank. "Our economy is not shrinking, but it is changing."
With its huge English-speaking and technologically adept work force, India dominates offshore outsourcing, with up to an 85 percent share of the worldwide market.
Tens of thousands of people work for outsourcing companies in India such as Wipro, Satyam, EXL and Infosys, which win contracts to perform IT work for U.S. companies.
Software and business process outsourcing alone will add $54 billion to India’s economy each year by 2008, one Indian software association estimates.
In turn, Fairfield-based General Electric dominates the Indian offshore- outsourcing market.
Indian newspapers have referred to GE as "the grandfather," because the $126 billion company was an early participant in the Indian outsourcing industry.
GE boasts a work force of 310,000 people in 100 countries, including 7,608 in Connecticut.
That’s up from 6,513 in 1998, said GE spokesman Peter Stack.
Stack declined to say how many people work for GE in an outsourcing capacity overseas.
However, David Jensen, a spokesman for GE Capital International Services, said at least 13,000 Indians work in India directly for GE Capital International Services.
Thousands more work on contracts handed out by GE to two or three vendors in India, he said.
On the bandwagon: The biggest Fortune 500 companies have followed GE’s tracks to India.
General Motors and Ford Motor Co. both set up their global accounting headquarters in India.
In November, Bill Gates went to India and announced plans to pour $400 million into India through research and development centers, jobs and partnerships with Indian schools.
In Connecticut, Pratt & Whitney in Stratford sent 200 engineering jobs abroad in 2002.
Aetna hired 350 claims representatives in India and 400 in Ireland.
Cigna replaced its consultants in Bloomfield with 83 in India.
Northeast Utilities is exploring outsourcing possibilities in Ireland and China as well as India, company officials said.
With the exception of state Sen. Shirley K. Turner of New Jersey, who won a vote to ban offshore outsourcing in the state Senate, few politicians have directly attacked the practice. (The New Jersey House has yet to vote on the ban.)
That’s partly because American and Indian corporations have aggressively lobbied legislators to protect offshore outsourcing, Turner charges.
U.S. workers who have been hurt by the trend wonder where it will lead.
"One by one, we are outsourcing all our work to Third World countries," said Jeri Bauman of Meriden, whose husband was laid off because of offshore outsourcing. "Those jobs are not being replaced."
newhavenregister.com. |
