Consider the Source

Insourcing Regulation, Outsourcing the Free Market

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

Despite some of the election-fueled rhetoric in the U.S., the global outsourcing industry cannot be legislated away. It is an essential component of corporate strategies for competitiveness and America depends upon the availability of a strong and growing outsourcing industry.

That said, there are certain measures suggested during the recent presidential campaign that might impact the use of outsourcing among U.S.-based corporations. To prevent the “offshoring of American jobs,” the Obama camp frequently mentioned removal of tax benefits for US companies that outsource.

We view this notion to be impractical to implement.  First of all, much of the outsourcing industry is domestic-based and even the India-based outsourcing companies are active employers domestically. More importantly, the global footprint of so many U.S.-based firms makes the imposition of such restrictions counter-competitive and actually restrictive of their ability to export goods to emerging markets.

There’s also been mention of restrictions on visa issuances – Indian companies use H1-B and L1 visas to send their personnel to the U.S. In our experience, the U.S.-based educational infrastructure is simply not producing the volume of skilled workers required to service the needs of major corporations.  Rather than build restrictions on importing talent, we should be encouraging this as a means of building the global bridges with economies that will be consumers of our products.

Demagoguery or Demographics?

We're in the homestretch of the U.S. Presidential election -- only another 19 months or so of fractious finger-pointing and speechifying.  Expect to hear an earful on outsourcing -- aka, offshoring -- from both sides of the fence.

On one side will be those who point out that the workforces of the West are diminishing rapidly, making outsourcing to the East a necessity. These advocates will also note that we can be reasonably certain of security measures in relationships among outsourcing participants in a truly global economy.

Conversely, we’ll hear from the other side about job losses at home, as well as the exploitation of other countries. 

Both arguments have merit. But only one has the numbers on its side: Falling birth rates in the industrialized world over the last 40 years -- a trend we can't change overnight even if we wanted to -- has resulted in fewer young people being ready to enter the workforce in these markets. Fact is, the center of gravity for the world's global labor markets really is moving east!

In the U.S., fewer than 30% of people in their 20s earn a college degree. The Employment Policy Foundation projects a shortage of over six million college degree holders by 2012. Indeed, two-thirds of new jobs being created in the U.S. call for college degrees, and another 25% call for extensive technical training. It's that simple: Supply and demand are out of alignment, which is why so many employers are turning abroad.

These realities and forecasts are front of mind for senior leaders of the global companies that sell us our diapers, laundry detergent and cars -- particularly since developing-country markets are also where these companies will see their biggest business growth in percentage terms in the years ahead.

So how do these companies put themselves in a good position to sell more products to emerging consumers? One way is by making sure consumers in those countries -- Brazil, China and India, for example -- are all participating in the benefits of a growing economy. And job growth is fundamental to economic growth.

Put another way: Outsourcing is a rising tide that can lift all ships.

That fact may get lost in the months of campaigning ahead, but it's a fact nonetheless. We need to position our economies for the future, not return to the protective behavior of the past.