Friday, December 03, 2004

Good News about Outsourcing

Much concern has been expressed in the past couple of years about the disappearance of American IT jobs due to outsourcing. Outsourcing occurs when American companies, in an effort to reduce costs, contract with companies overseas to do work they had previously been employing Americans to do in the U.S.

As usual, journalists, politicians and even some economists took a Chicken Little "the sky is falling" approach to this normal economic adjustment to changing market conditions. Committed statists, this group always focuses on the problems associated with change rather than the emerging opportunities.

One area of the IT industry seriously impacted by outsourcing is call centers. Advances in telecommunication and computer technology created the conditions that made call centers economically feasible and the industry developed and grew rapidly creating numerous new jobs, including many in Tucson, that had previously not existed. But the growing American economy keeps increasing its demand for labor and this increasing demand results in rising wages which increase production costs. This forces us to keep directing labor toward industries with higher productivity and forces industry to automate or export jobs that are labor intensive and expensive. Call centers are labor intensive and the same technology that led to their creation in the U.S. made it possible to transfer call center work to developing countries with large supplies of labor and the resulting lower wages. Call centers in India and the Philippines, with their lower wages, can perform the same call center services at a cost per transaction that is 25% - 35% lower than in the U.S.

But, contrary to the fears of the Chicken Littles, the economy did not freeze into a situation where Americans were permanently unemployed and Indians and Filipinos basked in the jobs the Americans "lost" to them. Growth of the call center industry in places like India and the Philippines caused demand for labor in those areas to increase and as the demand increased so did wages. Soon companies and workers in those areas found themselves facing competition from other developing countries, like Russia, that had large numbers of workers and low wages.

But, in addition to competition from developing nations further down the economic ladder, call centers in India and the Philippines face stiff competition from a new and very low cost competitor – the United States!

A short, three paragraph piece on page 14 of the November 22nd issue of the technology industry magazine Information Week, reveals that high tech companies in the U.S. have been perfecting speech-enabled, self-service technology that can provide call center services at a per transaction cost that is 15% - 25% LOWER than Indian call centers. Sure, the numerous telephone jobs at American call centers are gone forever. But other positions remain and the companies developing the speech-enabled technology need people to design, produce, sell, transport, program, maintain and service the equipment and these will be good paying jobs. So, while the market is busy destroying jobs on the one hand it is creating even more jobs on the other.

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