http://www.morganstanley.com/GEFdata/digests/20040330-tue.htmlGlobal: Offshoring -- Myth and Reality
Stephen Roach (from Bangalore, India)
Mar 30, 2004
In America, the global labor arbitrage has quickly turned into the major domestic issue of Campaign 2004. In Asia, the political backlash to the globalization of employment is seen as the single greatest threat to the hopes and aspirations of economic development. Nowhere is this more evident than in India, where I have just begun the final leg of my two-week swing through Asia.
It's worth reviewing the evidence on offshoring before plunging into the great debate. That doesn't take long -- in large part because the actual data points on the empirical magnitude of offshoring are few and far between. Not surprisingly, the consultants -- most of who are in the IT advisory business -- have tended to downplay the loss of jobs from the high-wage developed world to the low-wage developing world. The most widely cited estimate of the impact of offshoring comes from a study of US trends conducted by Forrester Research; they calculate that only about 400,000 business process jobs have been "offshored" -- a total they expect to rise to about 3.3 million by 2015. That may sound like a lot but it works out to annual job losses of only about 300,000 over the next decade -- not much of a dent in a US economy that currently employs 130 million workers.
As best I can tell, this is a pretty flaky estimate. Forrester does not provide much detail on the methodology or the empirics that lie behind this number (see the April 2003 Forrester study by Christine Ferrusi Ross, "Can Outsourcers Really Transform IT?"). Moreover, it is important to keep in mind that the Forrester estimate pertains only to business process jobs -- a relatively small slice of white-collar jobs that could ultimately be affected by IT-enabled offshoring. Unfortunately, a similar approach is taken by the other IT consultants, even by those who think the macro impacts are a big deal (see Gartner's July 2003 research note by D. Morello, "US Offshore Outsourcing: Structural Changes, Big Impact").
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