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Foreign Policy


Should government pursue offshore outsourcing if it means U.S. jobs?

By Mary Hayes and Eric Chabrow
InformationWeek
March 17, 2003 12:00 AM (From the March 17, 2003 issue)

Sen. Hillary Rodham Clinton, D-N.Y., led a welcoming ceremony in Buffalo, N.Y., last week for the new local office of Tata Consultancy Services, an IT services firm based in India that competes with U.S. companies. Meanwhile, 400 miles across the state in New York City, council member Gale Brewer introduced Resolution 2126, calling for businesses and government agencies to "Buy NY"--that is, strongly consider local technology vendors and developers for IT work.

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GALE BREWER PHOTO

Council member Brewer sees a "simplistic emphasis" on offshore outsourcing's benefits.
The juxtaposition exemplifies the growing divide over offshore outsourcing. While the U.S. IT workforce is shrinking--joblessness among IT workers was 5.6% in December, according to the Bureau of Labor Statistics--the offshore IT services business has never been stronger, as companies flock to foreign firms that offer high-quality work at substantially lower costs than in the United States. In part that's because they pay workers lower salaries, in some cases one-quarter or less of what a comparably qualified U.S. worker would command. For private business, the equation is just too compelling to pass up.

Now offshore outsourcing is poised to grow in the public sector, as foreign services firms target what they see as a growth market of cash-strapped state and local governments looking to cut costs. It's a dilemma-in-the-making for government agencies: save taxpayers money or protect U.S. jobs.

"States need to look at their best value in procurement," says John Engler, former governor of Michigan and now VP of state and local government business for EDS, which has its own offshore practice.

In New Mexico, the unemployment insurance department recently paid Tata Consultancy Services $6 million for an online unemployment-claims system. The state "did get some criticism" for the contract, says unemployment insurance director Arthur Martinez. "But we're spending taxpayer money, and we're being asked to run government like a business. We're making a proper business decision, rather than one from the heart."

Price was a factor: TCS's bid was less than half of TRW's ($18 million) or IBM's ($13 million). And so was TCS's commitment to quality, Martinez says, noting that the firm's Indian development centers are certified at the highest level--level five--of Carnegie Mellon University's Capability Maturity Model, a standard for ensuring quality software development.

The project involved a team of 25 TCS employees working in Albuquerque and 80 in India to build a multitiered architecture that includes Sun Microsystems' Java 2 Enterprise Edition platform and IBM's DB2 database. Martinez says TCS paid its local employees the same as what its workers in India make, plus a $2,000 monthly living expense. The state had budgeted about $12 million for the project, with $7 million coming from federal Department of Labor grants.


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