Outsourcing Or Automation: No Difference To Unemployed Workers

Some 750,000 U.S. tech and business workers are going to get the pink slip between now and 2016. Does it really matter if their jobs go offshore or are replaced by machines?

Paul McDougall, Editor At Large, InformationWeek

March 28, 2012

4 Min Read

A new study claims that many U.S. tech and services jobs that have been lost to offshoring in recent years would have fallen victim to automation anyway.

The paradox is that, while offshore outsourcing remains controversial, few would argue with a company's right to leverage technological automation for cost savings and competitive advantage. And given that a job lost is a job lost, and that many offshoring opponents are programmers who have put others out of work by computerizing business functions, are outsourcing foes just being hypocritical?

According to the Hackett Group, 750,000 more jobs in IT, finance, and other business services will go offshore by 2016, at which point outsourcing to low-cost destinations like India and China will slow significantly for two reasons. One is that, by then, most of what can be offshored will already have been. The other is that many of the functions that are currently being shipped overseas will have become automated in the next four years.

The study has a couple of key implications. The most significant is that the "jobless recovery" may be structural and thus permanent, and that no amount of anti-outsourcing legislation, such as a bill introduced last month by Long Island Democratic congressman Tim Bishop, will change that. To quote Bruce Springsteen, "These jobs are going boys, and they ain't coming back."

[ Are U.S. companies suffering more from a Tech Talent Shortage, Or Busted Moral Compass? ]

The second is that the tech boom that is fueling much of the growth in the developing world, in places such as South and East Asia and South America, may be relatively short lived. While outsourcers are making big bucks off providing low-cost workers for routine tech work, much of that work may dry up as productivity gains achieved through automation take hold. "A decade from now, the landscape will look fundamentally different, as demand by Western companies for traditional offshore capacity will have largely dried up," the Hackett Group contends.

The researchers point to transaction processing as a function in which many, previously discrete steps have been consolidated, often through software, into just one or two. Other commonly offshored functions that are ripe for automation include network monitoring, testing, and many aspects of the software development process.

A number of offshore outsourcers already sense this and are taking proactive steps to move beyond the body-shop model. They're also setting up offices in the United States to attract a higher level of work. Bangalore-based MindTree this week, for instance, announced that it is opening a facility in Gainesville, Fla., from which it will provide advanced engineering services to American customers. It expects to employ 400 U.S. workers.

So all this begs the question. How is a job lost to automation any different from a job lost to offshoring? If you're the one getting the pink slip, do you care if your replacement is a worker in Bangalore or a server and software residing in a data center in North Dallas? Does automation produce any larger economic benefits that are not gained through offshoring?

Proponents of offshoring say the practice frees up cash and domestic talent, which can be put to work on projects of greater strategic value. Opponents say businesses are merely lining executives' pockets with the money saved. But both arguments could potentially apply to automation, as well--it just depends on how the resources are used.

But it's doubtful that you'll see legislators introduce bills that would prohibit companies from using, say, automated testing tools. Any such lawmaker would immediately be dismissed as a Luddite. It's also unlikely you'll hear anti-automation protests from organizations like the Programmers' Guild. That would be like a milliner saying people shouldn't wear hats. Yet, if you believe the Hackett Group's numbers, automation is eventually going to result in just as many job losses in the West as offshoring.

So why do some groups believe U.S. companies have a moral or nationalistic obligation to keep American workers employed, except in those cases where that worker can be replaced with a machine? Any thoughts?

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About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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