The DeHavilland Blog

Sunday, December 03, 2006

Losing the high-end jobs

A survey on the latest trends in offshoring was published at the end of October by Booz Allen Hamilton and Duke University. Here’s the intro paragraph from the press release along with their key findings:

NEW YORK & DURHAM, N.C. (October 31, 2006) — Companies are increasingly moving sophisticated, mission-critical functions such as product design and research and development to China, India and other offshore locations primarily because these countries can provide highly skilled scientific and engineering workers who are in short supply in the U.S. and Europe, according to a new study by Duke University and management consulting firm Booz Allen Hamilton.

Key findings include:

  • The need to source talent globally is replacing low-skilled, low-cost labor as the decisive factor in companies' offshoring strategy.
  • Contrary to popular belief, offshoring high-value tasks does not lead to major job losses at home, but to more net new jobs globally.
  • Concerns about offshoring are shifting from external factors, such as political backlash, to internal factors, such as loss of managerial control and the impact on operating efficiency.
  • India remains the preferred destination for offshoring.
  • European firms perceive cultural differences as an offshoring risk, while U.S. firms are primarily concerned about service quality.
  • Small, entrepreneurial companies are more likely than large corporations to initiate offshoring of high-value functions.

To sum up: While offshoring was initially concentrated in areas of low skill – manufacturing, call centers, etc. – today it is also being used more and more to supplement or replace high skill tasks, ranging from accounting to engineering. Because we are not producing sufficient numbers of skilled workers, those jobs are going overseas.

I heard someone recount a story recently about the affluence of US workers – how a blue collar friend, whose wife hasn’t worked since they were married, asked his wife as she embarked on an expedition to the local mall – “What can you get there that you haven’t got two of already?”

That story, in my opinion, represents the past – a time when workers with limited education and skills could land a union-secured job with a manufacturing firm, earn $60-100K/year with benefits and a pension, and build a great life for themselves. Today, those jobs are being replaced by either technology or overseas workers, and as both of those become more sophisticated, the jobs they’re eliminating are more and more in the white collar arena.

Now, some are not worried about US competitiveness globally, and there are many reasons related to factors outside of education as to why that would be the case. But if the nature of the US business is changing – if it’s a shell of top management here, fueled or augmented by talent elsewhere – we’ll still end up with a polarized class model in which the middle class is significantly reduced, leaving us with two classes: an extremely affluent upper class (the entrepreneurs and business leaders managing enterprises) and a poor lower class unable to compete globally.

And what’s stunning to me – in the face of obvious trends such as this – is that we’re still stuck in first gear, unable to come to consensus on even basic issues. What’s the best way to teach reading? What’s the best way to teach math? How do we – or are we even allowed – to present fundamental scientific issues like evolution?

I don’t know what it will take to kick into gear and change things – it could be that we’re the metaphorical frog in the water that’s slowly being heated, not noticing the gradual change until it’s too late. But I do know that, fast or slow, dramatic change is coming, and if we don’t do something about it, ultimately we’ll be cooked.

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