Farewell to the Good Jobs
Corporate Research E-Letter No. 48, August 2004
FAREWELL TO THE GOOD JOBS: OFFSHORE OUTSOURCING GOES UPSCALE
By Philip Mattera
Another milestone has been reached in the restructuring of global business: A trade group in India recently announced that the biotechnology industry in that country is projected to reach the $1 billion mark in 2004, an increase of 39 percent over last year. The Association of Biotechnology-led Enterprises expects the Indian biotech sector to quintuple in size by 2010. A key source of the growth is outsourcing work from U.S. pharmaceutical companies such as Pfizer.
Biotechnology was supposed to be one of the sectors on which the future of the U.S. economy would be based. In the wake of the dot com collapse, it was promoted as a more promising source of well-paying employment to replace those manufacturing jobs that were being sent overseas. State and local governments across the country competed aggressively to attract biotech investment. Now they have to contend with Indian companies that pay their scientists and technicians a fraction of what U.S. workers receive.
A similar trend can be seen in semiconductor design and production, another industry once touted as a godsend for struggling U.S. regional economies. The big chip companies are moving many of their best jobs abroad. For example, earlier this year, Advanced Micro Devices and Intersil each announced plans to build new engineering and design centers in the Indian city of Bangalore.
Meanwhile, in the information technology area, internal company documents from Microsoft recently released by WashTech show that the software giant has been turning to Indian outsourcing companies to provide highly-skilled software architects. Even journalists are starting to be affected. Reuters has announced that it is shifting some of its editorial jobs from the U.S. and Europe to India.
The new buzz phrase in India is “knowledge process outsourcing,” which is said to be the next step up from the business process outsourcing (back office functions, calls centers, etc.) that has grown so rapidly in recent years. A report issued last month by the Indian market research firm Evalueserve projected that the world market for knowledge process outsourcing will grow to $17 billion by 2010.
The movement of outsourcing firms, especially those in India, up the occupational hierarchy has been in the works for quite some time. Although much of the U.S. offshoring debate has focused on call centers and other relatively low-skill work, Indian companies have been developing their software services capacity for more than a decade. General Electric began working with Indian firms in the early 1990s and opened a large technology center in Bangalore in 2000.
It now appears that offshore firms, especially in India, are becoming increasingly aggressive in going after skilled and professional functions. This is occurring at the same time that the outcry in the United States over offshoring, which reached a crescendo earlier this year, has been quieting down. The change in mood is in part the result of an intense ideological counteroffensive by business interests that has sought to portray the export of white-collar jobs as a relatively insignificant phenomenon. This was reinforced by a U.S. Bureau of Labor Statistics report—based on questionable methodology—which concluded that only a small portion of layoffs in the United States could be attributed to offshoring.
Whatever the exact dimensions of the phenomenon, it is clear that offshoring poses a challenge to those seeking better-paying jobs in the United States. The following is an overview of some of the occupations at risk.
The website of Atlas Legal Services asks: “Where do you go to find some of the world’s best lawyers to write top-quality legal briefs and memos for about the price of a discount airline ticket? Answer: We go to INDIA!” According to an article in the National Law Journal, the going rate for experienced, well-educated lawyers in India is the equivalent of $12,000-$18,000 a year. This implies an hourly rate of less than $10, yet the Journal reported that a start-up firm called Lexadigm Solutions is charging $60 an hour for the services of its Indian lawyers. The Journal quoted one analyst as saying that as much as 25 percent of U.S. legal work could be moved abroad. Offshore legal work is not just generic lawyering. The website of Bangalore-based Manthan Services says that it has a practice devoted to intellectual property law.
Indian companies such as Daksha Info Services perform relatively simple bookkeeping functions for U.S. accounting companies, but they also prepare U.S. tax returns. This year an estimated 200,000 individual returns were prepared offshore, a ten-fold increase from 2003. The average accountant in India earns the equivalent of about $300 a month, and a 1040 prepared in that country can cost as little as $75. Several of the large accounting firms, including Ernst & Young and KPMG, have set up Indian subsidiaries to make use of that cheap labor. According to press reports, U.S. clients are usually not told that their return was prepared on the other side of the world.
There is a certain poetic justice in the fact that the jobs of Wall Street analysts are being threatened by offshore outsourcing. These analysts, after all, have long pressured publicly traded corporations to take whatever steps were necessary, including large-scale layoffs, to cut costs. Moreover, a number of these analysts were involved in scandals over the touting of inferior stocks to help the underwriting business of their employers. Still, the loss of such well-paying jobs is a blow to the U.S. economy, especially in financial centers such as New York. Among the investment firms that have shifted jobs to their operations in India are Morgan Stanley, Goldman Sachs and the securities arm of J.P. Morgan Chase. For those investment banks that prefer to contract out the analysis to offshore vendors, several firms have been set up in India to meet the demand. Just a couple of weeks ago, an Indian outsourcing firm called B2K and the Indian credit rating agency ICRA announced the formation of Brickwork, an investment research service for foreign financial institutions.
ARCHITECTURAL AND ENGINEERING SERVICES
A recent article in Engineering News-Record pointed out that large contractors such as Bechtel and Fluor have been sending a limited amount of their work offshore for quite some time, but the practice is accelerating. A slew of Indian firms offer a variety of technical services. Rolta India Ltd., which works in fields such as plant design automation, formed a joint venture a few months ago with an affiliate of Louisiana-based Shaw Group to provide engineering and design services. Infotech Enterprises, based in the Indian city of Hyderabad, specializes in outsourced engineering services for the automotive and aerospace industries. Pratt & Whitney, the aircraft engine division of United Technologies, acquired an 18 percent interest in the company in 2002. Neilsoft of Pune, India, provides services such as architectural drawings and computer-assisted product design and analysis. Numerous Indian firms are focusing on the rapidly growing field of geographic information systems.
The list goes on—radiology, market research, computer animation, etc. Even human resources administration is handled offshore. A leader in the HR outsourcing field is Secova eServices of Chennai, India, which takes care of payrolls and employee benefit matters, but among the other services advertised on its website is “termination processing.” These days, U.S. employers won’t even prepare pink slips onshore.
Dirt Diggers Digest
Guide to Corporate Research
You don't need to be an expert to do critical corporate research. See our online guide to find the best sources.
The first national compilation of company-specific information on economic development subsidy awards and other forms of government assistance to business. Search the database here.
The Corporate Research Project is affiliated with Good Jobs First, a resource center on economic development accountability.