Primary reason for offshoring jobs is shortage of skilled workers

Jan 21, 2011 By Chris Privett

Most American companies engaged in offshoring say a shortage of skilled domestic employees -- not cost cutting -- is the primary reason why they move some job functions overseas.

Also, manufacturers and high-tech/telecommunication companies are less likely to establish offshore operations and are moving increasingly toward the use of third-party providers of offshore labor.

These are among the findings of the sixth annual study on corporations' offshoring trends by the Center for International Business Education and Research's Offshoring Research Network (ORN) at Duke University's Fuqua School of Business and The Conference Board, an independent research association. The study is part of ongoing research into the effects of offshoring trends on American competitiveness and reflects the sentiments of business managers.

"Over half of the participants in our survey say offshoring has resulted in no change in the number of domestic jobs in most functions," said Arie Lewin, Fuqua professor of strategy and international business. "The finding that the U.S. software sector has the highest ratio of offshore to domestic employees -- almost 13 offshored jobs per 100 domestic jobs -- may be a reflection of a scarcity of domestic science and engineering graduates in the U.S."

Survey respondents are broadening the range of factors that influence their selection of an offshore site to include the location of the best service provider and the quality of infrastructure. In spite of placing a high priority on cost savings and labor arbitrage, the survey finds average achieved cost savings offshore have declined at many companies.

For example, IT services and software development have experienced consistent declines over the past five years, while average achieved savings have increased for administrative and innovative functions such as research and development and sales/marketing.

According to the researchers, survey participants have lower expectations than previous respondents for average cost savings in several offshoring functions. Contact center, IT and software development have seen the largest declines among all offshoring functions as companies new to offshoring discover a number of hidden costs involved, including expenses for training, staff recruitment and retention, and government and vendor relations.

"The potential for cost reduction alone is no longer enough to justify moving operations," said Ton Heijmen, senior advisor to The Conference Board. "One survey respondent noted it has taken his company several years to discover the impact of labor arbitrage disappears in fewer than three years. Companies are now shifting from cost-driven offshoring to a multidimensional value proposition in creating a global footprint."

As companies expand offshoring activities by increasing scale or by offshoring more diverse and complex functions, most firms see a decline in the overall efficiency. This may be partially attributed to a loss of managerial control as offshoring operations are expanded, requiring companies to improve coordination and management of their global sourcing.

Explore further: Facial selection technique for ads can increase buyers by 15 percent

More information: A published report on the research results is available for purchase. Contact jrussell@duke.edu for details.

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User comments : 15

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geokstr
1.6 / 5 (7) Jan 21, 2011
Gosh, what a coincidence, our kids can't read or write or add and subtract, but our wondrous educational establishment has made certain that they know how to put a condom on a banana, can quote the awful poetry of Maya Angelou, and have it drummed into them from K up that the Unites States is a racist, imperialist, xenophobic nation filled with greedy capitalist-roaders and would be better if we genuflected at the altar of St Karl of Marx. They also know what Heather's life is like with her two mommies, have fun at Crossdress-Up Day, and can finger paint a picture of George Bush with a Hitler moustache with the best of them.

And they sure have high self-esteem.
patnclaire
4 / 5 (4) Jan 21, 2011
No. Off-shoring is not due to a shortage of skilled workers in the US. That is what the likes of Microsoft have used to justify their abandonment of America. The truth is that while American Programmers were being laid off after the Dot com Bubble Bust and Not being rehired, the bank that I worked for in Georgia brought it 50 programmers from India. They began to train local people as programmers, a task that took 24 months. The graduates were good at what they did. One day, half the foreign programmers disappeared; it is said for better jobs, elsewhere. The local programmer course supplied the needs of that city for years. If Georgia can so can the rest of the United States. Enlightened management and faith in the American worker.
ArtflDgr
5 / 5 (3) Jan 21, 2011
I am a software engineer with 30 years experience. i can code rings around what we produce now...

there are lots of out of work engineers and high skilled people.

this is why i am looking into movnig to asia...
while i am european, i do have family there.
Caliban
3.7 / 5 (3) Jan 21, 2011
Well, that's the corporatist agenda, isn't it? Reduce/eliminate funding to vital sevices as possible, and where not, Privatize delivery of service. Dumb every one down as much as possible, so that only those that are relatively well-off tech/professional class will be able to get their kids through school, while simultaneously feeling ever more pressure to accept their lot(rather than risk losing it by bucking against system), and becoming ever more conservative.

This strategy insures a paranoid, reactionary segment of the population that relies upon the 1% ruling class to keep the wages coming sufficient to cover basic needs, a few luxuries, and maybe even a college and/or retirement fund viable long enough to be useful in furthering the illusion that the goals of the two classes are shared(!), and to allow the T/P class to feel that they are at least better off -if not just better than- the great, ignorant, unwashed hoi polloi.

It worked prior to 1930. Why not again?

cont
Caliban
3.7 / 5 (3) Jan 21, 2011
cont

There is a reason why there are two media streams in America.

Not too long ago, if a "news"(or other outlet) broadcast an outright, provable falsehood, then they would be liable to harsh judgement and legal penalty.
Not so any more. Being able to disseminate lies makes it possible to split the National Conversation into at least two(because two are all that are needed) separate, distinct, ideologically opposed dialogues.
This brought on the proliferation of the common, everyday usage of dualisms we swim through every day: right/left, liberal/conservative, business/labor, patriot/socialist, regulation/freemarket, Big Government/freemarket, elite/common, welfare/bootstrap -the list goes on and on and on....everyone here will understand my point.
This splitting of the American body politic has lead to the inability of huge numbers of people to discuss anything without it becoming some political or class struggle, and a "House Divided".

We know how the story ends.

Caliban
3.7 / 5 (3) Jan 21, 2011

Meanwhile, the corporations continue to offshore manufacturing, operations, and administration, without let or hindrance, and not a single damned thing has been done to stop it.

Jimee
3.7 / 5 (3) Jan 21, 2011
I guess I am an "offshoring is really good for US" denier. Maximize profit at any cost to workers and don't look back. Leave that to the bleeding hearts to feed and house the starving and homeless. It's Good for dividends and bonuses.
zbarlici
3.7 / 5 (3) Jan 21, 2011
THIS JUST IN: Tens of thousands of American Licensed Aircraft Engineers have lost their jobs due to airlines outsourcing to other countries because of lack of Licensed Aircraft Engineers.
Skepticus
5 / 5 (2) Jan 22, 2011
UPDATE: Tens of thousands of American Licensed Aircraft Engineers have lost their jobs due to airlines outsourcing to other countries because of lack of Licensed Aircraft Engineers WHO AREN'T ACCEPTING PEANUTS FOR PAY.
oldman2
5 / 5 (1) Jan 22, 2011
If you believe the BS in this story please contact me about the sale of a bridge on the Hudson river.
ryggesogn2
1.8 / 5 (5) Jan 22, 2011
Well, that's the corporatist agenda, isn't it? Reduce/eliminate funding to vital sevices as possible, and where not, Privatize delivery of service.

Sounds like the US government.
Defense is a vital, Constitutional service the 'progressives' want to cut. Meanwhile, because of very restrictive rules, many govt agencies privatize critical functions they need.
Businesses of all sizes prefer to hire independent contractors so they don't have to pay the high govt overhead, like unemployment insurance which has risen significantly as govt keeps extending 'benefits'.
twins_fan
3 / 5 (2) Jan 23, 2011
This is "science for hire" in which a professional organization has a conclusion for which they want to create a study to reach. So this professional organization of H1B body shops and outsourcers want to find a study to discredit US STEM workers. So they hire universities to create and conduct this study.

This organization of Indian H1B body shops and outsourcers, like NASSCOM and Wipro and others, hires Duke University to conduct a study to discredit US STEM workers. This is the study.

This is science for hire. This is what the Cato Institute does. This is what the Heritage Foundation does. This is what Duke University does.
ryggesogn2
1 / 5 (3) Jan 23, 2011
"he Free Market Demands Curiosity

Curious employees. Competition to get and keep jobs favors those who are curious about new knowledge and opportunities. "
"'Curious employees are more likely to ask why something is done in a particular way, challenge the status quo, and connect ideas and technologies that hadn’t been connected before,'"
"successful companies anticipate and start developing new products before mainstream consumer demand exists"
"established companies are so entrenched in traditional methods {like govt regs to control those startups} and driven by mainstream markets, it is often startups that succeed and pioneer new products"
"Overall, the market is fundamentally dynamic, and its future depends on the individual choices of millions of people."
"In more controlled economies, featuring larger governments, curiosity is not a prime virtue. "
http:/www.american.com/archive/2011/january/curiosity-thrilled-the-cat
ryggesogn2
1 / 5 (3) Jan 23, 2011
I'm not sure if businesses who off-shore will find employees who are curious and willing to question status-quo.
Curious employers and employees still exist in the USA, but as the govt expands and imposes regulations, the reward for curiosity and questioning is diminished.

This lack of curiosity infects the science world as we see on this site every day.

There is an infamous line in the moving 'Knowing'. A list of numbers predicts the location and death count for future disasters, including a planet killing solar flare. A scientist states that the scientist in him should have nothing to do with such a paper. Arrogance does breed contempt, I guess.
Caliban
3 / 5 (2) Jan 24, 2011
I'm not sure if businesses who off-shore will find employees who are curious and willing to question status-quo.
Curious employers and employees still exist in the USA, but as the govt expands and imposes regulations, the reward for curiosity and questioning is diminished.

This lack of curiosity infects the science world as we see on this site every day.

There is an infamous line in the moving 'Knowing'. A list of numbers predicts the location and death count for future disasters, including a planet killing solar flare. A scientist states that the scientist in him should have nothing to do with such a paper. Arrogance does breed contempt, I guess.


mangynowrintintin,

You certainly are a "curious" employee. Where's your startup? Were you short of skill, or did the big, bad government overregulate you?

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