WASHINGTON-Wireless and high-tech vendors are undergoing a serious re-examination of policies they advocate before Congress, regulatory agencies and the White House in light of a growing outsourcing trend that some fear could hurt U.S. innovation and security even as it helps financially squeezed firms cut costs.
Late next month at the Breakers Resort in Palm Beach, Fla., chief executive officers of manufacturing firms across the country will meet to literally war game the outsourcing challenge.
It will be more than a run-of-the-mill brainstorming session. CEOs will engage in Prosperity Games, which are run in partnership by Sandia National Laboratories and Domenici Littlejohn Inc. The games are an adaptation of strategic war games applied to peacetime issues.
Companies are learning free trade cuts both ways-and in ways never imagined by industry and government.
“There are some troubling data we are pointing to that need to be addressed,” said Dave McCurdy, president of the Electronics Industries Alliance.
Troubling indeed.
The American Electronics Association said the high-tech sector lost half a million jobs between 2001 and 2002, while tech manufacturers lost 233,000 jobs in 2002 alone. Forrester Research said 4,000 white-collar jobs per week are leaving the U.S. and being filled overseas. Where? India, Russia, China, South Korea, Malaysia, the Philippines and other countries with cheap labor forces that are skilled and well-educated.
Other countries are turning out more science and engineering graduates than the United States. The National Science Foundation said that since the late 1990s, the two categories comprised 5 percent of all U.S. undergraduate degrees, while in China they accounted for 73 percent.
McCurdy said that while EIA is not ready to abandon its support for free trade, manufacturers need to better understand the implications of outsourcing for reasons of business strategy and advocacy. Outsourcing is about more than lost jobs and trade deficits, hot-button issues for policy-makers, especially in an election year. It is also about the future of intellectual property and whether the United States might face a security risk if the Pentagon is forced in coming years to purchase sophisticated high-tech gear from countries with whom the United States might not see eye to eye.
In war gaming outsourcing, EIA members will be forced to weigh the costs and benefits of open markets at a time when critical pieces of the manufacturing chain-research and development, engineering, design and integration-are moving offshore.
Motorola Inc., Lucent Technologies Inc., Nortel Networks, Nokia Corp. and other wireless manufacturers have R&D facilities in China, the largest mobile-phone market in the world.
For the Bush administration, outsourcing is just one more issue complicating a trade agenda increasingly snarled in the high-pitched rich-country-vs.-poor-country debate and the president’s war on terrorism. Last week, there were more signs of rising trade friction between the United States and China, Japan and European Union.
How will the White House respond? It is a matter far more complex than threatening to slap a tariff on a country’s products. Meantime, some in Congress are angry at the administration for not doing more to enforce trade pacts.
“We’re trying to become smart on an issue that affects companies every day,” said Grant Seiffert, vice president of external affairs and global policy at the Telecommunications Association, an affiliate of EIA.
Outsourcing is not limited to manufacturing. Business processes and services are going overseas too. AT&T Wireless Services Inc. reportedly is in discussions to outsource customer service and information technology functions in a way that could result in a loss of 3,000 jobs in the United States.
Two University of California professors see outsourcing playing out in any number of ways-some beneficial, some not.
“One possible scenario is that services job outsourcing proves more costly to the economy than the earlier round of manufacturing outsourcing,” wrote Ashok Deo Bardhan and Cynthia A. Kroll, of UC Berkeley’s Fisher Center for Real Estate and Urban Economics, in a recent paper.
“As centers of skilled high-tech professionals build up in other parts of the world,” continued Bardhan and Kroll, “the U.S. and California may no longer dominate the next wave of innovations, and we would observe slower growth of high-wage jobs within the U.S. and California.”
The two authors delve deeper into the issue in a forthcoming book titled “Globalization and a High-Tech Economy.”
Even with the gradual recovery of the battered tech sector, jobs are not returning. It’s not the economy, stupid. It’s about outsourcing, a still evolving dynamic of globalization that’s playing out with uneven and uncertain consequences.
