Why We Should Support Outsourcing

The following is based on my new book, Success! As Employee or Entrepreneur.

How can anyone support the sending of US jobs overseas?  It’s a perfectly logical question to ask.  The answer is, however, rather simple:  The more jobs we send overseas the more jobs are created here by foreign-owned companies and by the very companies that chose to outsource some of their jobs.

Yes, it is a catastrophe for the individuals who lose their jobs to a call center in Mumbai. But it is also an opportunity for those who were laid off to be trained for those Twenty-First Century jobs that will provide them with security and prosperity.

Of course, some jobs cannot be sent overseas: Obviously, government jobs aren’t going anywhere.  Healthcare comes to mind.  Medical billing may go overseas and we may utilize foreign physicians to augment staffing so, for example, x-rays can be analyzed around the clock, but physicians actually treating patients cannot be outsourced.  Additionally, there are non-profit jobs, as well as those in construction, assembly and installation that are not going anywhere.  Indians cannot provide social services, install television satellite dishes or solar panels on the roofs of our houses.  Your mechanic and dry cleaner are staying put!  The same goes for work in the recreation, hospitality and food services industries.  More importantly, the high-paying administrative and leadership jobs are here to stay.

The entire question about outsourcing is nothing new.  The debate dates back centuries to David Ricardo whose “law of comparative advantage tells us it is far better for the Argentineans to grow beef, the Japanese to make cars, and the Italians to turn out high-fashion shoes than for each nation to attempt to become self-sufficient in all three areas.”[1]

I first became interested in outsourcing when I read in Inc.[2] magazine that in 2003 134,000 jobs were outsourced from the US to foreign countries.  What first caught my eye was that the number was so small.  Based on all the media reports, I had thought outsourcing was having a far greater impact.  But what really shocked me was the number of jobs outsourced from foreign countries to the United States – what is referred to as “insourcing.”  According to the same article, 5.3 million people were employed by US subsidiaries of foreign companies.  So there is no misunderstanding, foreigners can’t just conduct business in the US, they have to set up businesses here.  They have done so and the result is over 5 million jobs for Americans.  Put differently, in 2003, for every one job outsourced to a foreign country, 39.5 jobs were insourced to the US!

And this is not some fluke.  Everyone outsources and everyone benefits:

Does your father make shoes?  Do you milk your own cows?  No?  Then you’re outsourcing,” says Martyn Hart, chairman of the U.K.’s National Outsourcing Association… “People think it means job loss, but it actually creates jobs because companies become more efficient, which generates more wealth.”  He’s not kidding.  According to McKinsey Global Institute, for every dollar of corporate spending Americans outsource to India alone, the US economy gains $1.14…[3]

Still not convinced?

            In 2003, Matthew Slaughter, an economist at Dartmouth College, took a look at companies that engaged in offshoring in the 1990s, and found that for every job the US multinationals created abroad (2.8 million by his count), two jobs were created for the parent company (5.5 million jobs) back home in the US.[4]

Finally, according to a study by the International Monetary Fund, offshoring “does not appear to be leading to net job losses,” but it does make the caveat that the jobs lost in one sector are only “offset by jobs created in other growing industries.”[5]

So why is outsourcing good for business and, by extension for employees and the country?  According to Vivek Wadhwa from Stanford Law School, who is an economist and recognized authority on outsourcing, “It lets companies do their grunt work abroad, and focus resources domestically on research, development and product.  We know more innovation grows the economy and as a result creates more jobs.  Such allocation also helps businesses stay competitive to stay open, which of course is the No. 1 issue for keeping jobs.”[6]

He is not alone in his appreciation of the value produced in the US as a result of outsourcing.   Inc. interviewed Columbia University Professor Amar Bhidé about his new book, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World.  In discussing outsourcing, Bhidé explained that outsourcing is not a zero-sum game.  A lost job to India is not a net gain for India and a net loss for the US.  As he put it,

            It’s helpful to think of a specific example.  The World Wide Web was invented by a British scientist living in Switzerland.  Think of how much this invention in Switzerland has revolutionized lives in the US and has improved US prosperity, probably to a greater degree than it has in Switzerland and certainly to a greater degree than it has in most other parts of the world.  Why?  Because the US is really good at taking things like the Web and weaving them into our commercial fabric.  Or, to give you another popular example: Many of the high-level technologies associated with the iPod were developed outside the US  Compression software comes from Germany; the design of the chip comes from the U.K.  The whole idea of an MP3 player comes out of Singapore.  But most of the value has been captured in the US, because the US happens to represent the majority of the use of MP3 players in the world.[7]

One last thing to consider in a discussion about the evils and benefits of outsourcing is an intangible: goodwill.  When US popularity around the world was, to say the least, struggling, there was at least one exception: “India, one of the chief beneficiaries of US outsourcing, is also one of the few countries in which popular attitudes toward America have remained strongly positive.”[8]

Don’t underestimate the contribute that outsourcing makes to our national economy in, of all things, job creation.  By all means, feel for those who lose their jobs to outsourcing, but be happy for those who gain jobs through insourcing.


[1] William J. Bernstein, A Splendid Exchange: How Trade Shaped the World (New York: Atlantic Monthly Press, 2008), p.18.

[2] “Insourcing 101,” Inc. (April 2006), p. 50.

[3] “The Sourcing Summit,” FastCompany.com, November 16, 2010.

[4] Dan Fastenberg, “Is Outsourcing Good For The Economy — And Workers” Jobs.AOL.com (September 14, 2012).

[5] Ibid.

[6] Ibid.

[7] “Amar Bhidé on why the techno-nationalists have it all wrong,” Inc. (November 2008), p. 100.

[8] Amy Chua, Day of Empire: How Hyperpowers Rise to Global Dominance – and Why they Fall (New York: Doubleday, 2007), p. 340.

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