Study supports controversial offshore numbers

A new report by Forrester Research repeats its controversial assertion that more than 3 million U.S. jobs will move overseas by 2015, an estimate that contributed to the political firestorm surrounding the offshoring issue.

Ed Frauenheim Former Staff Writer, News
Ed Frauenheim covers employment trends, specializing in outsourcing, training and pay issues.
Ed Frauenheim
4 min read
A new report by Forrester Research defends the company's controversial assertion that more than 3 million U.S. jobs will move offshore by 2015, and even raises the estimate of positions at risk in the near future.

The report, being released Monday, projects that 3.4 million jobs will move overseas in the next 11 years, roughly the same as the 3.3 million long-term figure it estimated in its original study two years ago. The 2002 survey by the Cambridge, Mass., firm contributed to the political firestorm surrounding offshore outsourcing after its findings were widely circulated in the press and elsewhere.


What's new:
Forrester Research took some heat for predicting the loss of 3.3 million jobs by 2015 through offshoring. They're sticking close to that number in a new report.

Bottom line:
Forrester's latest numbers go further by saying that the trend of high-tech jobs moving out of the United States will be an even greater near-term problem than expected. What's making it worse? Talking about it.

More stories on offshoring

Forrester also increases its near-term estimate of lost jobs by 240,000 in its new report, projecting that a cumulative total of 830,000 positions will have moved offshore by 2005. The research reinforces earlier Forrester findings that were cited by Sen. John Kerry, before he became the all-but-official Democratic presidential nominee, in introducing legislation last year to regulate the call-center industry.

Ironically, the new report said, vocal opposition and other attention has helped accelerate the shift of jobs overseas by making businesses aware of the trend. It concluded that the media's focus on so-called offshoring--which defenders call healthy for the economy and critics blast as a threat to workers and U.S. technology leadership--has led companies to look more closely at it.

"While the press visibility has spurred offshoring's emergence as a political third rail, it has also fostered an increase in overall offshore initiatives," wrote John McCarthy, author of the report.

McCarthy also said such publicity had skewed the findings of the initial Forrester report. In an interview with the Wall Street Journal in April, he said he was disturbed about how his long-term numbers, which admittedly represented an "educated guess," had been hyped.

"People quote the 3.3 million figure as if it were (happening) today," McCarthy said while responding to questions about the new report.

Although the number may sound dramatic, Forrester noted that it represents less than 7 percent of jobs in the categories covered by the study, which include "management," "computer" and "legal." What's more, a separate Forrester survey of 139 North American firms in April found that 58 percent are not using--or planning to use--offshore information technology service providers.

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The conclusions did not surprise Tom Weakland, a managing partner at consulting firm DiamondCluster International, which also has studied offshore outsourcing. "Our observations are that individual companies may be ramping up slower, but there's more of them that are doing it," he said.

In addition to publicity, other reasons cited by Forrester as factors contributing to offshoring are expansion of services by Indian companies, increased operations in lower-wage countries among U.S. technology companies such as IBM, and businesses setting up facilities abroad to handle claims processing and other tasks. The report predicted that Vietnam, North Africa and Belarus will become more popular as offshore destinations, making India less dominant over time.

The political hot potato
Regardless of specific findings, the trend of offshoring in general remains a hot-button issue. After the recent recession and a recovery with slow job growth, the notion that high-skill jobs are vulnerable to export has touched a nerve in the United States and made it a campaign topic.

Among the concerns is that the flow of programming and other technology work abroad, combined with U.S. educational system problems and slowing research and development investment, puts the country's technical prowess in jeopardy.

In March, the Institute of Electrical and Electronics Engineers said offshoring "poses a very serious, long-term challenge to the nation's leadership in technology and innovation, its economic prosperity, and its military and homeland security."

A number of analysts and business groups have disputed this view. A recent study sponsored by the Information Technology Association of America concluded that offshore outsourcing of software and IT services tasks not only is boosting the U.S. gross domestic product but also helping to generate U.S. jobs.

Technology leaders also have argued that protectionist measures result in lower economic growth and higher unemployment.

McCarthy agreed that exporting software application work raises a legitimate issue about technology leadership. "If you don't have the entry-level programmers, how do you get people to become system architects--the high-level skills that we think are going to stay on shore?" he asked.

Rather than try to slow the offshore trend through protectionist policies, McCarthy said he prefers education programs that could help Americans obtain the right mix of skills. One of the benefits of the offshore trend in services, he said, is that this sector of the economy should become more streamlined, similar to the way Japan improved the manufacturing process.

"After more than 30 years of continuous expansion in the services sector of the U.S. economy, offshoring will be the catalyst for turning attention from growth to efficiency," McCarthy wrote.