Industry fights Dodd legislation

Before you go offshore ? a to-do list

1. Account for hidden costs. Executives often assume their savings will equal the difference in compensation between a U.S. worker and a foreign worker. For example, if an Indian work-er's compensation is 40 percent less than a U.S. worker's, they figure their savings will be 40 percent. But differences in operating models will yield lesser savings, generally up to 20 percent in the first year, according to Meta Group Inc., a Stamford, Conn., IT market research firm.

2. Have a contingency plan in case the overseas contractor doesn't deliver.

3. Ensure that data is secure and intellectual property is protected.

4. Know what you want, so the project's scope doesn't expand dramatically.

5. Educate workers about cultural differences. Don't assume the differences are insignificant.

6. Account for a 20 percent decline in productivity during the first year, largely because of the time and effort to transfer technical and business knowledge overseas.

"The improved productivity [from offshoring] is better for our company medium and long term than trying to protect the jobs of a few that will eventually leave anyhow." ? Mike Jalbert, EF Johnson Inc.

David S. Spence

Bill would ban offshore outsourcing on gov contracts

Opponents and proponents of offshore outsourcing -- sending U.S. jobs to foreign workers overseas -- aren't that far apart in their positions.

Both sides say they want to protect the economy. Many agree that some offshoring is inevitable. They offer similar solutions to compensate for job losses in the United States, such as a permanent research and development tax credit to encourage companies to develop new technologies, and compensation for laid-off workers, including training for new jobs.

But don't expect them to reach common ground in an election year.

"I'm not naive enough to believe the issue will go away," said Harris Miller, president of the Information Technology Association of America, an Arlington, Va., trade association.

For government contractors, the issue demands attention because Sen. Chris Dodd (D-Conn.) last month proposed legislation that would ban offshore outsourcing of federal contract work unless certain conditions are met.

The legislation would allow work to be done offshore if it was already done overseas or if the products or services were only available overseas. It also would ban most federal spending on state contracts performed overseas.

"You should not be using federal taxpayer money to subsidize the outsourcing of jobs," Dodd said in a Senate debate regarding his provision, which was added as an amendment to a tax bill, S. 1637. Dodd has said that up to 3.3 million jobs may be sent overseas in the next 15 years, causing a loss of $136 billion in wages.

Most IT jobs taken offshore have gone to India. Other countries, such as China and Russia, are also getting U.S. work, experts said.

The strong opposition to offshore outsourcing voiced by labor groups and their political supporters has set off a flurry of business studies to counter their claims.

ITAA late last month released a study that said offshore outsourcing is not the main cause of job losses in the IT services sector, and that even with offshoring the number of IT jobs in the United States will increase. Although offshore outsourcing would cause a loss of 272,000 U.S. software and IT services jobs over the next five years, 244,000 onshore jobs would be created, the study said.

But with offshoring, U.S. companies would save $20.9 billion, and much of the money would be reinvested in the United States, ITAA said.

ITAA also said offshore outsourcing opens up new markets and allows 24-hour workdays.

Officials at AeA, a Washington-based association of technology companies that also released a study of offshoring last month, said foreign companies could react to protectionist U.S. policies by curtailing their investments in the United States. That retaliation could result in layoffs of about 6.4 million Americans employed in the United States by foreign companies. Foreign technology companies operating in the United States include Alcatel, NEC Corp. and Royal Philips Electronics.

Offshoring opponents said the practice will cause large losses of U.S. jobs and could compromise customer service and the security of sensitive information. They also said some of the factors that proponents like, such as 24-hour workdays, could be so problematic that offshoring is unworkable.

And according to the Institute of Electrical and Electronics Engineers Inc.-USA, an association of engineers, offshoring high-tech jobs could weaken U.S. leadership in technology. The fewer job opportunities and lower wages that will occur as tech jobs are sent overseas will discourage students from pursuing careers in science and engineering, the group said last month.

Colleen Kelley, president of the National Treasury Employees Union, said her organization supports the Dodd amendment. NTEU represents about 150,000 workers in 29 government agencies.

"We have a lot of qualified, skilled workers here in the United States, many of whom are unemployed," Kelley said. "If the work can be done here, and obviously it can, the government should be keeping it here."

But Christopher Novak, assistant director of research at AeA, said if American companies don't do some offshore outsourcing, they will lose market share to competitors in countries such as Germany, Britain and Japan that are doing offshoring.

"If we lose the market because of that, we are going to end up eliminating a lot more jobs in the long term," Novak said.

Executives of companies that send small fractions of work overseas, or none at all, have expressed concern about Dodd's amendment.

"The improved productivity [from offshoring] is better for our company medium and long term than trying to protect the jobs of a few that will eventually leave anyhow," said Mike Jalbert, president and chief executive officer of EF Johnson Inc., a maker of wireless communications systems. He said 5 percent of the company's equipment is made in Korea and Japan.

But, Jalbert added, "Our first choice is always to do it domestically."

It's uncertain what effect Dodd's amendment would have if enacted. It would not take effect until the secretary of Commerce certified that the provisions would not cause the loss of more jobs than they protect and would not harm the U.S. economy.

Furthermore, many contractors said they send commercial work overseas, but they don't send any federal work overseas because their customers would not allow it.

For example, nearly 60 percent of the government work performed by El Segundo, Calif.-based Computer Sciences Corp. is for the Defense Department, and most of that work can't be sent overseas for security reasons, said spokesman Charles Wilkins.

"We don't have any government work that's offshored. We don't have any plans to do any offshoring of government work," he said.

Stan Soloway, president of the Professional Services Council, an Arlington, Va., trade group, said the Dodd amendment could be more harmful than many people think.

"Most direct government work is almost always done domestically," he said. "Where this is going to have a much bigger impact is in what I call indirect work. A contract might involve new software or computers. There is no way to know where all the tech support is and where the equipment is made."

Requiring contractors to show that everything supplied under a government contract is made or performed in the United States would be impossible, Soloway said. "I understand the concern, that to the greatest extent possible, tax dollars should generate domestic employment. But this legislation creates an almost unworkable environment," he said.

One solution to the offshoring debate might be an incentive for domestic contract performance, such as a source-selection preference, Soloway said.

Experts on both sides of the debate said education and training are remedies for job losses to offshoring.

Both Soloway and Rep. Don Manzullo (R-Ill.), an offshoring opponent, agree that federal retraining assistance should be expanded to benefit all laid-off workers, not just manufacturers.

There's just one problem with this view, said Ron Hira, chairman of the career and workforce policy committee at IEEE-USA.

"Do you retrain engineers to become nurses? Or do you train them to become teachers? Or do you train them to do nanotechnology in the hopes there will be a nanotechnology boom?" he asked. "It's not as simple as people are making it out to be."

Hira said that doesn't mean nothing should be done. "It means we start experimenting," he said.

But even that may be difficult in 2004.

"You peel back the onion, and you find it's a bipartisan issue," Soloway said, "but unfortunately, this being an election year, it becomes a partisan issue."

Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.

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