THE WORLD OF WORK HAS CHANGED FOREVER BUT GOVERNMENT HAS NOT.

Outsourcing – The World of Work has Changed Forever, but government has not. The result is a disconnect between the two worlds — work and regulations which are now being rebuilt on two different paradigms.  Take Outsourcing for example: outsourcing itself is built on individual company economic business issues   while regulation is built on general governmental employment issues. As a result outsourcing continued to grow, and today has moved from a desperation move to a strategic business initiative. IAOP — the International Association of Outsourcing Professionals — estimates that US companies spent $4.2 Trillion on outsourcing in 2006, up from $3.1 Trillion in 2003. During the same period, Job growth clearly downshifted for the same period. Overall monthly gains in 2007 averaged 136,000 compared to 189,000 year before. While the impact of outsourcing can be debated, it is not at all clear that such business methods as outsourcing should be looked at by government with fear and therefore tighter regulation – outsourcing has shifted from a tactical move to a strategic move.

Despite outsourcing, businesses have added 8 million new jobs in recent years – the unemployment rate is flat at 4.5% to 4.6% according to an EPI (Economic Policy Institute) report for August 3 2007. Key business sectors continue to reliably generate jobs, the EPI report recently highlighted several concerns about where the job market is headed. An unusually large loss of government jobs, down 28,000, contributed to 2007’s July weak payroll gain. The private sector added 120,000, up from the previous month’s private sector gain of 107,000. Outsourcing is not the only factor in the job creation business heading into the recession. Offshoring is enabled by globalization of US businesses. As tasks can be broken into smaller elements and some given to specialized talent located elsewhere in the enterprise, some jobs are relocated overseas, Doing so makes US companies more competitive, a goal especially needed as the US dollar continues to decline precipitously. It is important here to differentiate between outsourcing and offshoring. During the outsourcing rage, America lost jobs. For example, in the IT industry, a large volume of programming work was moved to India. The objective was to take advantage of low labor rates. High technology work was outsourced to Wipro, Infosys, Satyam, and other India outsourcing companies. However, a change in tax and wages in India is leading to India “Offshoring” work back into the United States sometimes called unsouring.” In an interesting survey (n=300), PricewaterhouseCoopers found that 66% of respondence did not find the expected  results, but that they were not going to bring the work back in-house. As the economy has recovered since 9-11 and the last recession, so too has a large volume of US jobs been created by American and foreign companies expanding in and to the US – even foreign direct competitors to US businesses are locating facilities here. An excellent example is Toyota and other foreign automakers building new factories all over the American Midwest and South.

In another example, in the case of SAP, (which is home based in Walldorf Germany) not only has invested heavily in a huge R&D shop in Palo Alto California hiring thousands of US technology developers and analysts, but has also established a large US headquarters in Philadelphia hiring IT specialists in Administration, Sales, Marketing, Finance, and IT support. Put simply it seems outsourcing is driven by business looking out the economic windshield and regulations by government looking out the rear window.

Posted by dbrody