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IT Trends and outsourcing work



There are four areas which are taken into consideration when looking at the effects of outsourcing work on the U.S. economy that have two opposing sides. One issue is the average U.S. standard of living which is predicted to be beneficial in the long run with the use of outsourcing work, however some argue that outsourcing could harm the standard of living by undermining U.S. technological leadership. Another issue is employment and job loss, some predict that outsourcing will have little effect on overall employment levels, however there are still arguments that it may be a much larger impact on the white collar jobs that the U.S. offers. A third issue is the distribution of income, “some economists maintain that outsourcing could increase income inequality in the U.S., while others argue that changes in the income distribution are driven primarily by factors other than outsourcing.” (GAO, Overview of the Issues) A final issue is security and consumer privacy. Outsourcing may actually be making our national defense system vulnerable as well as consumer’s financial and medical information.


There are many resources for and against the use of outsourcing, although there are negative effects of outsourcing, the positive effects seem to outweigh them.
Globalization “has left many Americans disgruntled, jobless, and distrustful of corporations that practice it” (ezinearticles.com/outsourcing) Job loss and loss to U.S. income have seem to be the most prevailing of all issues against offshore outsourcing. Some feel that the potential damage to the labor market remains quite large and is heavily ignored by studies purporting to tally outsourcing’s costs and benefits. (Economic Policy Institute) Although it may make sense for some firms to resort to offshore outsourcing, if the trend becomes too widespread, resulting in an increase in foreign productivity in sectors where the U.S. is a net exporter, it could actually result in a loss to U.S. income through terms of trade effects. “The terms of trade of the U.S. refer to the prices foreign purchasers pay for U.S. exports relative to the prices U.S. residents pay for imports. If U.S. exports fetch ever higher prices on world markets and/or U.S. import prices drop, the terms of trade for the United States improve- the United States is able to consume more goods given its current income and productivity.


If instead U.S. exports fetch ever lower prices and/or imports become more expensive, U.S. terms of trade deteriorate and its residents are able to consume less given current income and productivity.” (Economic Policy Institute) Also if the U.S. economy reaps efficiency gains from outsourcing, these are unlikely to accrue to American workers. Of all the net jobs predicted to be created in 2008 due to outsourcing, 44% are in only two sectors: construction and transportation/utilities. Another point made about labor is that “software is a very labor intensive industry, and large price declines can be had in this sector only through a large reduction in labor costs. This means either large scale employment relocation to other nations, or significant wage cuts for software engineers, publishers, and programmers in the United States.” (Economic Policy Institute) The rising popularity of offshore outsourcing will continue to push down the prices of IT services for the next several years, this is a challenge for IT service providers.
One hot topic in this year's election is whether (and how) to stop U.S. companies from engaging in offshore outsourcing to India, China, and other countries. Dr. Adam Kolawa, the co-founder and CEO of Parasoft, is not convinced that limiting outsourcing in order to protect the U.S. economy is the answer. "Will regulating outsourcing produce the desired effect? I don't think so," Kolawa says.


"Outsourcing actually offers the U.S. a tremendous opportunity, and not taking advantage of this opportunity would come at a significant cost to the U.S. economy," he continues. "It's important to recognize that outsourcing can help us develop trading relations with the nations to which we are outsourcing," Kolawa argues. "Such trading relations can lead to long-term opportunities for the U.S. For example, consider the evolution of the U.S.'s now vital trading relationship with Japan. At the end of World War II, Japan was largely undeveloped; if they remained that way, we might not have a trade deficit with them, but we also would have little to no trade with them."


"As Japan first began to develop, they flooded the U.S. market with sometimes strange exports. By the late 1980s, there was fairly widespread fear that Japan's economic development was going to threaten the U.S. economy just as there is now fear that economic development in India and China will threaten the U.S. economy."


The Japanese example, according to Kolawa, ought to teach us. "Did Japan's economic development ruin us? Hardly," he says.  "In fact, starting around the early 1990s, Japan became a prime market for U.S. exports. Many U.S. companies (including Parasoft, the software development company of which I am the CEO and co-founder) enjoyed much success exporting products to Japan since the early 1990s. To this day, Parasoft and many other companies have continued to build and foster relationships with Japanese organizations relationships that have been key to our ability to weather U.S. recessions."


"If Japan had remained a less-developed nation as many in the U.S. initially hoped it would Parasoft and other U.S. companies would not have been able to reap the benefits yielded by our exporting to Japan. Job growth would have been slower, tax revenues from corporate profits would have been reduced, and many fewer U.S. companies would have weathered the previous (early 1990s) and current recession."


A second major risk is data security. Most countries do not have the protective practices that the U.S. and Europe require. The channels are well beyond the control of the company or the provider. These channels often do not have end to end transaction encryption which leaves vulnerability throughout the communication path. Validating security in a multi-vendor, multi-client, mixed environment is extremely difficult. There are also gaps in personal security, many companies have weak personnel policies. Also outsourcing work providers do not have very strict contractual agreements so when there is a security breach they are less likely to inform clients of it. This lack of offshore loyalty also leads to many viruses implemented by possible government intelligence or organized crime. By outsourcing, a company gives up a certain amount of control of the business processes. “Also, language barriers, cultural barriers and the protection of intellectual property, or lack thereof, can increase the risk of miscommunication and consequent misinterpretation of legal commitments.”


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