Outsourcing Labor Offshore: Blessing or Curse? by Chris Hartmann

"Offshore Outsourcing” has gone from “savior of the economy” to “major cause of job losses”. This recent outcry against foreign labor leads me to write this article to clear up many of the misconceptions and fears floating around the media these days.

As the world economies move in a global and free market direction, this change is inevitable. While this reality alone doesn’t make it a good change, I’d like to provide some headlines that do:.

“Demographic forces are about to put a squeeze on the labor supply that will make it feel like 1999 all over again.” ~The Coming Job Boom, By Paul Kaihla, Business 2.0, September 2003 Issue.

“Much of the public outcry over America's failure to generate jobs has focused lately on a surge in the outsourcing of work to China and India. But another dynamic closer to home is weighing on job creation — the slow process of working through a glut of boom-era investment that continues to litter the economy with underused factories.” ~Overcapacity Stalls New Jobs, By Louis Uchitelle, NY Times, October 19, 2003.

“US auto giant Ford said Tuesday it had invested 17 billion rupees (R2.5 billion) in India in the past three years and was confident of increasing sales with frequent new car launches. David Friedman, managing director of Ford India Ltd. said his firm would spoil Indian consumers for choice during the launch of the company's latest sports utility vehicle, the Ford Endeavour, priced at 1.3 million rupees. India's automobile market grew 28 percent in the first six months to 440,000 units compared to the same period last year.” ~Ford gears for Indian auto boom, Published on the web by the Business Report on October 14, 2003.

These are a few examples, but consider that “outsourcing” of manufacturing and other activities has been going on since world markets opened up. If you are a baby boomer, as I am, you’ll recall how during childhood, Japanese products were synonymous with “cheap knockoffs”. With “cheap” being the operative word (in every sense), they allowed us to purchase products that otherwise we could not have afforded. By the time I was buying my first car, the meaning of “made in Japan” had changed dramatically and completely altered the automobile manufacturing landscape. There was a huge outcry to “Buy American”, but it’s hard to compete with higher quality and lower prices. Eventually, the U.S. automobile industry improved, but many jobs were still lost overseas. Yet the economy thrived as consumers (and ultimately, all manufacturers, including those in the U.S.) benefited by getting a better product at a lower cost.

There are many reasons why we don’t have car manufacturing facilities in every state, or “one-city-only” supermarkets. Manufacturing jobs cluster in rural locations where labor and facilities are less expensive. Downtown areas and big cities get the finance jobs because that’s where their customers and suppliers are. Lowering costs, increasing profits and expanding markets are all very positive benefits of moving labor to where it’s most productive. In the hospitality technology sector, outsourcing is even more of a win-win situation.

Firstly, the most highly skilled jobs (software design, process development, customer relationship management) are not practical any distance from their customer base. Yes, Indian or Eastern European programmers can program systems at a lower cost, but if you had to send them to the U.S. to learn our culture and business practices, then ask them to design “a better way of doing things”, it would not be close to cost effective, or of higher quality. The net effect is that more highly paid jobs stay here, with the lower-paid functions (even in U.S. dollars) moving offshore.

Next, consider that remote labor increases the need for hospitality. If you’re outsourcing to India, there will be more travel between India and the U.S. This creates demand for hotels and other travel suppliers and that improves prices and profits.

Finally, recognize that the Indian GDP has grown annually between 4.4% and 6.5% for the last eight years. While growth has slowed following the dot.com bust, domestic GDP has not fared too poorly, even as jobs were outsourced. At least part of that is related to markets expanded outside the U.S. (see the automobile sales stats above). Combined with the predicted job shortages in the U.S. as the economy picks up steam and the older cohort of baby boomers retires (and yes, begins to travel more !), the problems will quickly shift to finding enough local workers in the U.S., both skilled and unskilled.

HVS International is a global company, hospitality is a global industry, and the U.S. is a global economy. Just as we had tremendous agricultural job losses during the Industrial Age and manufacturing job losses during the last forty years, we will lose service and technology jobs as productivity continues to improve. These productivity gains, largely driven by technology and lower-cost labor (which itself is driven by technology), keep prices down, demand up and companies competitive.

As the fall of the Soviet Bloc and the continued strength of the U.S. economy has demonstrated, free markets will prevail over artificially constructed barriers, which no matter how well intentioned, continue to impede rather than aid, economic growth. In the hospitality industry, the bulk of our labor will always be local. Unfortunately, expectations of our guests will be set by the ever decreasing cost of their televisions, computers and automobiles. Let’s embrace that efficiency where it is possible, and recognize we’re helping ourselves and the U.S. in general, at the same time.

Chris Hartmann

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