Verve! Management Consulting

Is Your Job Next?

By Ziv Navoth

"The proper role of a healthily functioning economy is to destroy jobs and put labor to use elsewhere."

Capitalism at its worst or the natural evolution of our economy? Read on to find out.

Sheryl Matta won't be sending her daughter to summer school this year. Matta, who works as a medical transcriptionist for a U.S. company, was laid off in January when her job was transferred to a competitor who uses Indian employees to perform the same job that Matta does, at a fraction of the cost. "Our jobs are being taken away, and we're very, very angry about it," said the 54 year-old to the Wall Street Journal, "I can't make a living at this anymore."

Sheryl Matta is not alone. According to the American Association for Medical Transcription, 10% of the industry's jobs have already moved to India, Pakistan, Canada and other countries. And medical transcription, which involves taking tape-recorded notes made by doctors and typing them into a computer, is only one of the occupations that are being farmed out to developing countries. By the end of next year, over half a million American engineers, accountants and other white-collar workers will have lost their jobs to Indians, Chinese and Eastern Europeans. By 2015 this number is estimated to reach 3 million.

Offshoring - the relocation of business processes to a lower cost location - is not a new phenomenon. In the past 20 years, 2 million jobs moved from the U.S. alone to other countries. What is new is the increasing proportion of service jobs that are being lost. "There is no job that is America's God-given right anymore," says Carly Fiorina, Hewlett-Packard's CEO, "We have to compete for jobs."

Joseph Schumpeter would have agreed. The Austrian economist who is best known for his economic theory of "creative destruction" argued that this process of industrial mutation is essential for economic growth. "The proper role of a healthily functioning economy," argued Schumpeter, "is to destroy jobs and put labor to use elsewhere. Despite this simple truth, layoffs and firings will still always sting, as if the invisible hand of free enterprise has slapped workers in the face.

"The proper role of a healthily functioning economy is to destroy jobs and put labor to use elsewhere"

"And slapped in the face is how many workers are feeling today. Take James Victor for example. Earlier this year Victor was evicted from his Florida apartment after his programming contract was offshored. "Here I am at 51," said Victor to Fast Company magazine, "and I don't see myself in a situation where I can ever retire."

What's driving the sudden surge in Offshoring? The short answer is technology. As the number of personal computers and broadband connections soar, the old 1990s adage that "Everything that can be digitized, will" is finally making an impact. Add to this the proliferation of tools such as e-mail, Microsoft Office and Google, and you get what New York Times columnist Thomas Friedman calls 'Globalization 3.0' or "Everything that can be offshored, will."

India, which captures a third of each dollar offshored by the U.S. is leading this new form of globalization. Why? To start off with, India boasts one of the most educated workforces in the world, with over 250,000 BAs and 60,000 MAs and PhDs. Then there's the famous cost differential. A typical U.S.-based software engineer will set your company back $60 an hour. The cost for the same engineer in India: $6 an hour. "There are over half a billion Indians under the age of 25," said Thomas Friedman in a recent column, "And a growing slice of them will be able to do your white-collar job as well as you for a fraction of the pay."

So are all of us at risk of losing our jobs? Not quite yet. According to research at the University of California, only about 10% of jobs, such as office, business and financial support, are susceptible to being offshored. But countries such as India and China are hungry for jobs requiring higher skills, and perhaps more importantly, they've got the workforce to carry these out. Which is why we're witnessing more and more jobs in architecture, design and financial services, to name a few, moving to these countries.

All this leads to the inevitable question posed by a recent article from Fortune magazine: "What are people going to do with themselves?"

Fighting offshoring seems to be the worst solution. Though German Chancellor Gerhard Schroeder was quick to label companies that outsource jobs to Eastern Europe as "unpatriotic" and Tennessee has become the first U.S. state to actively discourage the practice of offshoring jobs, two things are clear: Offshoring is here to stay, and it's growing rapidly. Faced with the massive benefits that offshoring business processes hold, companies that choose to pay more for the same work will find it hard to stay in business, let alone compete with their counterparts that do opt to offshore.

Perhaps a better approach to fighting offshoring is to actively embrace this new wave of "creative destruction" and innovate ourselves ahead of the competition - be it local or global. By focusing on understanding our customers better than anyone else and realizing what value we can provide them that no one else can, we might just be able to extend, if not guarantee, our competitive advantage.

Ziv Navoth helps organizations improve their performance by creating a unique and valuable position in the marketplace. He is the Managing Director of Verve! (www.verve.nu) and can be reached at ziv@verve.nu.