by J.D. Hammerly, AREVA T&D
From the July/August 2004 issue of Electric Light & Power: In a year when jobs and security are of concern to everyone, there are few subjects more controversial than the outsourcing of engineering and service jobs to Third World centers overseas, a phenomenon known as “offshoring.” Some suggest the practice is an economic disaster in the making. Others claim that the practice will lead to greater efficiency, improved prosperity and, in time, a better mix of jobs in the U.S. and in Europe. For now, however, most business managers are focused on whether outsourcing makes good business sense and not on its social and political consequences.
There is little doubt that offshoring is having a negative short-term impact on job growth in both North America and Europe. According to a study by McKinsey Consulting, 30 percent of all of the new information technology work being generated by U.S. companies is being done by overseas contractors rather than new U.S. employees. In the U.S., critics argue that every time a project is outsourced, jobs disappear forever, and the problem is getting worse.
Forrester Research estimates that outsourcing will cost the U.S. 600,000 tech jobs by 2005. Deloitte adds in the loss of accounting and support jobs and suggests job losses will amount to two million by 2008. According to a report published last year called “The New Wave of Outsourcing,” University of California-Berkeley economists Cynthia Kroll and Ashok Bardhan claim that as many as 14 million U.S. tech and service jobs, or 11 percent of the entire U.S. workforce, will become vulnerable to outsourcing.
Last summer, two congressmen from the State of Washington asked the federal government’s General Accounting Office to conduct a study to determine the impact of offshoring on the U.S. economy. That report is still due, but the GAO’s own internal guidelines for evaluating outsourcing projects recommend excluding any project that:
* involves core business or government functions,
* shares critical business knowledge, or
* is strategic in nature.
So the question becomes, what is a core function, what is critical knowledge and what is fundamentally strategic in nature?
Non-core jobs almost certainly include call-centers, although complaints about poor service levels have caused businesses such as Dell Computer to rethink their commitment to outsourcing such programs.
It is important to remember that when critical software and/or engineering projects go offshore, so does all of the confidential data and expertise associated with those projects. That data may compromise the company’s intellectual property, put at risk information critical to customers, and most important weaken the security of the nation’s infrastructure. Businesses and institutions should be even more careful when they consider offshoring data or projects involving the national infrastructure. After all, if consumers need to be sure that their most critical personal information is secure, what is the price of risking information critical to the country as a whole?
Government agencies such as the National Infrastructure Protection Center (NIPC) have argued that exporting information concerning North American and European infrastructure and the systems that support them involve exactly the kind of strategic information that should never be offshored. The NIPC has identified approximately 5,700 companies that need to be especially vigilant about compromises to their software and engineering systems. The majority of these companies are in (or service companies in) the physical and economic infrastructure sectors of the U.S. such as energy, telecommunications, transportation, information technology, banking, finance, government operations and emergency services.
It may or may not make sense to set up an overseas center to process a customer’s electric bills, but projects affecting national security are not good candidates for offshoring. The electricity supply must be secure. Cost reduction cannot be the justification for indiscriminate offshoring of these projects when it weakens security of electricity supply. Projects involving the national infrastructure are both complex and vital to national security. Those projects and the work they generate must stay at home. To do otherwise adds far too much risk to the country and to the real bottom line.
Hammerly heads AREVA T&D’s energy automation and information business in North America.
Electric Light & Power July/August, 2004