Feds, industry mull offshore outsourcing

As American workers face mounting job losses and rising unemployment rates, government and industry officials are struggling with the sensitive issue of offshore outsourcing.

It may seem like a political issue as the Bush administration prepares for an upcoming election, but federal agencies stand to be affected, too. Lawmakers are considering new "Buy American" proposals that would limit the ability of agencies to buy products that are not made from primarily American components.

Federal procurement advocates generally oppose the idea. "It's disruptive to the businesses and it doesn't make sense," said Robert Guerra, a principal at Guerra, Kiviat, Flyzik and Associates Inc. "When [technology] gets commoditized, it's going to get moved offshore. It's not like it's taking jobs from Americans. Americans aren't going to want to assemble monitors for 30 cents an hour. If we can outsource that work and save the government money, so be it."

American companies sometimes fire American workers and open facilities in poorer countries where labor is cheaper and environmental and workplace safety rules are not as strict. The lower production costs lead to lower prices for products, but at the cost of jobs.

The cost aspect of the equation is particularly difficult to address because no one knows how many American jobs, including those in technology, companies have moved, said Harris Miller, president of the Information Technology Association of America.

"I've heard estimates ranging from 10,000 to 150,000" jobs, he said after a panel discussion that ITAA hosted recently in Washington, D.C.

The numbers are so widely different that "it's not even a wild guess," Miller said. "The problem is that companies aren't talking." ITAA may commission its own study to try to quantify the extent to which American companies use foreign labor, he said.

Costs to agencies would rise under the laws, Miller said, because American hardware makers would not be able to rely on inexpensive components from other countries. ITAA also opposes Buy American rules.

"You buy a [computer], you open it up and it looks like the United Nations in there," he said.

"This is all customer-driven," said William Sweeney, vice president of global government affairs at systems integrator EDS. "We have a global economy. Work is being driven around the world."

Drew Ladner, chief information officer at the Treasury Department, said American workers should be trained to compete in that global economy. The government's interest, he said, is in getting high-quality IT.

"We need to make sure we have the best systems," Sweeney said.

The American IT industry has weathered a succession of blows, said Bruce Mehlman, assistant secretary for technology policy at the Commerce Department.

The flurry of spending that IT companies had been receiving to fix Year 2000 problems withered as the year came and went. The economy began to slump, then terrorists attacked the country, the Enron and WorldCom Inc. scandals shook the faith of investors, and the United States launched wars in Afghanistan and Iraq, causing more economic caution at home.

As a result, IT companies have had incentives to save costs with foreign labor, he said. "It's a very real trend driving offshore outsourcing," Mehlman said. "There is a lot that is yet to be understood."

Outsourcing in general is a different matter, said George Newstrom, Virginia's secretary of technology. Governments, especially cash-poor state governments, have to economize, and outsourcing is one sure way to do it. However, he said, government organizations should take care in determining where outsourcing makes the most sense.

Newstrom said Virginia officials are still trying to figure out what part of the $900 million they spend on IT should be outsourced two years into Democratic Gov. Mark Warner's term. "Until we get our arms around it, I don't know what to outsource," Newstrom said.

The state is trying to discourage companies from leaving, and especially taking jobs out of the state and into other countries, he said.

Newstrom argued against legislation. However, he said, government organizations should be wary of the perception they create when they hire companies that outsource significant amounts of work to other countries.

"I think the political climate is very adverse for government to say, 'We want to outsource work offshore,' " he said. "I don't think there's a politician who could survive to the end of that sentence. We don't even want to outsource to Maryland."