Why Outsourcing Is Excellent For The U.S. Economy

The Academic research of many experts who study the economy and especially the global economy, including, most recently the work of Fritz Foley and Mihir Desai of Harvard University and James Hines of the University of Michigan, has found on a consistent basis that expansion abroad by U.S. Corporations supports US based employment. These studies have found that, on a repetitive and empirically supportable basis that increases in investment and employment offshore is firmly and intrinsically associated with more investment and employment in American parent companies. The same can be shown to be true for Canadian companies as well.

US companies who employ workers in foreign localities are finding that the skill levels and the very occupation of these workers itself are regularly complementary to US businesses. They are not only mere substitutes, but, rather than being harmful, they are beneficial in many ways. Increased US employment offshore directly stimulates an increase in U.S. hiring. As an example, Wal-Mart has found that by opening offshore retail establishments, it has actually created hundreds of U.S. jobs for the workers it requires in order to coordinate the distribution of its product offerings. Offshore affiliate expansion—whether in order to serve foreign customers or to save costs—does, in fact, lead to the expansion of the overall scale of multinationals and thereby enhances the US economy on multiple levels.

For years, it has been known that the chief benefit of offshore outsourcing has been cost savings. A close second to cost savings as a benefit to offshore placement of non-core activities has been the ability of companies to focus on their non-core competencies. But offshore expansion also empowers firms to substantially improve the quality of their scope of activities. A prime example of this concept is that, by exporting routine production, a company’s employees in the U.S. are freed to focus on higher value-added tasks (and, by the way, higher paying positions) such as R&D, marketing and general management. Therefore, one finds that the whole of the impact of outsourcing non-core competencies is considerably more advantageous and positively impactful than the oft-cited, overly simplistic histrionics of merely “exporting jobs.”

However, the quintessential support for the benefit of offshore outsourcing lies in the empirical evidence:

If one considers the most recent year of total employment data available from the U.S. Bureau of Economic Analysis (1988-2007), over that time period of analysis, employment in offshore locations of US companies increased by roughly 5.3 million (from a previous 6.4 million to 11.7 million). But revealingly, during that same time period, new employment in U.S. companies with offshore affiliates increased by 4.3 million (from a previous 17.7 million to 22 million).

As a matter of fact, reliable research reveals on a repetitive basis, that offshore expansion tends to expand US parent company employment figures. A large number of America’s most successful companies have found that “with substitution comes complementation” between their offshore and their domestic business activity. A prime example is IBM. As most leading US companies have found- and continue to find- offshore expansion is good for business- globally and at home. While IBM has been expanding its domestic operations ferociously, last year it announced the location of a new service-delivery center in Dubuque, Iowa where the company expects to create 1,300 new jobs and invest more than $800 million over the next 10 years.

Another ardent practitioner and defender of offshore outsourcing, Procter & Gamble, has calculated that no less than one in five of its U.S. jobs (and even more in Ohio- two in five) are directly attributable to its global business.

It truly is this simple: an increase in the employment of offshore outsourcing business strategies will increase domestic employment and domestic investments. A reduction of the employment of offshore outsourcing business strategies will and does directly reduce employment and investment in domestic companies.

Still concerned about the “image” that you will project by offshore outsourcing? If the success of these strategies as proven by the numbers is not enough, savvy C-level company officers should consider the following: the recent sluggishness of the US economy has only served to highlight the importance and benefit of offshore outsourcing to the US economy. Since the genesis of the downturn, December of 2007, payrolls in the private sector have dropped of dramatically. There are currently over 2.4 million less private-sector job positions available than just 10 years ago. Moreover, in 2009, gross private-sector investment fell so low that it did not even cover depreciation in all four quarters so that, for the first time since at least 1947, U.S. private capital stock was depleted throughout an entire annual period.

Therefore, a major policy challenge that the US government and informed company executives face today is that it is no longer simply “good enough” to just to create jobs. The goal for both the government and responsible businesses should be to create high-paying, private-sector domestic jobs to support their core-competencies which are directly linked to performance, investment and trade. History and the evidence that history provides us clearly demonstrates that it is the US-based companies that outsource their non-core competencies that are creating these jobs.

The strongest companies in the US economy have been these US multinationals and those U.S. affiliates who are performing similarly in terms of outsourcing and are headliners on that list of corporate businesses that have consistently accounted for the vast majority of acceleration in U.S. productivity growth after 1995 and this acceleration has, in turn, formed the very bedrock of increased standards of living for all Americans, creating 27.5 million high-paying positions in 2007. In order to climb out of the recession, we need to create millions of the kinds of jobs that U.S. companies tend to create.

Following are some other compelling facts related to US Businesses who strategically outsource offshore:

• the average compensation per worker in these savvy global US firms in 2007 was $65,248 accounting for about 20% above the average for all other US jobs;
• they undertook $665.5 billion in capital investment, constituting a full 40.6% of all private-sector non-residential investment;
• they exported $731 billion in goods, 62.7% of all U.S. goods exports; and
• they conducted $240.2 billion in research and development, a remarkable 89.2% of all U.S. private-sector research and development, the vast majority of which was spent in the US

In other words, if the substantial profits for stockholders, partners & investors is not enough to convince US Businesses of the value of offshore outsourcing and, if a more focused performance on core competencies and non-core competencies are insufficient to convince US Businesses of the value of offshore outsourcing, then certainly US businesses can credibly boast that US companies who outsource their non-core competencies are not only maximizing their business proficiencies but they are conducting themselves as good global citizens, creating many badly needed jobs for their global neighbors while comfortably demonstrating that they are also excellent domestic US Corporate Citizens, enhancing the US job market and domestic employment statistics.