[Vision2020] The New Global Job Shift

[Tim Lohrmann]

Pass a law to quit this destruction of our economy?
NO WAY. 
The WTO that CLINTON/BUSH and congressional associates
brought us would declare such an attempt to control
our own economy "ILLEGAL."


http://www.businessweek.com/print/magazine/content/03_05/b3818001.htm?mz

February 3, 2003 
COVER STORY 

The New Global Job Shift 

The next round of globalization is sending upscale
jobs offshore. They include basic research, chip
design, engineering--even financial analysis. Can
America lose these jobs and still prosper? Who wins?
Who loses? 

The sense of resignation inside Bank of America(BAC )
is clear from thee-mail dispatch. "The handwriting is
on the wall," writes aveteran information-technology
specialist who says he has been warned notto talk to
the press. Three years ago, the Charlotte (N.C.)-based
bankneeded IT talent so badly it had to outbid rivals.
But last fall, hisentire 15-engineer team was told
their jobs "wouldn't last throughSeptember." In the
past year, BofA has slashed 3,700 of its 25,000tech
and back-office jobs. An additional 1,000 will go by
March.

Corporate downsizings, of course, are part of the ebb
and flow ofbusiness. These layoffs, though, aren't
just happening because demand hasdried up. Ex-BofA
managers and contractors say one-third of those
jobsare headed to India, where work that costs $100 an
hour in the U.S. getsdone for $20. Many former BofA
workers are returning to college to learnnew software
skills. Some are getting real estate licenses.
BofAacknowledges it will outsource up to 1,100 jobs to
Indian companies thisyear, but it insists not all
India-bound jobs are leading tolayoffs.

Cut to India. In dazzling new technology parks rising
on the dustyoutskirts of the major cities, no one's
talking about job losses. InsideInfosys Technologies
Ltd.'s(INFY ) impeccablylandscaped 22-hectare campus
in Bangalore, 250 engineers develop ITapplications for
BofA. Elsewhere, Infosys staffers process home loans
forGreenpoint Mortgage of Novato, Calif. Near
Bangalore's airport, at theoffices of Wipro Ltd.(WIT
), fiveradiologists interpret 30 CT scans a day for
Massachusetts GeneralHospital. Not far away,
26-year-old engineer Dharin Shah talks excitedlyabout
his $10,000-a-year job designing third-generation
mobile-phonechips, as sun pours through a skylight at
the Texas Instrument Inc.(TXN ) research center.Five
years ago, an engineer like Shah would have made a
beeline forSilicon Valley. Now, he says, "the sky is
the limithere."

About 1,600 km north, on an old flour mill site
outside New Delhi, allfour floors of Wipro Spectramind
Ltd.'s sandstone-and-glass building arebuzzing at
midnight with 2,500 young college-educated men and
women. Theyare processing claims for a major U.S.
insurance company and providinghelp-desk support for a
big U.S. Internet service provider--all at a costup to
60% lower than in the U.S. Seven Wipro Spectramind
staff with PhDsin molecular biology sift through
scientific research for Westernpharmaceutical
companies. Behind glass-framed doors, Wipro voice
coachesdrill staff on how to speak American English.
U.S. customers like afamiliar accent on the other end
of the line.

Cut again to Manila, Shanghai, Budapest, or San José,
Costa Rica. Thesecities--and dozens more across the
developing world--have become the newback offices for
Corporate America, Japan Inc., and Europe GmbH.
Neverheard of Balazs Zimay? He's a Budapest
architect--and just might helpdesign your future dream
house. The name SGV & Co. probably meansnothing to
you. But this Manila firm's accountants may crunch the
numbersthe next time Ernst & Young International
audits your company. EvenBulgaria, Romania, and South
Africa, which have a lot of educated peoplebut remain
economic backwaters, are tapping the global market
forservices.

It's globalization's next wave--and one of the biggest
trends reshapingthe global economy. The first wave
started two decades ago with theexodus of jobs making
shoes, cheap electronics, and toys to
developingcountries. After that, simple service work,
like processing credit-cardreceipts, and mind-numbing
digital toil, like writing software code,began fleeing
high-cost countries.

Now, all kinds of knowledge work can be done almost
anywhere. "Youwill see an explosion of work going
overseas," says ForresterResearch Inc. analyst John C.
McCarthy. He goes so far as to predict atleast 3.3
million white-collar jobs and $136 billion in wages
will shiftfrom the U.S. to low-cost countries by 2015.
Europe is joining the trend,too. British banks like
HSBC Securities Inc.(HBC ) have huge backoffices in
China and India; French companies are using call
centers inMauritius; and German multinationals from
Siemens(SI ) to roller-bearingsmaker INA-Schaeffler
are hiring in Russia, the Baltics, and EasternEurope.

The driving forces are digitization, the Internet, and
high-speed datanetworks that girdle the globe. These
days, tasks such as drawing updetailed architectural
blueprints, slicing and dicing a company'sfinancial
disclosures, or designing a revolutionary
microprocessor caneasily be performed overseas. That's
why Intel Inc.(INTC ) and TexasInstruments Inc. are
furiously hiring Indian and Chinese engineers,
manywith graduate degrees, to design chip circuits.
Dutchconsumer-electronics giant Philips(PHG ) has
shiftedresearch and development on most televisions,
cell phones, and audioproducts to Shanghai. In a
recent PowerPoint presentation, MicrosoftCorp. (MSFT )
SeniorVice-President Brian Valentine--the No. 2 exec
in the company's Windowsunit--urged managers to "pick
something to move offshoretoday." In India, said the
briefing, you can get "quality workat 50% to 60% of
the cost. That's two heads for the price ofone."

Even Wall Street jobs paying $80,000 and up are
getting easier totransfer. Brokerages like Lehman
Brothers Inc.(LEH ) and Bear, Stearns& Co. (BSC ),
forexample, are starting to use Indian financial
analysts fornumber-crunching work. "A basic business
tenet is that things go tothe areas where there is the
best cost of production," says AnnLivermore, head of
services at Hewlett-Packard Co.(HPQ ), which has
3,300software engineers in India. "Now you're going to
see the sametrends in services that happened in
manufacturing."

The rise of a globally integrated knowledge economy is
a blessing fordeveloping nations. What it means for
the U.S. skilled labor force isless clear. At the
least, many white-collar workers may be headed for
atough readjustment. The unprecedented hiring binge in
Asia, EasternEurope, and Latin America comes at a time
when companies from Wall Streetto Silicon Valley are
downsizing at home. In Silicon Valley, employmentin
the IT sector is down by 20% since early 2001,
according to thenonprofit group Joint Venture Silicon
Valley.

Should the West panic? It's too early to tell.
Obviously, the bursting ofthe tech bubble and Wall
Street's woes are chiefly behind the layoffs.Also, any
impact of offshore hiring is hard to measure, since so
far atiny portion of U.S. white-collar work has jumped
overseas. For securityand practical reasons,
corporations are likely to keep crucial R&Dand the
bulk of back-office operations close to home. Many
jobs can't goanywhere because they require
face-to-face contact with customers.Americans will
continue to deliver medical care, negotiate deals,
auditlocal companies, and wage legal battles.
Talented, innovative people willadjust as they always
have.

Indeed, a case can be made that the U.S. will see a
net gain from thisshift--as with previous
globalization waves. In the 1990s, CorporateAmerica
had to import hundreds of thousands of immigrants to
easeengineering shortages. Now, by sending routine
service and engineeringtasks to nations with a surplus
of educated workers, the U.S. labor forceand capital
can be redeployed to higher-value industries and
cutting-edgeR&D. "Silicon Valley doesn't need to have
all the techdevelopment in the world," says Doug
Henton, president ofCollaborative Economics in
Mountview, Calif. "We needvery-good-paying jobs. Any
R&D that is routine can probably go."Silicon Valley
types already talk about the next wave of U.S.
innovationcoming from the fusion of software,
nanotech, and life sciences.

Globalization should also keep services prices in
check, just as it didwith clothes, appliances, and
home tools when manufacturing wentoffshore. Companies
will be able to keep shaving overhead costs
andimproving efficiency. "Our comparative advantage
may shift to otherfields," says City University of New
York economist Robert E.Lipsey, a trade specialist.
"And if productivity is high, then theU.S. will
maintain a high standard of living." By spurring
economicdevelopment in nations such as India,
meanwhile, U.S. companies will havebigger foreign
markets for their goods and services.

For companies adept at managing a global workforce,
the benefits can behuge. Sure, entrusting
administration and R&D to far-flung foreignerssounds
risky. But Corporate America already has become
comfortable hiringoutside companies to handle
everything from product design and techsupport to
employee benefits. Letting such work cross national
boundariesisn't a radical leap. Now, American
Express(AXP ), Dell Computer(DELL ), Eastman Kodak(EK
), and othercompanies can offer round-the-clock
customer care while keeping costs incheck. What's
more, immigrant Asian engineers in the U.S. labs of
TI, IBM(IBM ), and Intel fordecades have played a big,
hidden role in American tech breakthroughs.The
difference now is that Indian and Chinese engineers
are managingR&D teams in their home countries. General
Electric Co.(GE ), for example,employs some 6,000
scientists and engineers in 10 foreign countries.
GEMedical Services integrates magnet, flat-panel, and
diagnostic imagingtechnologies from labs in China,
Israel, Hungary, France, and India ineverything from
its new X-ray devices to $1 million CT scanners."The
real advantage is that we can tap the world's
besttalent," says GE Medical Global Supply Chain
Vice-President DeeMiller.

That's the good side of the coming realignment. There
are hazards aswell. During previous go-global drives,
many companies ended uprepatriating manufacturing and
design work because they felt they werelosing control
of core businesses or found them too hard to
coordinate.In a recent Gartner Inc. survey of 900 big
U.S. companies that outsourceIT work offshore, a
majority complained of difficulty communicating
andmeeting deadlines. As a result, predicts Gartner
Inc. Research DirectorFrances Karamouzis, many
newcomers will stumble in the first few years asthey
begin using offshore service workers.

A thornier question: What happens if all those
displaced white-collarworkers can't find greener
pastures? Sure, tech specialists,
payrolladministrators, and Wall Street analysts will
land new jobs. But willthey be able to make the same
money as before? It's possible that lowersalaries for
skilled work will outweigh the gains in
corporateefficiency. "If foreign countries specialize
in high-skilled areaswhere we have an advantage, we
could be worse off," says HarvardUniversity economist
Robert Z. Lawrence, a prominent free-trade advocate."I
still have faith that globalization will make us
better off, butit's no more than faith."

If the worries prove valid, that could reshape the
globalization debate.Until now, the adverse impact of
free trade has been confined largely toblue-collar
workers. But if more politically powerful
middle-classAmericans take a hit as white-collar jobs
move offshore, opposition tofree trade could broaden.

When it comes to developing nations, however, it's
hard to see adownside. Especially for those countries
loaded with college grads whospeak Western languages,
outsourced white-collar work will likelycontribute to
economic development even more than new factories
makingsneakers or mobile phones. By 2008 in India, IT
work and other serviceexports will generate $57
billion in revenues, employ 4 million people,and
account for 7% of gross domestic product, predicts a
joint study byMcKinsey & Co. and Nasscom, an Indian
software association.

What makes this trend so viable is the explosion of
college graduates inlow-wage nations. In the
Philippines, a country of 75 million that churnsout
380,000 college grads each year, there's an oversupply
of accountantstrained in U.S. accounting standards.
India already has a staggering520,000 IT engineers,
with starting salaries of around $5,000. U.S.schools
produce only 35,000 mechanical engineers a year; China
graduatestwice as many. "There is a tremendous pool of
well-trained people inChina," says Johan A. van
Splunter, Philips' Asia chiefexecutive.

William H. Gates III, for one, is dipping into that
pool. AlthoughMicrosoft started later than many
rivals, it is moving quickly to catchup. In November,
Chairman Gates announced his company will invest
$400million in India over the next three years. That's
on top of the $750million it's spending over three
years on R&D and outsourcing inChina. At the company's
Beijing research lab, one-third of the 180programmers
have PhDs from U.S. universities. The group helped
developthe "digital ink" that makes handwriting show
up on Microsoft'snew tablet PCs and submitted four
scientific papers on computer graphicsat last year's
prestigious Siggraph conference in San Antonio.
Hyderabad,India, meanwhile, is key to Microsoft's push
into businesssoftware.

This is no sweatshop work. Just two years out of
college, Gaurav Daga,22, is India project manager for
software that lets programs running onUnix-based
computers interact smoothly with Windows applications.
Daga's$11,000 salary is a princely sum in a nation
with a per capita annualincome of $500, where a
two-bedroom flat goes for $125 a month. Microsoftis
adding 10 Indians a month to its 150-engineer center
and indirectlyemploys hundreds more at IT contractors.
"It's definitely a culturalchange to use foreign
workers," says Sivaramakichenane Somasegar,Microsoft's
vice-president for Windows engineering. "But if I
cansave a dollar, hallelujah."

Corporations are letting foreign operations handle
internal finances aswell. Procter & Gamble Co.'s(PG )
650 Manilaemployees, most of whom have business and
finance degrees, help prepareP&G's tax returns around
the world. "All the processing can bedone here, with
just final submission done to local tax authorities"in
the U.S. and other countries, says Arun Khanna, P&G's
Manila-basedAsia accounting director.

Virtually every sector of the financial industry is
undergoing a similarrevolution. Processing insurance
claims, selling stocks, and analyzingcompanies can all
be done in Asia for one-third to half of the cost
inthe U.S. or Europe. Wall Street investment banks and
brokerages, undermounting pressure to offer
independent research to investors, are buyingequity
analysis, industry reports, and summaries of financial
disclosuresfrom outfits such as Smart Analyst Inc. and
OfficeTiger that employfinancial analysts in India. By
mining databases over the Web, offshorestaff can
scrutinize an individual's credit history, access
corporatepublic financial disclosures, and troll
oceans of economic statistics."Everybody these days is
drawing on the same electronic reservoir ofdata," says
Ravi Aron, who teaches management at the Wharton
Schoolat the University of Pennsylvania.

Architectural work is going global, too. Fluor
Corp.(FLR ) of Aliso Viejo,Calif., employs 1,200
engineers and draftsmen in the Philippines, Poland,and
India to turn layouts of giant industrial facilities
into detailedspecs and blueprints. For a
multibillion-dollar petrochemical plant Fluoris
designing in Saudi Arabia, a job requiring 50,000
separateconstruction plans, 200 young Filipino
engineers earning less than $3,000a year collaborate
in real time with elite U.S. and British
engineersmaking up to $90,000 via Web portals. The
principal Filipino engineer onplumbing design,
35-year-old Art Aycardo, pulls down $1,100
amonth--enough to buy a Mitsubishi Lancer, send his
three children toprivate school, and take his wife on
a recent U.S. trip. Fluor CEO AlanBoeckmann makes no
apologies. At a recent meeting in Houston,
employeesasked point-blank why he is sending
high-paying jobs to Manila. Hisresponse: The Manila
operation knocks up to 15% off Fluor's projectprices.
"We have developed this into a core
competitiveadvantage," Boeckmann says.

It's not just a game for big players: San Francisco
architect David N.Marlatt farms out work on Southern
California homes selling for $300,000to $1 million. He
fires off two-dimensional layouts to architect
Zimay'sPC in Budapest. Two days later, Marlatt gets
back blueprints and 3-Dcomputer models that he
delivers to the contractor. Zimay charges $18 anhour,
vs. the up to $65 Marlatt would pay in America. "In
the U.S.,it is hard to find people to do this
modeling," Zimay says."But in Hungary, there are too
many architects."

So far, white-collar globalization probably hasn't
made a measurable dentin U.S. salaries. Still, it
would be a mistake to dismiss the trend.Consider
America's 10 million-strong IT workforce. In 2000,
seniorsoftware engineers were offered up to $130,000 a
year, says Matt Milano,New York sales manager for
placement firm Atlantis Partners. The same jobnow pays
up to $100,000. Entry-level computer help-desk
staffers wouldfetch about $55,000 then. Now they get
as little as $35,000."Several times a day, clients
tell me they are sending this work offshore," says
Milano. Companies that used to pay such IT
serviceproviders as IBM, Accenture(ACN ), and
ElectronicData Services (EDS )$200 a hour now pay as
little as $70, says Vinnie Mirchandani, CEO of
IToutsourcing consultant Jetstream Group. One reason,
besides the techcrash itself, is that Indian providers
like Wipro, Infosys, and Tatacharge as little as $20.
That's why Accenture and EDS, which had fewstaff in
India three years ago, will have a few thousand each
by nextyear.

Outsourcing experts say the big job migration has just
begun. "Thistrend is just starting to crystallize now
because every chief informationofficer's top agenda
item is to cut budget," says Gartner'sKaramouzis.
Globalization trailblazers, such as GE, AmEx, and
Citibank(C ), have spent a decadegoing through the
learning curve and now are ramping up fast.
Morecautious companies--insurers, utilities, and the
like--are entering thefray. Karamouzis expects 40% of
America's top 1,000 companies will atleast have an
overseas pilot project under way within two years.
Thereally big offshore push won't be until 2010 or so,
she predicts, whenglobal white-collar sourcing
practices are standardized.

If big layoffs result at home, corporations and
Washington may have tobrace for a backlash. Already,
New Jersey legislators are pushing a billthat would
block the state from outsourcing public jobs overseas.
AtBoeing Co. (BA ), ananxious union is trying to ward
off more job shifts to the aircraftmaker's new
350-person R&D center in Moscow (page 42).

The truth is, the rise of the global knowledge
industry is so recent thatmost economists haven't
begun to fathom the implications. For
developingnations, the big beneficiaries will be those
offering the speediest andcheapest telecom links,
investor-friendly policies, and ample collegegrads. In
the West, it's far less clear who will be the big
winners andlosers. But we'll soon find out. 

By Pete Engardio, Aaron Bernstein, and Manjeet
Kripalani
With Frederik Balfour in Manila, Brian Grow in
Atlanta, and Jay Greene inSeattle




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