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Online Extra: Outsourcing Isn't "a Zero-Sum Game"


Marc Andreessen, a cofounder of Netscape Communications, stands squarely in the middle of the offshore-outsourcing debate. The startup he now chairs, Opsware Inc., automates data centers, making it easier for companies to manage operations worldwide -- including offshore activities. At the same time, Opsware is now considering hiring a few people in India to take advantage of talent at lower wages there. Andreessen, an unrepentant believer in entrepreneurial capitalism, thinks new jobs and new industries will emerge in the U.S. that will more than fill the current jobs gap.

Andreessen recently discussed his views with BusinessWeek Silicon Valley Bureau Chief Robert D. Hof. Following are edited excerpts of their conversation:

Q: What's driving offshore outsourcing of tech jobs?

A: You can get three or four programmers for the price of one. It starts to change how you think about the economics of your business, either as a software company or as an end user. As a software company, you can cut half your programmers, cut your prices, and your profit margins go up, all at the same time. That's a big deal.

It's also a lot easier to do this than it was three or four years ago. For example, it turns out the killer app for all those global networks that got built is offshoring. Everybody can be on the same network. At that point, you can do everything from routing phone calls to transferring digital images and financial records to doing e-mail, collaboration, and conferencing. Whether the guy is here or in India doesn't really matter that much.

Q: It appears that your company helps pave the way for offshoring.

A: What we do makes offshoring easier. When you're outsourcing something to, say, EDS (EDS), which uses our software, you're implementing an approach to running large numbers of servers that's much more systematic, visible, and predictable. If it's more systematic and predictable in the U.S. to do that, then you can take those same servers, plop 'em down in Latin America or Eastern Europe or India, and you can run them in the same way.

That's already happening in manufacturing. Factories in China are state-of-the-art. When Intel (INTC) builds a factory in Western China, it's a highly automated factory just like one in Oregon. So the future is not 800 million unskilled Chinese laborers working in giant industrial factories with lots of smoke coming out the top. The future is factories in China that are just as automated as factories in the U.S.

Q: That would seem to suggest that offshoring could simply be a prelude to automating those jobs out of existence before long.

A: China has lost more manufacturing jobs in the last seven years than the U.S. has -- because its factories are getting more automated and more productive. They've lost jobs to automation.

Historically, lower-value jobs vanish over time. They often move overseas and then vanish as the technology gets more sophisticated. Sometimes jobs even come back. You have Japanese car manufacturers with factories here. Car factories are so highly automated that they might as well put them in the U.S. because that's where the customers are. And they can get the high-skilled labor that can run those highly automated factories.

Q: Does the fact that what your company is doing is enabling jobs to move offshore bother you?

A: No. I firmly believe that new jobs are getting created and will continue to get created that are better jobs. IT organizations are spending north of 70% of their budgets on maintenance of existing legacy applications. That means they're spending less than 30% of new systems. If you can automate things so that you have only 200 people doing existing stuff, a very large number of those jobs will get replaced by people doing new things.

It's the story of history. Would we rather be living in a world where we're trying to protect Pony Express jobs or one in which there's a telegraph, then the telephone, and so on? It's so much not a zero-sum game. Growth leads to growth. With growth comes a higher standard of living, higher-paying jobs, and on and on.

Q: What about the Americans who are displaced?

A: Sure, there absolutely need to be safety nets, so people aren't out on the streets and homeless. There needs to be retraining.

We have the world's best higher-education system. People come from all over the world to study at American universities. So let's take that strength and keep extending it with government programs and private enterprise to reach out and do a lot more continuing education and retraining. Tax credits, subsidies, private investment, severance benefits -- some combination of those things should work. The cost of that is low compared to the benefits of being in a dynamic economy.

Q: Nonetheless, a backlash against offshoring seems to be growing.

A: That's what worries me. John Kerry is running on a fear platform to some extent, running on this platform that special interests are out to get you -- which is code for "businessmen are evil." So clearly, there's a motivation to go demagogic on this issue. I think that's going to increase in the next five years.

But I feel better about a possible backlash than I did a few weeks ago. Dick Gephardt, for example, ran in Iowa as an anti-dynamism candidate: Protect jobs, protect unions, put up tariffs and barriers, anti-immigration, anti-free-trade. He got his clock cleaned. I was born in Iowa, and if he can't make that argument work in Iowa, it won't work anywhere.

Q: What kind of new jobs might emerge in the U.S. to replace those going overseas?

A: Whole categories of jobs will grow here -- new applications development, for example. A lot of the jobs going overseas initially are maintenance and support jobs. That should free up American programmers to build new systems, new applications, new Web sites. There will be entirely new industries.

Q: Like what?

A: Can't name examples. They don't exist yet. This is where people get tripped up. It requires a leap of faith. In 500 years of Western history, there has always been something new. Always always always always always.

It will be created by entrepreneurial capitalism. I'll give you an example. Look at Seattle. In the early 1990s, Boeing (BA) was having a tough time as defense spending was shrinking. Somebody put up a billboard that said, "Will the last person to leave Seattle please turn out the lights." But look at what happened: Microsoft (MSFT). Nordstrom (JWN). Amazon.com (AMZN). REI. Starbucks (SBUX). Nintendo (NTDOY). Six big new businesses.

At the time, nobody thought that they were going to be huge. People would have thought you were nuts to think that they would ever replace the aerospace jobs. They not only replaced them, but they gave Seattle an even higher standard of living.

Q: Is there any danger that the U.S. could offshore so much that it loses some essential skills to produce software and other tech products?

A: No chance whatsoever. The opposite happens -- we enhance innovation by moving our people up the ladder of creativity, innovation, technology, value creation. Offshoring is the process by which smart, innovative Americans are freed up to do more valuable things.

The next step is to move to higher-value services, for which there will be infinite demand because human wants and needs are infinite. Most jobs that will be created in the world to satisfy those wants and needs will be service jobs -- science, engineering, technological R&D, design, human factors, marketing, sales, advertising, media, finance, law -- you name it.

The standard of living in this country will skyrocket over the next 30 years, as it has over the last 50 years, if we don't freak out and ruin it all by panicking and doing stupid things like restricting offshoring. We just have to not screw it up.

Q: Is Opsware planning to hire offshore?

A: We're looking hard at hiring people in India. We're also considering other regions, including South America. We have one guy here who might want to go back to coordinate that. We'll start small, say a half-dozen, against an American employee base of around 140 today, and go from there.

Q: Are these additional jobs or replacements of U.S. jobs?

A: Kind of both at once. The stronger our business gets via outsourcing, the faster we will be able to invest in it and grow it, and the more people we'll be able to hire in the U.S., as well as overseas. It's just a question or whether we offshore and thereby grow to, say, 500 jobs in the U.S. and 100 overseas in five years, or whether we don't offshore and probably end up with fewer jobs in the U.S. and none offshore.

Everything interesting about job creation in the U.S. is associated with the creation of new markets. You don't see job creation in stable, established industries. You see job creation in new industries. What you want to do is encourage new industry growth using any means necessary, including permitting and even encouraging offshoring, to result in faster overall economic growth and job creation.


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