Magazine

The Upside And Downside Of Outsourcing


Re "The future of outsourcing" (Cover Story, Jan. 30): A closer examination of the international data reveals not only that U.S. companies are outsourcing abroad but also that foreign companies are outsourcing to the U.S. at a record rate, thus creating high-paying jobs in the U.S. International data from 2004 reveal that U.S. imports of services amounted to $296 billion, but the export of U.S. services was $343 billion -- an absolute record -- giving the U.S. a balance-of-trade surplus of $47 billion in services. (Unfortunately, the U.S. has a deficit in manufacturing, in 2005 exporting only $807 billion and importing $1.47 trillion.)

Outsourcing highlights the changing structure of the U.S. economy, with about 80% of workers employed in services, about 19% in manufacturing, and only 1% in farming. With more than 100 million U.S. workers now in services, I expect outsourcing to grow at an exponential rate in the next decade, forming a larger share of the U.S. trade balance and giving the U.S. a comparative advantage in services.

Pellegrino Manfra

New Rochelle, N.Y.

You could have mentioned the 36% tax rates that India is moving to assess against foreign operations but not against Indian-owned outsourcing firms. With latecomers following the herd into India's crowded cities, early entrants are increasingly looking next door to the opportunities provided by Pakistan's English-speaking talent pool, newer infrastructure, and low overall risk.

Americans can encourage peace and stability in the region by distributing work between both countries.

Anthony Mitchell

Seattle

It's about time someone in the media highlighted the true upside to outsourcing. The best success stories are yet to come.

I hope Lou Dobbs got hold of that issue.

Frank Casale

Founder and CEO

The Outsourcing Institute

Jericho, N.Y.

Investors must view warily companies that are aggressively pursuing service outsourcing as described in your article. Such "externally leveraged" (or disaggregated) businesses have placed their intellectual property and core competencies at great risk, potentially compromised their long-term competitiveness, and unnecessarily exposed themselves to significant macroeconomic risks. Even more significant, these companies have done so based on claims of cost savings and other advantages from service outsourcing that have not been adequately scrutinized and may prove deceptive. None of these risks are accounted for in the stock valuations of these outfits.

The savings of 5% to 10% from successful service outsourcing cited in your story, achieved only after several years of effort, is marginal at best and may be completely eroded by the disruption of operations, loss of key employees (and customers), and ill will generated, none of which is accounted for. Additionally, many service outsourcing projects fail to produce any tangible results at all.

James Bonang

Garden Grove, Calif.

Having served as the network manager for the ARPANET and having designed and developed networks for the past 40 years, I read "The future of outsourcing" with interest and concern. Outsourcing has an Achilles' heel that has me troubled about corporations placing key business processes in other political entities.

The risk is based on the growing ability of nation-states to restrict process interconnectivity and data access. A case in point is China's effort to censor the Internet. If China is successful in controlling the Internet for political purposes, then the next step is commercial. Since U.S. vendors are developing the technology for China, it could be available for any nation to use to control and restrict their knowledge and business processes and also potentially subvert other nations' data infrastructures.

Joe Haughney

Lynnfield, Mass.

Your article misses one very important point: For every job that is outsourced, the Social Security Fund loses thousands of dollars, which adds to every citizen's tax bill. An outsourced job that earns an American worker $40,000 per year reduces the fund's income by $6,000 per year (based on 15% for the worker and employer contribution). The employer is saving about 75% of that $40,000-a-year eliminated position, its 50% portion of the eliminated contribution to the Social Security Fund of $3,000, plus a big health-care cost as well. Here's the math: $40,000 x 100,000 jobs equals $4 billion, x 7 1/2%, which equals $300 million each year that is not going into the Social Security Fund. It is only right that an employer continue to pay its 7 1/2% into the fund.

Want to save Social Security? Now you know how: Tax every outsourced job.

Thomas G. Baranski

Memphis

Re "Is Verizon (VZ) a network hog?" (Information Technology, Feb. 13): Verizon's FiOS high-speed broadband service transcends the capacity limits of cable and other phone companies' fiber networks by putting data and video on separate lasers all the way to the home. Our network architecture makes "hogging" impossible, which renders Paul Misener's assertion that our network "squeeze[s] out the public Internet" absurd.

In addition, FiOS is "future proof," so it can expand to fit the bandwidth needs of tomorrow. Professor Marvin Sirbu's mathematics and copper-wire-era assumptions are irrelevant and misleading because FiOS data and video ride on two separate, application-specific laser paths. Neither competes with nor impedes the other.

At Verizon we agree with Vinton G. Cerf that there should be no "tollbooths" or other attempts to block access to the Internet. Along the same lines, efforts by Europe or China to block or control -- and efforts by some in the U.S. to regulate -- the Internet must be resisted with vigor.

David Fish

Verizon Communications Inc.

Washington

While Richard Rathvon has worked hard on behalf of former Enron employees, credit for getting 5,000 fired Enron workers some portion of the severance they were due goes to a group of courageous Enron workers who traveled to Washington, D.C., to seek help in February, 2002 ("I survived Enron," Special Report, Feb. 6).

Failing to receive aid from Kenneth Lay's friends in Washington, these same workers brought suit in bankruptcy court -- with the help of millions of their fellow workers in the labor movement who picketed banks and sent tens of thousands of faxes and e-mails to the financial institutions that controlled the bankruptcy process.

During this desperate fight to get former Enron employees a fraction of what they were owed so they could pay their mortgages and provide health care for their families, Ken Lay sat silently in his multimillion-dollar Houston penthouse.

Damon Silvers

Associate General Counsel

AFL-CIO

Washington


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