The Business of Outsourcing

According to McKinsey, between one-half and two-thirds of all Fortune 500 companies outsource some aspect of their business to India. In the past 10 years, the US has lost an average of 7.71 million jobs per quarter, in all sectors besides those being outsourced. Forrester Research estimates that approximately 3.3 million back-end service positions will be outsourced from the US by 2015. This equates roughly to 55,000 jobs per quarter, which is a mere 0.71% of the total jobs lost over the same period. Therefore, there appears to be a gross disconnect between the focus on the negative aspects of offshoring in the media and the tangible effects it has had on the US economy.

Moreover, the flow of assets has not been unidirectional as is often depicted in the media. McKinsey estimates that the US generates between $1.12 and $1.14 in profit per dollar that is spent on outsourcing. As US companies become more profitable, the benefits eventually trickle down into the pockets of the average citizen. Outsourcing also indirectly benefits the US economy, since it creates internal competition in the innovation sector – as the service industry is gradually offshored, the same engineers who are laid off due to outsourcing are forced to find more stimulating, higher paying jobs. McKinsey states, “Although 70,000 computer programmers lost their jobs between 1999 and 2003, more than 115,000 computer software engineers found higher-paying jobs during that same period.” Finally, the service industry has not left the US entirely yet – it was estimated that in 2002, the US still had a surplus of $64.8 billion in services, which were exported.