While it accounts for less than 10 percent of the 2.3 million jobs lost in the U.S. over the past three years, outsourcing has become the defining economic issue of the 2004 presidential campaign. Much of the job loss during the recent U.S. recession was cyclical in nature, but service-industry, technology-oriented jobs have suffered greatly as a result of outsourcing to countries with lower wages, causing Americans to feel that getting outsourced could happen to anyone.
Originally, outsourcing was isolated to manufacturing duties, than to non-critical functions, and finally, with the growth of information technology, to corporate functions. Chicago intellectual property partner Gregg Kirchhoefer, who has been handling outsourcing transactions since the 1990s, sees outsourcing as a natural evolution in a process that began with contracted manufacturing and expanded to include corporate functions. Kirchhoefer commented that any time a person's labor can be reduced to a contract, it doesn't matter where that contract is filled, whether in India or Indiana.
The outsourcing trend has gained popularity in recent years, often being blamed for why the economic recovery has been slow to create new jobs. In the political arena, President Bush's chief economic advisor stated that outsourcing was simply the new way of conducting international trade. Although many economists may agree with Bush, presidential hopeful John Kerry took such a statement as an opportunity to paint Bush as insensitive to middle-class anxieties about job security.
These public anxieties have become even more exaggerated as Americans watch the economy improve without seeing the arrival of new jobs. Companies continue to send jobs overseas, even during the economic recovery, because of concerns over wages, competitive advantage, and the cost of fringe benefits required by U.S. workers. For workers who have lost their jobs, the reality of business competition today has been harsh.
For most companies, an outsourcing strategy is essential and for small startups, it may be necessary for survival in the fast-paced world of business. Outsourcing allows a company to use its resources where they matter most, on development, sales, and marketing, while cutting costs in manufacturing, customer service, and data-management functions.
Currently, India is the hot place for outsourcing, seeing a 60 percent increase in 2003 compared to the year before. But, like any place, when the demand increases, the cost of labor increases with it. Unfortunately, for those who will lose their jobs, somewhere a lower-wage alternative will develop and the jobs will move on.
This article originally appeared as the cover story for the March 1, 2004 issue of TIME Magazine and can be accessed in its entirety at www.time.com.