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) Click to enlarge Government & the Private Sector The Consumer Price Index and You The GDP (Gross Domestic Product) and You Decoupled Dell, A Great Company - Great for the US Economy? Reading Annual Reports Made Enjoyable |
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Outsourcing, Offshoring, and L1 Visas – The Flip Side - Ernest Nounou* Download the PDF version Introduction In early May I coauthored an article "The Challenge to America of Business Process Outsourcing" of which the salient points were: 1. The "jobless recovery" of the past three years and loss of close to two million jobs in the US economy is more than casually linked with the growth of jobs in low cost centers offshore, and the increasing use of L1 visas to bring foreign workers to take US jobs. 2. This trend is an unstoppable outgrowth of globalization and will only increase. It has benefits and consequences that must be realistically addressed. 3. Response to it should not be the erection of barriers, but rather sensible policies emanating from reasoned dialogue. The article called for that dialogue, especially among government policy makers. Reactions were on the whole very positive, with the exception of those from economists, who were (to put it charitably) skeptical: "Since all kinds of numbers do this or that for the first time, you'll have a very busy career
wondering about implications. On the other hand, if you have some kind of conceptual
analysis showing that the number is the beginning of a trend, then you might be worth
listening to. Forgive me, but what you have to say conceptually is just another repetition
of an old economic cliché." - Economist at weekly business publication "I cannot agree that outsourcing is a zero sum game. If outsourcing leads to higher specialization and moves factors of production into the most efficient use, then total output and production will increase. I do not think there is that much difference between the white-collar jobs that are being exported and the blue-collar jobs that were exported in the past." - Bank Economist "You may have a point, but I am sympathetic to the raising of the economy and standard of living these jobs create in various third world countries. This benefits us in the long run." - Economist and editorialist for major daily publication On Further Reflection Let’s assume the US economy is one giant corporation, currently lacking pricing power for its products – sales/the economy is not growing fast enough – while some components of its cost structure are rising – healthcare and education in particular. What to do? You do what companies are doing, cut cost and hold spending, with the savings resulting in greater profits. Healthcare Industry Medical Cost Comparisons in US$ *
Insurance companies with medical networks (HMOs, PPOs etc.) already outsource business processes, so this will pose no great challenges. If they haven’t already, they can easily incorporate a subsidiary in India, hire well-trained and already English speaking doctors, and bring them to work in their US network at 40% - 50% cost of their American equivalent. Certification and accreditation is a largely academic procedure, and easily administered; so these doctors, from primary care to specialists, would have no problem qualifying. Given the salary and cost differentials between Indian and American doctors, along with outsourcing various procedures such as X-Ray and MRI interpretations offshore, greater productivity and efficiency at lower cost will permeate the healthcare system. Based on the average salary difference per doctor of $150,911 alone, one million doctors on L1 visas would achieve a savings for the economy of at least $150 billion (give or take). Benefits include: To be sure there will be some temporary dislocations as displaced American doctors retrain and move to more productive work, but the combined net benefits to the economy of great savings and productivity increases mentioned above are clearly worth it. *Note: Statistics for US doctors and procedures were obtained from "Compensation Monitor" in the December 2001 Edition of Managed Care. Indian expatriates provided a range of estimates for Indian equivalents. Where ranges were provided, I selected the highest value for India and the lowest for the US. Although the exactitude can be quibbled with, the general magnitude of the differential (hence opportunity) is a fair representation. Education Education Cost Comparisons in US$
American universities can take advantage of the differentials in professor salaries by using the L1 visa route to bring large numbers of professors from offshore to reduce their salary cost structure. In doing so, they will also arrest the escalation of tuition expenses. Based on the considerable differential in tuition costs, American parents should seriously consider sending children abroad to attend college. From the perspective of the parents and students, the benefits are considerable: The combined impact of large numbers of foreign professors and students attending 4-year universities in low cost centers will no doubt take some air out of the tuition inflation bubble of the last few decades. The economy will not only benefit from greater productivity asprofessors move up to higher value added work; but financial resources will be freed, increasing the national savings rate, and reducing the burdens on social security to provide for retirements. And the US Military Logical industry questions: The military has experience with offshore outsourcing. In November 2002, a group of Russian technology companies were introduced to the New York business community, and one of them proudly referred to work performed for the US Airforce. (Amazingly, not one question regarding national security came up!) Of course not all forms of military outsourcing have happy endings. When they outsourced responsibility to local and Pakistani soldiers in Afghanistan to prevent enemy escape, it seems that among the hundreds that did escape was the 6’4” leader, his wives, children, entourage, and a dialysis machine. Conclusions Note to the reader: You are encouraged to think of other sectors of the economy where similar opportunities exist for these processes. *A graduate of Wharton, Ernie is a Founding Partner of Catalytic Group, Inc., a Technology consulting and execution firm. A former banker he enjoys writing on business topics and can be reached at ernie@catalyticgroup.com. |
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