American Jobs: Outsourcing, What to Do?

Source: money.cnn.com – March 1, 2004: 5:42 PM EST

Outsourcing: what to do?
As more U.S. companies move jobs overseas, debate rages on answers to a divisive issue.
By Mark Gongloff, CNN/Money staff writer

NEW YORK (CNN/Money) – If you haven’t turned on a TV or read a magazine or a newspaper recently, you probably haven’t heard that your job is moving overseas.

Odds are, it’s not, of course. But a growing number of jobs are, and many of them are higher-skilled jobs that once seemed immune to outsourcing.

U.S. companies moving jobs offshore has helped keep the job market in its most painful slump since World War II, creating tremendous worry for millions of workers and triggering a vigorous national debate about how best to respond.

Here are some of the more common proposals, along with some of the arguments for and against:

Scrap WTO, trade pacts

Some people argue the United States should simply pull out of the World Trade Organization, NAFTA and other world trade pacts, a view proposed by three candidates for president: Rep. Dennis Kucinich, D-Oh., Rev. Al Sharpton and Ralph Nader.

“The WTO, as long as we belong to it, will not let us protect the jobs,” Kucinich said in a debate last week. “This is the reason why we have outsourcing going on right now. We can’t tax it. We can’t put tariffs on it.”

Kucinich says he would withdraw from most existing trade agreements and negotiate new agreements on a case-by-case basis, requiring trading partners to meet certain environmental, labor and human rights standards.

Critics say similar protectionist steps have led to slower economic growth and would likely do so again.

“We need reforms that will enable us to thrive in a dynamic, open, world market and not seek to shut our borders and go down a path proven to lead to reduced national wealth and overall lower standards of living,” said Aaron Lukas, a trade policy analyst at the Cato Institute, a libertarian think tank.

Of course, none of the proponents of these measures are likely to become president this year, and such proposals would be unlikely to pass Congress.

Other Democrats, including Sen. John Kerry, the leader in the race to face President Bush this fall, and his closest rival, Sen. John Edwards, suggest less drastic measures, including greater enforcement of existing trade pacts.

Protect government contracts

Especially loathsome to opponents of outsourcing is the idea of federal and state governments sending jobs overseas, right alongside “Benedict Arnold” companies, as Kerry calls them.

In that vein, Congress in January passed a law requiring that government functions shifted to contractors had to go to contractors in the United States. In Indiana and New Jersey this year, two state government contracts to move call-center work offshore were canceled under political pressure. And dozens of anti-outsourcing bills await action in federal and state legislatures.Critics of the bills say they would save just a handful of jobs and cost millions of dollars to taxpayers, potentially doing more harm than good.“There’s a hidden cost that can play out,” said Stuart Anderson, executive director of the National Foundation for American Policy (NFAP), a pro-trade group. These measures can discourage foreign investment in the states that enact them, leading to job losses that “far outweigh the number of jobs saved at some call center in New Jersey or Indiana.”

Slow visa entries

Temporary work visas for high-skilled foreign workers also irritate outsourcing opponents. Not only do they take jobs from U.S. workers in the short run, but visa holders sometimes return home and make future offshore outsourcing even easier for U.S. companies.

“I find it rather ironic that people who claim to wear the free market mantle would turn around and support government meddling in the marketplace of labor — right now we have the government encouraging people to dump their cheap labor here,” said Scott Kirwin, founder of the Information Technology Professionals Association of America (ITPAA), a worker’s rights group.

Supporters say many visa holders end up staying in the United States, helping U.S. companies develop new technologies that create jobs and becoming consumers in the broader domestic economy.

“I find it ironic that some of the same folks against jobs going overseas also don’t want people to come here who would be benefiting and creating more jobs in the United States,” said the NFAP’s Anderson.

Caller ID

Sen. Kerry and other outsourcing critics also want to require workers in overseas call centers to reveal their location in service calls.

Not only would such a measure carry on the spirit of the existing requirement to mark foreign-made goods with their country of origin, it might also allow customers to decide whether they want to discuss personal information with a call-center worker in, say, Vietnam, where privacy laws may not be as stringent as they are in the United States.

Opponents say this will hurt how call-center workers do their jobs, meaning the U.S. companies using those centers will have to pay more for their services.

Compromise alternatives could be to pass measures that would ensure the privacy and security of customers’ information.

Helping displaced workers

It’s all well and good to discuss the long-term economic benefits of trade, as most economists do. But those arguments ring hollow with the millions of workers who will be unemployed or have lower standards of living while they wait for those benefits to come to fruition.

“People lose in trade, and because our social safety nets here are so thin to begin with, the resistance is greater than it is in some of the other industrial countries,” Lael Brainard, a senior fellow at the Brookings Institution, a left-leaning Washington think tank, said in a January speech on outsourcing.

Some possible solutions include increased unemployment insurance, wage insurance, and a system that would let workers carry health benefits from job to job.

Such measures would require government spending, and so are viewed with some skepticism by conservatives — but they’re likely to be politically popular, and conservatives don’t dismiss them out of hand.

“We have to acknowledge that individuals can face transition costs when trade barriers come down,” said Lukas of the Cato Institute.

Education

Lukas and like-minded conservatives, including President Bush and Fed Chairman Alan Greenspan, believe an even better response is to improve grade-school education and spend government money retraining workers at community colleges.

“The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills,” Greenspan told Congress last month.

While almost everyone agrees that U.S. grade-school education could be better, some critics doubt education is the only answer to outsourcing, noting many unemployed workers already have advanced degrees.

In January, for example, there were more unemployed workers 25 or older with college degrees than there were unemployed workers without high school diplomas, according to the latest Labor Department data.

“No one criticizes the higher education system here — that’s why we still draw as many foreign students as we do,” said Kirwin of the ITPAA. “Most of the jobs we’re sending abroad currently require a college education just to get in the door.”

Original link:

http://money.cnn.com/2004/03/01/news/economy/outsourcing_solutions/index.htm

American Jobs Film in Witchita

Announcement
Event: “American Jobs” Documentary Film Showing in Wichita, KS.
  Documentary filmmaker Greg Spotts arrives in Wichita for a special showing of his new film “American Jobs,” a moving documentary which explores the loss of American jobs to low wage foreign competition, and the outsourcing of American jobs to other countries.  The film highlights an economy that is undergoing structural rather than cyclical change with significant human costs.

There is no charge for the event, which also will feature the attendance of the director, Greg Spotts.  Spotts says he does not take sides on the issue and that the film is nonpartisan.  “It represents a fiercely independent point of view,” he says.

Spotts, a freelance television producer, took six months off his job to make the documentary.  He traveled to nineteen cities and towns from textile towns in North Carolina to aviation businesses in Seattle, interviewing both blue-collar and white-collar workers who have been displaced by gobalization.

The website for the film: www.AmericanJobsFilm.com

Date: Wednesday, October 27, 2004
Time: 6:30PM
Where: Wichita State University

Hubbard Hall – Room 208

Campus Map/URL:  
Sponsors: The film is being presented by Grow Kansas, an organization concerned with statewide job creation.

 

National Hire American Citizens Society 

 

Cost: FREE and OPEN to the public!
Grow Kansas Programming

Notes:

Please join us for a viewing of the new documentary American Jobs. Producer Gregg Spotts will be with us to describe his experiences during filming. Mr. Spotts used $50,000.00 of his own money to document the loss of jobs going on in this country. He wanted to gain a perspective on why this is happening. What he has found is that there is a structural change going on within our economy, the replacement of high paying jobs with low paying ones. Spotts does a great job of giving a well researched and put together presentation of this problem.  Discussion to follow screening of the film.
   

 

 

American Jobs Film Schedule of Showings

“American Jobs” Schedule Of Film Showings

For more information, click on the date for the venue you are interested in.  Check back often for updates and additional showings.  The following showings are personally attended by the filmmaker, Greg Spotts.

October 27, 2004 Wichita State University – Wichita, Kansas
October 30, 2004 University of Denver – Denver, Colorado

      

American Jobs Film – Denver Colorado

Announcement
Event:   “American Jobs” Documentary Film Showing in Denver, CO.
  Documentary filmmaker Greg Spotts returns to Denver for the regional premiere of his new film “American Jobs,” a moving documentary which explores the loss of American jobs to low wage foreign competition.  During the filming of his nonpartisan documentary, Spotts visited nineteen cities and towns including Denver, interviewing both blue-collar and white-collar workers who have been displaced by global sourcing. The film highlights an economy that is undergoing structural rather than cyclical change with significant human costs. The website for the film: www.AmericanJobsFilm.com

 

Date:  Saturday, October 30, 2004
Time: 4:00PM
Where:   University of Denver

Sturm Auditorium – Room 451

Campus Map/URL: www.du.edu/maps/sturm.html
Sponsors:      Former Colorado Governor Richard Lamm – University of Denver Center for Public Policy and Contemporary Issues

 

National Hire American Citizens Society 

 

Cost:    FREE and OPEN to the public!
Program: Following the sixty minute film, Greg Spotts will be introduced with a few words by our own Colorado State Senator Deanna Hanna. Spotts will then share his experiences in the making of his film, and answer audience questions about the film; Spotts will then moderate a panel discussion on issues raised by the film.

 

 

U.S. jobs jumping ship

U.S. jobs jumping ship
Cheap overseas labor is not just for manufacturers any more — is your job headed offshore too?
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) – As painful as the labor market has been lately, what’s even more painful is that many of the 2.5 million jobs lost in the past few years are never coming back.

That’s because U.S. employers in a wide range of industries are moving more and more jobs overseas.

That may be old news for manufacturers, who have been cutting jobs and moving them offshore for decades, but it’s starting to gather steam in services, especially information technology, formerly one of America’s best-paying industries.

“By 2004, more than 80 percent of U.S. executive boardrooms will have discussed offshore sourcing, and more than 40 percent of U.S. enterprises will have completed some type of pilot or will be sourcing IT (information technology) services,” Gartner Inc. (IT), a technology consulting firm, said in a study late last year.

In fact, some of the biggest firms in the United States have been seriously discussing outsourcing recently. On Monday, the Wall Street Journal reported that officials at IBM (IBM: Research, Estimates), the world’s biggest computer maker, discussed saving about $168 million beginning in 2006 by moving thousands of programming jobs overseas, according to internal documents the paper obtained.

An IBM spokesman wouldn’t comment on the documents, according to the journal, but acknowledged IBM plans to move about 3,000 U.S. jobs overseas this year.

In July, a labor group called the Washington Alliance of Technology Workers published on its Web site a link to a Power Point presentation given by Microsoft (MSFT) Senior Vice President Brian Valentine on July 2, entitled “Thinking About India.”

In the presentation, Valentine cites all the advantages to moving operations to India, including the chance to “leverage the Indian economy’s lower cost structure,” where a company can get “two heads for the price of one.”

Valentine’s presentation said several firms — including Cisco (CSCO), General Electric (GE) and Dell Computer (DELL) — already “have this religion” and that it was “time for Microsoft to join the party.”

Microsoft spokeswoman Stacy Drake told CNN/Money Valentine’s presentation was simply an effort to encourage employees “to think globally and explore ways to improve our customer reach.”

“We will continue to have the majority of our core development work in the United States,” Drake said.

A developing taste for offshore labor

U.S. businesses, battered by the recent three-year bear market in stocks and an economy struggling to find its footing, have already developed a taste for super-cheap labor in developing countries, where workers are increasingly better-trained — especially if they’ve spent significant time working in the United States on temporary visas.

Microsoft, in fact, was one of the industry leaders in this regard, having opened facilities in Shanghai before other competitors.

A February survey of 145 U.S. companies by consultant Forrester Research found that 88 percent of the firms that look overseas for services claimed to get better value for their money offshore while 71 percent said offshore workers did better quality work.

That’s news that can’t stay quiet for long, and companies like Hewlett-Packard (HPQ), Intel (INTC) and CNN/Money parent company AOL Time Warner (AOL) already are responding.“Over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China and the Philippines,” Forrester analyst John McCarthy predicted in a 2002 report. “The IT industry will lead the initial overseas exodus.”

“ I bought my first house in 1999 — that was a very big deal for me — and now I have to sell it, only because they won’t hire Americans. It’s devastating. ”
Donna Bradley, 
Unemployed IT specialist in Mesa, Ariz.

How will it affect the economy?

Though Gartner has said the impact of overseas outsourcing could be “significant,” many economists doubt the trend is big enough yet to disrupt the broader U.S. economy. Imports of business services account for less than 1/20 of 1 percent of gross domestic product, the broadest measure of the nation’s economy.

But economists are starting to take note. “If it’s not a big story yet, it could become one,” said Josh Bivens, a labor economist at the Economic Policy Institute, a Washington think tank that focuses on labor issues.

At the least, it’s not doing much to end the longest U.S. labor-market slump since World War II. More than 9.3 million people are unemployed, giving employed workers less leverage when seeking a raise. As a result, wage and salary growth has begun to slow, threatening consumer spending, which fuels more than two-thirds of the economy. 

IT workers feel the pain

In few areas has the competition for jobs had a bigger impact on wage growth than in the IT industry. In the 1990s, it seemed all one had to do to buy a ticket to Easy Street was learn a programming language or how to manage corporate computer networks.

Those days are gone, with unemployment rising, IT spending in a slump and software services moving offshore.

What’s more, some IT professionals and immigrant groups complain that U.S. employers manipulate H-1B and L1 visas, which let college-educated people from overseas work in the United States temporarily. They’re supposed to be paid a “prevailing wage,” but many employers pay them as little as possible. With such cheap labor available right here in the United States, there’s even less reason for IT wages to rise.

“I talked about salary with a company last week (in March), and they were paying between $30 and $35 an hour,” said Donna Bradley, an IT specialist in Mesa, Ariz., who’s been out of work since August 2002. “In August I was making $45 an hour.”

It didn’t matter; Bradley, 49, didn’t get the job and is selling her house and moving to Maryland to live with her daughter while she continues to look for work.

“The irony is that I was a single mother, and I raised five kids by myself and put myself through school,” Bradley said. “I bought my first house in 1999 — that was a very big deal for me — and now I have to sell it, only because they won’t hire Americans. It’s devastating.”

Original Link:

http://money.cnn.com/2004/01/19/news/economy/jobs_offshore/index.htm

Additional jobs are not created for American citizens

America’s best paying jobs should be held by American Citizens.

Congress sold our high-tech jobs to foreigners and industry lobbyists.  Companies continue to import foreigners at the same time they are laying-off Americans.

Be American… Hire American!
Replace H-1B Workers With Citizens!

Myth:
Hiring H-1B workers creates additional jobs for American workers.

Truth:
This is obviously a myth.  Companies who give jobs to foreigners take jobs away from Americans.  Since the underlying reason is to pay IT workers less, this takes money out of the economy.  Many H-1B’s send their earnings back home to help support their families and country.  It is expected of them by their home countries, and they are looked down upon if they do not send money back home.

We have more H-1B programmers here than any other time in history, but more Americans are out of work (especially in high-tech) than any other time in history.

Get the Facts on H-1B. H-1B is one of many temporary nonimmigrant worker visa bills that allows companies in the United States to hire foreign workers.

Our educational DVD provides information about the H-1B and L-1 visa programs and how they have negatively affected the American workforce. The first part of the DVD is a movie we created that tells about the H-1B visa fiasco.  It is very powerful and effective in getting the message across. This is then followed by a series of special reports and news segments from CNN Lou Dobbs, CBS, ABC and WKMG in Florida. We provide this DVD to our paid members free of charge.

Our educational DVD was hand-delivered in Washingtonto over 100 key members of the Congress and Senate this summer.

Our organization provides education about American worker replacement programs, and actively seeks government reform of non-immigrant guest worker visa programs.  We have organized and funded protests and rallies in California, Texas, Colorado, and New York to fight offshoring and the corporate abuse of high-tech visas.

We are currently launching a new project to introduce state-level legislation that would protect American workers by banning states from directly or indirectly hiring non-American citizens for state services and projects. This is a multi-state effort, and we are organizing teams around the country to pull this off.  We have four states working on this at the same time, and are ramping up a few more.

You can help us by joining and spreading the word about our organization.  If you would like to join our state legislation project team, please send us an email.

The National Hire American Citizens Professional Society
P.O. Box 1492
Parker, Colorado 80134

The National Hire American Citizens Professional Society is one of the oldest and most well-known organizations dedicated to educating people about American worker replacement programs. This is our statement regarding this devastating issue for America.

At a time when an estimated one million American citizens in the computer industry have lost their jobs, and mass-layoffs due to new offshoring projects are announced daily, one must question the sense in continuing to import temporary foreign high-tech workers under the H-1B and L-1 visa programs. According to the Bureau of Labor Statistics, 9 million American citizens are unemployed. At least 17 million skilled and educated Americans are “underemployed” in low-wage jobs outside of their chosen profession. Many are working part-time without benefits.

The H-1B and L-1 visa programs have caused significant losses in wealth and prosperity to middle-class American citizens who have struggled to remain employed in high-tech fields. The glut of high-tech workers these visa programs have “dumped” into the United States has resulted in career changes for hundreds of thousands of American citizens who have permanently lost their jobs in the high-tech industry. These visa programs are best described as government sponsored American worker replacement programs. They are cleverly designed to create a large expendable pool of cheaper foreign labor in the United States. The ultimate goal for sponsors of the H-1B and L-1 visa programs is to eliminate the preponderance of American high-tech workers expecting to earn an American wage. These non-immigrant guest worker visa programs circumvent the natural market forces of supply and demand, and create an artificial and unfair wage competition against American workers. Companies use H-1B and L-1 visas to systematically replace American citizens with cheaper labor.  Not only do these visa programs displace American workers on our own soil, but employers depend upon these visas to send jobs offshore. On the typical offshored project, as many as 40% of the workers are L-1 or H-1B visa holders.

Our government’s mismanagement of the H-1B quotas allowed almost one million additional foreign high-tech workers to be admitted to the U.S. in past three years alone (2000-2002).  In 2001, 9 out of every 10 new job openings for computer/IT were taken by H-1Bs, and despite record unemployment, the INS issued 382,200 H-1B visas in 2002.  Records obtained from the Department of Labor under the Freedom of Information Act show that at least 4 million H-1B visas were certified by the INS between 1998 and 2001.

Studies on the H-1B program have found serious problems that make it one of the most fraudulent government programs ever.  Many H-1B workers were found to not have the technical skills their sponsor claimed of them.  No employer could be trusted to pay prevailing wage.  The rules for calculating prevailing wage make it easy for employers to pay H-1B workers 30-50% less than the American citizens they are replacing.  Companies openly ignore H-1B laws and freely replace American citizens with cheaper foreign labor without fear of penalty.  American workers do not have protection against this government sponsored American worker replacement program. Any company, once they acquire an H-1B worker, can let an American worker go.

Companies are still importing foreign computer programmers at the same time that American computer programmers are out of work, and thousands more lose their jobs each day. Companies have been importing H-1Bs and L-1s at historic levels, even as these same companies fired American citizens by the hundreds of thousands. Just last year, high tech companies announced over 605,000 job cuts. Most job cuts are not even announced, so the actual number is much higher. At the same time, high tech companies imported 382,200 new H-1B workers (Congress excluded many employers from the quota, making the quota meaningless). In October of this year, the H-1B quota was allowed to drop from 195,000 to 65,000 per year.  There will be fewer H-1B workers imported this year than last. However, this is because there are simply fewer jobs now available, and employers are now abusing the L-1 visa at historic levels. There is no quota for L-1 visas, no protection for American workers, and companies can legally pay L-1 workers even less than H-1B workers.

Temporary non-immigrant guest workers are not needed. There is not a shortage of American high-tech workers in the computer industry. There never has been. Studies sponsored by the American government have never found a shortage of American workers as the computer industry lobbyists claimed. There is not a shortage of American workers, but instead a shortage of companies willing to pay an American wage. The H-1B and L-1 visa laws are seriously flawed and have not only displaced American workers during a weak economy, but also put national security at risk. Reliance upon foreign sources of labor to build and maintain our country’s high-tech infrastructure creates an insecure and unsafe environment, and ultimately creates a weaker economy by eliminating the churn of disposable income back into the economy from Americans earning an American wage.

We must protect the futures of our American high-tech workers, and the futures of our American students seeking advanced technical degrees. We must take away the tools that employers use to replace American workers on our own soil, and the tools employers use to offshore jobs.  We must get Americans back to work and our economy once again funded by working Americans.  We must eliminate the H-1B and L-1 visa programs.

 

A Visa Loophole as Big as a Mainframe

Rebuttal from Norm Matloff

Here are two articles from BusinessWeek which are reasonably good, except that once again they state falsely that employers must give Americans job priority over H-1Bs. Except for the tiny category of so-called “H-1B-dependent employers,” there is no such requirement for H-1B. However, Tata may well be such an employer, which would make their usage of L-1s of interest.

Note that Rep. Mica proposes to “solve” the problem by making the L-1 visa subject to the same stringent [sic] requirements as H-1B. This is of course absurd. The H-1B program’s “requirements” were written by the industry and allow the industry to run wild with abuse of that visa. Rep. Mica’s office knows this but refuses to do anything whatsoever about H-1B. If H-1B legislation comes up this spring, as has been reported in the press, look for it to proudly include a “reform” component along the lines of Mica’s proposal. This will make for a great smokescreen to obscure the real issue, which is importation of cheap foreign labor, just as the training fund provision was used as a smokescreen in 1998 and 2000.

Note the mention of Infosys. The 60 Minutes piece on the IITs, which was rebroadcast last night, fawningly featured the Infosys founder and chairman as if he were some kind of god. How ironic it is that a pro-business publication like BusinessWeek shows Infosys for what it really is, while a liberal/pro-labor show like 60 Minutes runs what might as well be a paid ad for these H-1B/L-1-exporting firms in India.

Norm

Now the story:

From BusinessWeek March 10, 2003 — slightly different than the March 6 version.

A Visa Loophole as Big as a Mainframe 
More companies are using L-1 visas to bring in low-wage foreign IT workers–and replace Americans 

Senior systems analyst Patricia Fluno was shocked when she found out last summer that she and 11 colleagues in the Lake Mary (Fla.) offices of Siemens (SI ) were being replaced by techies brought in by Tata Consultancy Services, India’s largest information-technology (IT) consulting firm. Fluno, 53, couldn’t understand how Tata and Siemens could bring Indian workers into the U.S.

After all, in 2001, Congress had specifically banned the displacement of U.S. employees by foreigners brought in under the controversial H-1B visa program, which many employers had tapped to fill vacant jobs in the booming 1990s. Congress also had demanded rules requiring employers to pay H-1B workers prevailing U.S. wages–and Siemens made no bones about the cost-cutting nature of the layoffs. When Fluno asked one of the replacements about his visa during the two months that she trained him to take her job, Fluno says a Siemens manager told her not to ask such “personal” questions.

Fluno was onto something. In fact, Muralidhar Naidu Kollu, the Tata IT analyst who now sits at Fluno’s desk and does her job, didn’t have an H-1B at all. Instead, Fluno learned, Tata used a more obscure visa called the L-1, which is designed for intracompany transfers by multinational corporations. Even though Tata’s primary business is supplying off-shore IT expertise to U.S. companies, it used the loosely regulated L-1 program to place Kollu and 11 other Indians in Siemens’ Florida offices. Reached at Fluno’s old phone number, Kollu, who speaks halting English, says he specializes in SAP software, just like Fluno. He declined to discuss his salary, but Fluno says her Siemens supervisors told her he earns just one-third of her $98,000 a year.

“Is my government telling me that if an H-1B visa holder replaces me it’s illegal, but if an L-1 replaces me, it’s O.K.?” demands Fluno, who has been looking for a permanent job ever since. “If this is a loophole, it needs to be stopped.” Tata officials say the company fully complies with the L-1 law and pays the prevailing industry wage to all its U.S.-based employees, although they declined to provide specifics about Kollu or other employees at Siemens. Siemens spokeswoman Paula Davis says her company isn’t responsible for Tata’s employment practices. “They don’t work for us; they work for Tata,” she says.

Fluno’s experience is just one example of an explosion in the use–and in some cases, the abuse–of L-1 visas. With the travails of the high-tech industry and the jump in IT unemployment, fewer U.S. companies can tap the H-1B program these days by saying qualified Americans aren’t available. At the same time, many employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad. As a result, many companies are subcontracting thousands of jobs to outsourcing companies such as Tata, Infosys Technologies (INFY ), and Wipro Technologies (WIT )–the three largest Indian software servicing companies, which all are using more L-1s. Among those using such IT contractors are Bank of America (BAC ), Dell Computer (DELL ), General Electric (GE ), Merrill Lynch (MER ), and Siemens (SI ).

Bombay-based Tata now uses L-1s to bring in half of the 5,000 IT workers it has placed at companies in the U.S., says CEO S. Ramadorai. Nearly one-third of Infosys’ 3,000 U.S.-based workers hold L-1s, the company says, as do 32% of Wipro’s 1,500. Like Tata, Bangalore-based Infosys and Wipro say they follow the letter of the L-1 law.

But they may be violating the spirit of the law. “Is it O.K. to use L-1s for outsourcing to other firms? The answer is no,” says State Dept. spokesman Stuart Patt. Tata’s outside public-relations firm says that Tata “is in complete compliance with all laws and regulations with respect to H and L visas.”

Legal or not, the growing use of L-1s has sparked a backlash. The program has been plagued by accusations that individuals use it to gain illicit entry into the U.S. Complaints from the Siemens workers have led the Justice Dept. to launch investigations. Fluno’s case was dismissed on Feb. 11; three others continue. At the same time, the Immigration & Naturalization Service is reviewing the L-1 visa program “to assess whether companies are using the L-1 to circumvent the H-1B program,” says an INS official. And Representative John L. Mica (R-Fla.) vows he’ll try to amend the L-1 statute if Justice doesn’t prosecute in the Siemens case. “It’s a back door to cheap labor,” he says.

While many L-1s ease the intracompany transfers they’re meant for, outsourcing has triggered a surge in their numbers. New L-1s jumped by 50% between 1998 and 2002, to 58,000, and climbed an additional 10% in the first five months of fiscal 2003, according to State Dept. data. Meanwhile, new H-1B visas plunged by 27% through 2002 and fell 17% so far in fiscal 2003. What’s more, L-1s allow employees to remain in the U.S. for up to seven years and can include multiple workers; H-1Bs are issued to individuals, who are limited to six-year stays. There were 384,000 people working in the U.S. on H-1Bs in 2001, the last year available, and at 329,000, nearly as many on L-1s.

Companies like Tata have grabbed U.S. market share in IT consulting in part by exploiting the L-1′s loopholes. The private company, which supplies outsourced IT services to client companies from 48 offices in the U.S., saw its business from U.S. companies grow 29%, to more than $500 million, in its latest fiscal year, which ended March, 2002. Tata says nearly three-quarters of its sales come from supplying IT expertise to an impressive list of blue-chip U.S. clients such as Apple Computer, Bank One, Boeing, and Eli Lilly. But with half its U.S. labor here on L-1s, Tata’s growth might well be smaller if it relied solely on H-1Bs. “Demand is so great that people will massage any visa category,” says Jessica Vaughn, senior policy analyst at the Center for Immigration Studies in Washington.

Fluno and colleagues, meanwhile, are still looking for IT work (Siemens says it helped five of them find comparable jobs). They hope to start a campaign against L-1 abuse. But with so many major companies already using them, their campaign may be all uphill. 

By Brian Grow in Orlando, Fla., with Manjeet Kripalani in Bombay

A Mainframe-Size Visa Loophole

Rebuttal from Norm Matloff

Here are two articles from BusinessWeek which are reasonably good, except that once again they state falsely that employers must give Americans job priority over H-1Bs. Except for the tiny category of so-called “H-1B-dependent employers,” there is no such requirement for H-1B. However, Tata may well be such an employer, which would make their usage of L-1s of interest.

Note that Rep. Mica proposes to “solve” the problem by making the L-1 visa subject to the same stringent [sic] requirements as H-1B. This is of course absurd. The H-1B program’s “requirements” were written by the industry and allow the industry to run wild with abuse of that visa. Rep. Mica’s office knows this but refuses to do anything whatsoever about H-1B. If H-1B legislation comes up this spring, as has been reported in the press, look for it to proudly include a “reform” component along the lines of Mica’s proposal. This will make for a great smokescreen to obscure the real issue, which is importation of cheap foreign labor, just as the training fund provision was used as a smokescreen in 1998 and 2000.

Note the mention of Infosys. The 60 Minutes piece on the IITs, which was rebroadcast last night, fawningly featured the Infosys founder and chairman as if he were some kind of god. How ironic it is that a pro-business publication like BusinessWeek shows Infosys for what it really is, while a liberal/pro-labor show like 60 Minutes runs what might as well be a paid ad for these H-1B/L-1-exporting firms in India.

Norm

Now the story:

From BusinessWeek March 6, 2003 — slightly different than the March 10 version.

A Mainframe-Size Visa Loophole
More companies are using L-1 visas to bring in low-wage foreign info-tech workers — and replace Americans 

Senior systems analyst Patricia Fluno was shocked when she found out last summer that she and 11 colleagues in the Lake Mary (Fla.) offices of Siemens (SI ) were being replaced by techies brought in by Tata Consultancy Services, India’s largest information-technology (IT) consulting firm. Fluno, 53, couldn’t understand how Tata and Siemens could bring Indian workers into the U.S.

After all, in 2001, Congress had specifically banned the displacement of U.S. employees by foreigners brought in under the controversial H-1B visa program, which many employers had tapped to fill vacant jobs in the booming 1990s. Congress also had demanded rules requiring employers to pay H-1B workers prevailing U.S. wages — and Siemens made no bones about the cost-cutting nature of the layoffs. When Fluno asked one of the replacements about his visa during the two months that she trained him to take her job, Fluno says a Siemens manager told her not to ask such “personal” questions.

Fluno was onto something. In fact, Muralidhar Naidu Kollu, the Tata IT analyst who now sits at Fluno’s desk and does her job, didn’t have an H-1B at all. Instead, Fluno learned, Tata used a more obscure visa called the L-1, which is designed for intracompany transfers by multinational corporations. Even though Tata’s primary business is supplying off-shore IT expertise to U.S. companies, it used the loosely regulated L-1 program to place Kollu and 11 other Indians in Siemens’ Florida offices. Reached at Fluno’s old phone number, Kollu, who speaks halting English, says he specializes in SAP software, just like Fluno. He declined to discuss his salary, but Fluno says her Siemens supervisors told her he earns just one-third of her $98,000 a year.

FULL COMPLIANCE?  “Is my government telling me that if an H-1B visa holder replaces me it’s illegal, but if an L-1 replaces me, it’s O.K.?” demands Fluno, who has been looking for a permanent job ever since. “If this is a loophole, it needs to be stopped.” Tata officials say the company fully complies with the L-1 law and pays the prevailing industry wage to all its U.S.-based employees, although they declined to provide specifics about Kollu or other employees at Siemens. Siemens spokeswoman Paula Davis says her company isn’t responsible for Tata’s employment practices. “They don’t work for us. They work for Tata,” she says.

Fluno’s experience is just one example of an explosion in the use — and in some cases, the abuse — of L-1 visas. With the travails of the high-tech industry and the jump in IT unemployment, fewer U.S. companies can tap the H-1B program these days by saying qualified Americans aren’t available. At the same time, many employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad.

As a result, many companies are subcontracting thousands of jobs to outsourcing companies such as Tata, Infosys Technologies (INFY ), and Wipro Technologies (WIT ) — the three largest Indian software servicing companies, which all are using more L-1s. Among those using such IT contractors are Bank of America (BAC ), Dell Computer (DELL ), General Electric (GE ), Merrill Lynch (MER ), and Siemens (SI ).

BACKLASH.  Bombay-based Tata now uses L-1s to bring in half of the 5,000 IT workers it has placed at companies in the U.S., says CEO S. Ramadorai. Nearly one-third of Infosys’ 3,000 U.S.-based workers hold L-1s, the company says, as do 32% of Wipro’s 1,500. Like Tata, Bangalore-based Infosys and Wipro say they follow the letter of the L-1 law.

But they may be violating the spirit of the law. “Is it O.K. to use L-1s for outsourcing to other firms? The answer is no,” says State Dept. spokesman Stuart Patt. Tata’s outside public-relations firm says that Tata “is in complete compliance with all laws and regulations with respect to H and L visas.”

Legal or not, the growing use of L-1s has sparked a backlash. The program has been plagued by accusations that individuals use it to gain illicit entry into the U.S. Complaints from the Siemens workers have led the Justice Dept. to launch investigations. Fluno’s case was dismissed on Feb. 11; three others continue. At the same time, the Immigration & Naturalization Service is reviewing the L-1 visa program “to assess whether companies are using the L-1 to circumvent the H-1B program,” says an INS official. And Representative John L. Mica (R-Fla.) vows he’ll try to amend the L-1 statute if Justice doesn’t prosecute in the Siemens case. “It’s a back door to cheap labor,” he says.

EXPLOITING LOOPHOLES.  While many L-1s ease the intracompany transfers they’re meant for, outsourcing has triggered a surge in their numbers. New L-1s jumped by 50% from 1998 to 2002, to 58,000, and climbed an additional 10% in the first five months of fiscal 2003, according to State Dept. data. Meanwhile, new H-1B visas plunged by 27% through 2002 and fell 17% so far in fiscal 2003. What’s more, L-1s allow employees to remain in the U.S. for up to seven years and can include multiple workers. H-1Bs are issued to individuals, who are limited to six-year stays. There were 384,000 people working in the U.S. on H-1Bs in 2001, the last year available, and at 329,000, nearly as many on L-1s.

Companies like Tata have grabbed U.S. market share in IT consulting in part by exploiting the L-1′s loopholes. The private company, which supplies outsourced IT services to client companies from 48 offices in the U.S., saw its business from U.S. companies grow 29%, to more than $500 million, in its latest fiscal year, which ended March, 2002.

Tata says nearly three-quarters of its sales come from supplying IT expertise to an impressive list of blue-chip U.S. clients such as Apple Computer (APPL ), Bank One (ONE ), Boeing (BA ), and Eli Lilly (ELI ). But with half its U.S. labor here on L-1s, Tata’s growth might well be smaller if it relied solely on H-1Bs. “Demand is so great that people will massage any visa category,” says Jessica Vaughn, senior policy analyst at the Center for Immigration Studies in Washington.

Fluno and colleagues, meanwhile, are still looking for IT work (Siemens says it helped five of them find comparable jobs). They hope to start a campaign against L-1 abuse. But with so many major companies already using them, their campaign may be all uphill. 

By Brian Grow in Orlando, Fla., with Manjeet Kripalani in Bombay

The New Global Job Shift

The New Global Job Shift

The next round of globalization is sending upscale jobs offshore. They include basic research, chip design, engineering–even financial analysis. Can America lose these jobs and still prosper? Who wins? Who loses?

The sense of resignation inside Bank of America (BAC ) is clear from the e-mail dispatch. “The handwriting is on the wall,” writes a veteran information-technology specialist who says he has been warned not to talk to the press. Three years ago, the Charlotte (N.C.)-based bank needed IT talent so badly it had to outbid rivals. But last fall, his entire 15-engineer team was told their jobs “wouldn’t last through September.” In the past year, BofA has slashed 3,700 of its 25,000 tech and back-office jobs. An additional 1,000 will go by March.

Corporate downsizings, of course, are part of the ebb and flow of business. These layoffs, though, aren’t just happening because demand has dried up. Ex-BofA managers and contractors say one-third of those jobs are headed to India, where work that costs $100 an hour in the U.S. gets done for $20. Many former BofA workers are returning to college to learn new software skills. Some are getting real estate licenses. BofA acknowledges it will outsource up to 1,100 jobs to Indian companies this year, but it insists not all India-bound jobs are leading to layoffs.

Cut to India. In dazzling new technology parks rising on the dusty outskirts of the major cities, no one’s talking about job losses. Inside Infosys Technologies Ltd.’s (INFY ) impeccably landscaped 22-hectare campus in Bangalore, 250 engineers develop IT applications for BofA. Elsewhere, Infosys staffers process home loans for Greenpoint Mortgage of Novato, Calif. Near Bangalore’s airport, at the offices of Wipro Ltd. (WIT ), five radiologists interpret 30 CT scans a day for Massachusetts General Hospital. Not far away, 26-year-old engineer Dharin Shah talks excitedly about his $10,000-a-year job designing third-generation mobile-phone chips, as sun pours through a skylight at the Texas Instrument Inc. (TXN ) research center. Five years ago, an engineer like Shah would have made a beeline for Silicon Valley. Now, he says, “the sky is the limit here.”

About 1,600 km north, on an old flour mill site outside New Delhi, all four floors of Wipro Spectramind Ltd.’s sandstone-and-glass building are buzzing at midnight with 2,500 young college-educated men and women. They are processing claims for a major U.S. insurance company and providing help-desk support for a big U.S. Internet service provider–all at a cost up to 60% lower than in the U.S. Seven Wipro Spectramind staff with PhDs in molecular biology sift through scientific research for Western pharmaceutical companies. Behind glass-framed doors, Wipro voice coaches drill staff on how to speak American English. U.S. customers like a familiar accent on the other end of the line.

Cut again to Manila, Shanghai, Budapest, or San José, Costa Rica. These cities–and dozens more across the developing world–have become the new back offices for Corporate America, Japan Inc., and Europe GmbH. Never heard of Balazs Zimay? He’s a Budapest architect–and just might help design your future dream house. The name SGV & Co. probably means nothing to you. But this Manila firm’s accountants may crunch the numbers the next time Ernst & Young International audits your company. Even Bulgaria, Romania, and South Africa, which have a lot of educated people but remain economic backwaters, are tapping the global market for services.

It’s globalization’s next wave–and one of the biggest trends reshaping the global economy. The first wave started two decades ago with the exodus of jobs making shoes, cheap electronics, and toys to developing countries. After that, simple service work, like processing credit-card receipts, and mind-numbing digital toil, like writing software code, began fleeing high-cost countries.

Now, all kinds of knowledge work can be done almost anywhere. “You will see an explosion of work going overseas,” says Forrester Research Inc. analyst John C. McCarthy. He goes so far as to predict at least 3.3 million white-collar jobs and $136 billion in wages will shift from the U.S. to low-cost countries by 2015. Europe is joining the trend, too. British banks like HSBC Securities Inc. (HBC ) have huge back offices in China and India; French companies are using call centers in Mauritius; and German multinationals from Siemens (SI ) to roller-bearings maker INA-Schaeffler are hiring in Russia, the Baltics, and Eastern Europe.

The driving forces are digitization, the Internet, and high-speed data networks that girdle the globe. These days, tasks such as drawing up detailed architectural blueprints, slicing and dicing a company’s financial disclosures, or designing a revolutionary microprocessor can easily be performed overseas. That’s why Intel Inc. (INTC ) and Texas Instruments Inc. are furiously hiring Indian and Chinese engineers, many with graduate degrees, to design chip circuits. Dutch consumer-electronics giant Philips (PHG ) has shifted research and development on most televisions, cell phones, and audio products to Shanghai. In a recent PowerPoint presentation, Microsoft Corp. (MSFT ) Senior Vice-President Brian Valentine–the No. 2 exec in the company’s Windows unit–urged managers to “pick something to move offshore today.” In India, said the briefing, you can get “quality work at 50% to 60% of the cost. That’s two heads for the price of one.”

Even Wall Street jobs paying $80,000 and up are getting easier to transfer. Brokerages like Lehman Brothers Inc. (LEH ) and Bear, Stearns & Co. (BSC ), for example, are starting to use Indian financial analysts for number-crunching work. “A basic business tenet is that things go to the areas where there is the best cost of production,” says Ann Livermore, head of services at Hewlett-Packard Co. (HPQ ), which has 3,300 software engineers in India. “Now you’re going to see the same trends in services that happened in manufacturing.”

The rise of a globally integrated knowledge economy is a blessing for developing nations. What it means for the U.S. skilled labor force is less clear. At the least, many white-collar workers may be headed for a tough readjustment. The unprecedented hiring binge in Asia, Eastern Europe, and Latin America comes at a time when companies from Wall Street to Silicon Valley are downsizing at home. In Silicon Valley, employment in the IT sector is down by 20% since early 2001, according to the nonprofit group Joint Venture Silicon Valley.

Should the West panic? It’s too early to tell. Obviously, the bursting of the tech bubble and Wall Street’s woes are chiefly behind the layoffs. Also, any impact of offshore hiring is hard to measure, since so far a tiny portion of U.S. white-collar work has jumped overseas. For security and practical reasons, corporations are likely to keep crucial R&D and the bulk of back-office operations close to home. Many jobs can’t go anywhere because they require face-to-face contact with customers. Americans will continue to deliver medical care, negotiate deals, audit local companies, and wage legal battles. Talented, innovative people will adjust as they always have.

Indeed, a case can be made that the U.S. will see a net gain from this shift–as with previous globalization waves. In the 1990s, Corporate America had to import hundreds of thousands of immigrants to ease engineering shortages. Now, by sending routine service and engineering tasks to nations with a surplus of educated workers, the U.S. labor force and capital can be redeployed to higher-value industries and cutting-edge R&D. “Silicon Valley doesn’t need to have all the tech development in the world,” says Doug Henton, president of Collaborative Economics in Mountview, Calif. “We need very-good-paying jobs. Any R&D that is routine can probably go.” Silicon Valley types already talk about the next wave of U.S. innovation coming from the fusion of software, nanotech, and life sciences.

Globalization should also keep services prices in check, just as it did with clothes, appliances, and home tools when manufacturing went offshore. Companies will be able to keep shaving overhead costs and improving efficiency. “Our comparative advantage may shift to other fields,” says City University of New York economist Robert E. Lipsey, a trade specialist. “And if productivity is high, then the U.S. will maintain a high standard of living.” By spurring economic development in nations such as India, meanwhile, U.S. companies will have bigger foreign markets for their goods and services.

For companies adept at managing a global workforce, the benefits can be huge. Sure, entrusting administration and R&D to far-flung foreigners sounds risky. But Corporate America already has become comfortable hiring outside companies to handle everything from product design and tech support to employee benefits. Letting such work cross national boundaries isn’t a radical leap. Now, American Express (AXP ), Dell Computer (DELL ), Eastman Kodak (EK ), and other companies can offer round-the-clock customer care while keeping costs in check. What’s more, immigrant Asian engineers in the U.S. labs of TI, IBM (IBM ), and Intel for decades have played a big, hidden role in American tech breakthroughs. The difference now is that Indian and Chinese engineers are managing R&D teams in their home countries. General Electric Co. (GE ), for example, employs some 6,000 scientists and engineers in 10 foreign countries. GE Medical Services integrates magnet, flat-panel, and diagnostic imaging technologies from labs in China, Israel, Hungary, France, and India in everything from its new X-ray devices to $1 million CT scanners. “The real advantage is that we can tap the world’s best talent,” says GE Medical Global Supply Chain Vice-President Dee Miller.

That’s the good side of the coming realignment. There are hazards as well. During previous go-global drives, many companies ended up repatriating manufacturing and design work because they felt they were losing control of core businesses or found them too hard to coordinate. In a recent Gartner Inc. survey of 900 big U.S. companies that outsource IT work offshore, a majority complained of difficulty communicating and meeting deadlines. As a result, predicts Gartner Inc. Research Director Frances Karamouzis, many newcomers will stumble in the first few years as they begin using offshore service workers.

A thornier question: What happens if all those displaced white-collar workers can’t find greener pastures? Sure, tech specialists, payroll administrators, and Wall Street analysts will land new jobs. But will they be able to make the same money as before? It’s possible that lower salaries for skilled work will outweigh the gains in corporate efficiency. “If foreign countries specialize in high-skilled areas where we have an advantage, we could be worse off,” says Harvard University economist Robert Z. Lawrence, a prominent free-trade advocate. “I still have faith that globalization will make us better off, but it’s no more than faith.”

If the worries prove valid, that could reshape the globalization debate. Until now, the adverse impact of free trade has been confined largely to blue-collar workers. But if more politically powerful middle-class Americans take a hit as white-collar jobs move offshore, opposition to free trade could broaden.

When it comes to developing nations, however, it’s hard to see a downside. Especially for those countries loaded with college grads who speak Western languages, outsourced white-collar work will likely contribute to economic development even more than new factories making sneakers or mobile phones. By 2008 in India, IT work and other service exports will generate $57 billion in revenues, employ 4 million people, and account for 7% of gross domestic product, predicts a joint study by McKinsey & Co. and Nasscom, an Indian software association.

What makes this trend so viable is the explosion of college graduates in low-wage nations. In the Philippines, a country of 75 million that churns out 380,000 college grads each year, there’s an oversupply of accountants trained in U.S. accounting standards. India already has a staggering 520,000 IT engineers, with starting salaries of around $5,000. U.S. schools produce only 35,000 mechanical engineers a year; China graduates twice as many. “There is a tremendous pool of well-trained people in China,” says Johan A. van Splunter, Philips’ Asia chief executive.

William H. Gates III, for one, is dipping into that pool. Although Microsoft started later than many rivals, it is moving quickly to catch up. In November, Chairman Gates announced his company will invest $400 million in India over the next three years. That’s on top of the $750 million it’s spending over three years on R&D and outsourcing in China. At the company’s Beijing research lab, one-third of the 180 programmers have PhDs from U.S. universities. The group helped develop the “digital ink” that makes handwriting show up on Microsoft’s new tablet PCs and submitted four scientific papers on computer graphics at last year’s prestigious Siggraph conference in San Antonio. Hyderabad, India, meanwhile, is key to Microsoft’s push into business software.

This is no sweatshop work. Just two years out of college, Gaurav Daga, 22, is India project manager for software that lets programs running on Unix-based computers interact smoothly with Windows applications. Daga’s $11,000 salary is a princely sum in a nation with a per capita annual income of $500, where a two-bedroom flat goes for $125 a month. Microsoft is adding 10 Indians a month to its 150-engineer center and indirectly employs hundreds more at IT contractors. “It’s definitely a cultural change to use foreign workers,” says Sivaramakichenane Somasegar, Microsoft’s vice-president for Windows engineering. “But if I can save a dollar, hallelujah.”

Corporations are letting foreign operations handle internal finances as well. Procter & Gamble Co.’s (PG ) 650 Manila employees, most of whom have business and finance degrees, help prepare P&G’s tax returns around the world. “All the processing can be done here, with just final submission done to local tax authorities” in the U.S. and other countries, says Arun Khanna, P&G’s Manila-based Asia accounting director.

Virtually every sector of the financial industry is undergoing a similar revolution. Processing insurance claims, selling stocks, and analyzing companies can all be done in Asia for one-third to half of the cost in the U.S. or Europe. Wall Street investment banks and brokerages, under mounting pressure to offer independent research to investors, are buying equity analysis, industry reports, and summaries of financial disclosures from outfits such as Smart Analyst Inc. and OfficeTiger that employ financial analysts in India. By mining databases over the Web, offshore staff can scrutinize an individual’s credit history, access corporate public financial disclosures, and troll oceans of economic statistics. “Everybody these days is drawing on the same electronic reservoir of data,” says Ravi Aron, who teaches management at the Wharton School at the University of Pennsylvania.

Architectural work is going global, too. Fluor Corp. (FLR ) of Aliso Viejo, Calif., employs 1,200 engineers and draftsmen in the Philippines, Poland, and India to turn layouts of giant industrial facilities into detailed specs and blueprints. For a multibillion-dollar petrochemical plant Fluor is designing in Saudi Arabia, a job requiring 50,000 separate construction plans, 200 young Filipino engineers earning less than $3,000 a year collaborate in real time with elite U.S. and British engineers making up to $90,000 via Web portals. The principal Filipino engineer on plumbing design, 35-year-old Art Aycardo, pulls down $1,100 a month–enough to buy a Mitsubishi Lancer, send his three children to private school, and take his wife on a recent U.S. trip. Fluor CEO Alan Boeckmann makes no apologies. At a recent meeting in Houston, employees asked point-blank why he is sending high-paying jobs to Manila. His response: The Manila operation knocks up to 15% off Fluor’s project prices. “We have developed this into a core competitive advantage,” Boeckmann says.

It’s not just a game for big players: San Francisco architect David N. Marlatt farms out work on Southern California homes selling for $300,000 to $1 million. He fires off two-dimensional layouts to architect Zimay’s PC in Budapest. Two days later, Marlatt gets back blueprints and 3-D computer models that he delivers to the contractor. Zimay charges $18 an hour, vs. the up to $65 Marlatt would pay in America. “In the U.S., it is hard to find people to do this modeling,” Zimay says. “But in Hungary, there are too many architects.”

So far, white-collar globalization probably hasn’t made a measurable dent in U.S. salaries. Still, it would be a mistake to dismiss the trend. Consider America’s 10 million-strong IT workforce. In 2000, senior software engineers were offered up to $130,000 a year, says Matt Milano, New York sales manager for placement firm Atlantis Partners. The same job now pays up to $100,000. Entry-level computer help-desk staffers would fetch about $55,000 then. Now they get as little as $35,000. “Several times a day, clients tell me they are sending this work off shore,” says Milano. Companies that used to pay such IT service providers as IBM, Accenture (ACN ), and Electronic Data Services (EDS ) $200 a hour now pay as little as $70, says Vinnie Mirchandani, CEO of IT outsourcing consultant Jetstream Group. One reason, besides the tech crash itself, is that Indian providers like Wipro, Infosys, and Tata charge as little as $20. That’s why Accenture and EDS, which had few staff in India three years ago, will have a few thousand each by next year.

Outsourcing experts say the big job migration has just begun. “This trend is just starting to crystallize now because every chief information officer’s top agenda item is to cut budget,” says Gartner’s Karamouzis. Globalization trailblazers, such as GE, AmEx, and Citibank (C ), have spent a decade going through the learning curve and now are ramping up fast. More cautious companies–insurers, utilities, and the like–are entering the fray. Karamouzis expects 40% of America’s top 1,000 companies will at least have an overseas pilot project under way within two years. The really big offshore push won’t be until 2010 or so, she predicts, when global white-collar sourcing practices are standardized.

If big layoffs result at home, corporations and Washington may have to brace for a backlash. Already, New Jersey legislators are pushing a bill that would block the state from outsourcing public jobs overseas. At Boeing Co. (BA ), an anxious union is trying to ward off more job shifts to the aircraft maker’s new 350-person R&D center in Moscow (page 42).

The truth is, the rise of the global knowledge industry is so recent that most economists haven’t begun to fathom the implications. For developing nations, the big beneficiaries will be those offering the speediest and cheapest telecom links, investor-friendly policies, and ample college grads. In the West, it’s far less clear who will be the big winners and losers. But we’ll soon find out. 

By Pete Engardio, Aaron Bernstein, and Manjeet Kripalani
With Frederik Balfour in Manila, Brian Grow in Atlanta, and Jay Greene in Seattle

Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.

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