Business Week recently published an interesting article on the “real cost of offshoring”.

A large part of the article focuses on demonstrating that the rapid growth of offshoring in our country has rendered some key economic indicators inaccurate.

I have to admit that I do not believe too much in these indicators anyway. In fact, I have long suspected them to be only technicalities that poorly reflect the real economic conditions; my opinion is not anew, it is just the old debate about the true meaning of statistics.

A sentence in the conclusion compelled me to write this post. It reads: (…) the rush of globalization has brought about a fundamental change in the US economy.

I would definitely have said: (…) the fundamental change in the US economy has created a rush of globalization.

And the difference is not marginal. We are NOT offshoring our jobs to China and India as a direct result of these countries’ attractiveness, but as a result of the economic models that have been used in the Western countries for the past 30 years.

The quest for an always higher profit yields to an ever-increasing dependency of the corporations to their shareholders, which yields in turn to have the most strategic decisions dictated by extremely short-term constraints, and has just accelerated the decline of the Industrial Age in the USA. Since corporations cannot rely only on increasing their sales to produce the high margins required by the stock market/shareholders/analysts, they need to keep cutting costs. There is no need to be a renowned analyst to observe the decline of the US manufacturing industry.

All of the above could only yield to massive manufacturing outsourcing and then business process outsourcing to Asia. China and India have never been in a position to force American and European corporations to offshore their manufacturing. How can we blame the local economies to have grabbed this golden opportunity?

Meanwhile we have let our education system and our values deteriorate. And numbers talk (statistics don’t!): China is now the largest producer of engineering graduates in the world, with some 600,000 coming out of its colleges and universities in 2005. India follows with over 450,000 engineering graduates in 2005, of which almost 30 per cent were computer engineers. Both India and China have over 2,000 colleges and Universities each. Compared to India and China, the United States produces only 70,000 engineering graduates every year. All of Western Europe produces just over 100,000.

We can (and must!) renovate our education system. That said, it would not produce any tangible result before another 10 to 15 years, so we are not even in a position to rapidly reverse the offshoring process.

Since we cannot reverse rapidly a situation we have created, what should we do?

And I would start by mentioning two things we should NOT do, as they would only backfire on us.

- We should not hope for China or India to collapse. I keep reading articles about pollution in China, political and social instability in India, etc. These things are certainly true, but we should hope that these issues will be addressed and resolved. First, because it is never good news when a country collapses, especially since we are so dependent from these two countries, and also because it does not help us improve our own situation

- We also do not want to ignore what is going on and just accuse the whistleblowers of “allegiance to the enemy”. The sooner we acknowledge the situation and act on it, the easier it will be to implement alternate solutions.

We have many reasons to be optimistic. We have a good country infrastructure, a wealthy economy, a democracy that lets people voice their opinion whenever they want, and a culture of entrepreneurship. We need to focus our energies in inventing the new jobs that the globalization is creating, and there is aplenty; the rise of China is creating opportunities in the tourism, food, greentech, and agriculture industries, to name a few.

I had a lunch a few days ago with a friend of mine, who retired to Mainland China after having spent most of his career in the Silicon Valley, as an investment banker. He asked me if I knew of Western companies interested in expanding into China, especially in the food and fashion areas. In cities like Beijing, Shanghai or Chengdu, a wealthy middle-class is now eager to buy goods from the Western countries. There are golden opportunities for American or European companies from all size. Yes, we can export to China, and we must do it.

In the IT outsourcing industry, we should consider hybrid models with development teams located not only in Asia, but also in the USA. Leading companies like TCS or Infosys have paved the way and have become global, creating jobs in most of the countries where they are doing business. At Venus Software, we are hiring not only in China, but also in the USA, in Japan, and soon in Western Europe.

It took us over twenty years to acknowledge the rise of China and India, since corporations were focused on increasing their profit at any rate and we the consumers on buying all sorts of goods (clothes, electronics, etc.) at low prices, since they were manufactured in developing countries. It should not take us another 20 years to realize that we must reorient our economies to adapt to the reality of globalization.

Posted by Remi on Sunday, July 8th, 2007 at 9:49 AM.