Embracing today's global economy

John A. Challenger

CENTURIES AGO, a group of Peruvian Indians were looking out from the ocean shoreline. Something appeared far away that they did not recognize. Seeing the sails of Spanish invaders on the horizon, they talked about it and, lacking a better answer, explained what they saw as a freak of nature and went on about their business. Their limited life experience did not include sailing ships. So, they screened out what they failed to understand--and let disaster in.

As we see the sails of the global economy on the horizon, will we screen out what we do not understand (or accept) and just go about our business, or will we anticipate what is happening and adapt ourselves to a world that is changing right before our eyes? The answer will make all the difference in making the most of the opportunities that lie ahead.

The issues arising out of the wowing global economy are highly emotional. They are about jobs and livelihoods, as well as feeding our families and ensuring their safety and well-being in a world that presents threats, but also great opportunities.

As a start, let us discuss what really is happening in outsourcing and why. Countries such as India and China have vast pools of skilled and well-educated workers available to the U.S. and other countries. The first trend is for U.S. firms to source jobs abroad rather than at home. The second trend is companies taking advantage of advanced computer technology to import services from other nations, like having radiologists in Bangalore read X-rays taken in Boston.

Companies are outsourcing jobs and importing services to cut costs, increase productivity, and meet their customers' demands for low-price, high-quality goods and services. In doing this, they are saving money and investing some of it in research and development to improve products and services as well as create better-paying jobs.

All of this makes good sense. With the tree flow of information available to us, we are able to shop around and select the best companies to provide what we want, when we want it. These enterprises produce high quality and low price. They attract more customers and top-notch employees--and they create jobs.

Sometimes those jobs are created in the U.S.--and sometimes offshore. This gives me the chance to dispel one prevalent myth: that when a U.S.-based company creates jobs offshore, we are losing American jobs. The fact is, these ,jobs would not have been created domestically in the first place. These are jobs that are created in those markets, or not at all. If IBM is going to penetrate international markets, it cannot do that unless it is part of those markets. They must be close to their customers if they are to be successful, and that means sourcing outside the U.S. and inside those markets. That does not mean, however, that IBM will not be creating jobs in the U.S. as well, which, in fact, it is doing.

Fears of job loss are nothing new. This keeps surfacing in different forms. There was permanent job loss when we moved from an agrarian to an industrialized economy. In the 1980s, we saw manufacturing jobs lost and service jobs gained. In the 1990s. companies were going to de-layer middle management and bureaucracy forever. A few years later, we panicked about e-commerce and dot-coms annihilating old-economy jobs. At present, the monster in the closet is outsourcing. Fear is growing that there will be significant and permanent loss of highly-skilled jobs to the rest of the world.

Outsourcing debate

The emotional debate about outsourcing has obscured the fact that it is a natural and normal part of a free market system and a fundamental component of competing successfully in the global economy. Yet, when we lose our job or see a colleague lose his or hers, it is easy to feel overwhelmed and traumatized. The hard troth, however, is that permanent, lifetime jobs no longer exist. All positions, in some sense, are temporary. That means that all of us will lace job transitions from time to time.

Cyclical job shifts are a fact of life in a free-market economy that constantly is innovating and advancing. We are continuing our shift from an industrialized to a services economy--and we not only are surviving this evolutionary step in the economic cycle, we are thriving. We saw almost 2,500,000 jobs created each year in the 1990s during the long boom. Since February, 2001, though, the same number of positions have been lost.

Every time the U.S. has experienced dramatic changes like these in the past, people have tried to stop them. This instance is no different, although, just as our predecessors have found, it is futile to try to stop the natural progression of the economy toward globalization. It is like standing in the middle of the freeway hoping to slow down traffic. You cannot stop it. You may not like what you see on the horizon, but to move forward, you must, at some point, embrace the change.

The movement toward a global economy and workforce will be filled with disruptions and hardships. Still. there are things we can do to minimize the pain and capitalize on the opportunities before us. In the U.S., we have created mechanisms to help people move from jobs that are destroyed to jobs that are created. We certainly do not relish the disruptions that these shifts bring, but we have effective ways to deal with them. Jobs will be lost--but the former employees can and will be employed again and again and again.

A new aspect of this transition is that the changing jobs situation is affecting small as well as larger companies. Moreover. it is touching white-collar, knowledge workers--managers, executives, and information technology professionals, not just unskilled, less-educated labor. Yet, in another sense, some white collar employment always has been of a temporary nature. Think about the armies of consultants from Deloitte & Touche, Accenture, and Hewitt and McKenzie.

To get a sense of what is happening, a look at the small business sector is instructive. A start-up in Silicon Valley can go to India and hire highly skilled workers with PhDs for about $15,000 to $20,000 per year. It could hire a team of five to six programmers in India for about the same cost as one or two in Silicon Valley. One firm calculated the cost of keeping one tech employee in Silicon Valley at $15,000 per month. In New Delhi, an individual with the same skills and responsibilities costs $2,500. That is a savings of $150,000 a year. By sending 10 jobs to India, a start-up can slash $1,500,000 from its payroll. In addition, it will be able to expedite product development, having access to a 24/7 workforce.

Companies using outsourcing will be more attractive to venture capital firms because these firms will see a faster return on their investment. If a company can bring its products to market faster and cheaper through outsourcing, it will increase its chances to win the competition for limited funding dollars. It only is going to get easier for companies of all sizes to send business operations and functions overseas. The cost structure of establishing and maintaining Internet connectivity between North America and Asia used to be very expensive. The price, though, has fallen dramatically--40% in the last year alone. As prices drop, more companies will outsource.

By 2015, the number of jobs relocating offshore is expected to reach 3,400,000. Yet, this only is a small percentage of the total number of jobs constantly being created and destroyed within the American economy. About 33,000,000 jobs are expected to be created in the U.S. in the next seven years. (And we are worried about 3,400,000 jobs that others have gained and we have not. Does that sound callous?) In moving toward a global economy, we cannot be the only ones to gain. Trading partners are exactly that--partners. Both sides get something of value. Unilateralism will not work. Our real challenge, then, as a nation and as business leaders, is making sure that current and future workers are able to move into areas in which their skills can be put to work. We must make lifetime learning a reality. We need to make continuing education more affordable and accessible. Education must not stop after high school and college. For many, going beyond these levels is not possible because they lack time and money. Companies must be open to flexible work schedules so that individuals can take the time to invest in ongoing education; firms would be wise to reimburse employees who choose to update their skills while on the job.

We need to support school-to-work programs, not only in number, but in scope. Government and businesses have to change the recent trend of cutting funds for these initiatives. Some of the most successful programs reach down to the elementary school level to plant seeds that one day may influence career choices.

Most of the current focus is on skilled trades. Programs target kids who are at risk for not attending college. That is fine as far as it goes, but schools and employers should expand into areas such as computer science, math, and engineering, so that the kids who are most likely to go to college are directed into those areas in which worker shortages will be greatest.

We should reconfigure unemployment insurance, earmarking a portion for continuing education. Too often, cash payments act as a disincentive to reenter the workforce. Special funds for the purpose of retraining would help ease the cost burden of education and help move people toward the occupations that have to be filled. Workers at all levels have to keep current with the changing world around us, especially with technology. We need to encourage our employees to take advantage of every educational opportunity offered by companies, government, or grants.

A company I know has 140,000 employees. It has measured the current skill level of each, and then developed a career plan that includes a long-term "skilling" path. Keeping employees' skills current allows the firm to be more flexible in a changing marketplace, and it enables employees to take advantage of new opportunities as they develop throughout their career.

Entrepreneurism must be encouraged as well. Governments and universities should be working together to cultivate innovation and new businesses. For example, the state of New York has invested $620,000,000 of a planned $1,000,000,000 program to establish a network of research and development incubators. The program aims to create leading-edge technology centers through collaboration between the state's university system and private industry.

The fact is that entrepreneurs and small businesses create most American jobs. While the big companies are searching for resources overseas, domestic entrepreneurs are producing resources at home. As the Wall Street Journal reports, "Self-employment and startups are driving the economic recovery [as some] 400,000 Americans went to work for themselves last year." The success of these start-ups means even more jobs, as they become established businesses over time. Many of these entrepreneurs are immigrants, whose optimism, energy, and appetite for risk have fueled our economy for generations. They will continue to do so in the global economy.

We must rally our companies, schools, and country to embrace diversity. We have to broaden and deepen our language skills, encourage international studies and travel, and reach out and engage other cultures. More of our students should study abroad.

It is necessary to learn about other countries' history and read their literature. Today, foreign students know much more about us than we know about them. That must change.

There is no room for "Ugly Americans" on the global stage. Our world ought not begin and end at the edges of our cities or the boundaries of our shores. We must expand our thinking as well as our travels. We must take off our parochial blinders and become students of the world.

If we take a hard look at what is going on around us, there are plenty of reasons to be optimistic. Yet, there are some warning signs as well. The demand for skilled labor is up--and the supply is down. The number of U.S. graduates in math, science, and engineering is not growing fast enough to meet the expected need. In India, the number of college graduates with those degrees is five to 10 times greater than in the U.S.

In 2002, 60,000 engineers graduated from U.S. colleges. China and India graduated five times that many. Their Asian neighbors, South Korea, Japan, Taiwan, Hong Kong, and Singapore, share a zeal for education, and they have the math scores to prove it. In a recent international assessment of eighth-graders, Singapore scored best in the world and joined five Asian neighbors in beating the U.S. American kids came in 19th.

"We absolutely must strengthen our talent pool." stresses Charlene Barshefsky, an Asian expert who served as U.S. Trade Representative under Pres. Bill Clinton. Otherwise, she warns, "We will lose our competitive edge within a generation." She favors more emphasis on math and science starting in the third grade.

In addition to strengthening our talent pool, we need to broaden it. Severe labor shortages are likely to return within 10 years, especially if our economy continues to get stronger. Certain industries, such as health care, construction, and defense/security, already are suffering.

The retirement factor

When the baby boomers start retiring, there will be 168,000,000 jobs in our economy, but only 158,000,000 people in the labor market to fill them. How will we close the shortfall? Three things will help. First, there is the continuing flux of immigrants that has been, and will continue to be. the essential engine of our economy. Immigrants serve as flexible, low-wage workers in industries undergoing transition. One myth states that immigrant and unskilled labor ate one and the same. That is not true. There is a deep and wide pool of highly-educated and -skilled people who have emigrated--or will--to the U.S. They want to put their creativity and capabilities to work in what they see as "the land of opportunity."

Rather than displacing native workers in any significant way, studies show that a steady flow of immigrant labor actually helps create jobs. For example, according to one study, if no Mexican immigration to Los Angeles County had occurred between 1970-80, 53,000 production jobs, 12,000 high-paying nonproduction slots, and 25,000 positions in related industries would have been lost.

In a service-based global economy, skilled labor becomes more and more important. Because of technology, this labor can be linked across the world into one global labor force. This capability makes possible a startling new phenomenon--immigrants who never leave home. These "stay-at-home" immigrants live abroad but support U.S. companies. The rapid decline in the cost of technology and telecommunication and rise in computing power mean that foreign nationals can work for Dell Computer from their homes in Delhi.

A second source of help is the temporary jobs industry, which supports other companies as they adjust up and down in employment, assuring that there is ready access to workers with the light skills at the right time. They help business succeed in a fluctuating economy, responding to cyclical shifts in revenues by redeploying talent where it is most needed and productive. Contingent workers, or temporary employees, and other noncom employees represent 30% of the entire U.S. labor force, reports the Advisory Council of the Department of Labor--and that number is expected to increase dramatically in the next 10 years.

Outplacement firms play a role as well. They teach people how to find and acquire a job, how to move beyond being stuck emotionally and functionally in being without employment. They take care of those caught in the middle of change. They provide the counseling, coaching, and contacts to help individuals move to where the jobs are, to get them ready to capitalize on the changing opportunities the global economy presents.

Companies that hire temporary employees enjoy the freedom and flexibility of using staff resources as needed versus investing in employees on a permanent, full-time basis. This helps improve productivity and profitability. Many employees today want the flexibility of temporary work as a bridge to full-time employment, a way to go back to school part-time to further their education, or to try a new career path without making a long-term commitment to an employer.

A third thing that will help us fill the shortfall of labor is the strength of the U.S. itself. We are the envy of the world for our open borders, lack of structural barriers, and abundant diversity of our people. Our workforce reflects the faces of the people around the world. First-and second-generation Americans have the language skills and the cultural understanding to be citizens of the world and participate fully in the global economy.

We are a nation of immigrants. We came from afar seeking to make the most of ourselves. It is no different for the thousands who seek our shores today. The U.S. is a magnet for the best and the brightest. They will continue to come as long as opportunity abounds. They can and will start businesses of their own. That is good for them and us.

I believe that the global economy represents the next Silicon Valley, the next big growth opportunity for our companies, workers, and nation. In the coming years, as the economies of China, India, Mexico, Russia, and the Philippines heat up from their growing interdependence with the U.S., it is likely that they will become our biggest trading partners. The potential upside demand from these countries and from others in a major global expansion is enormous, bigger than the tech expansion of the 1980s and 1990s, enough to fuel the U.S. economy and create jobs for decades to come.

We have the potential to become a world of trading partners who depend on each other for the well-being of our people. That certainly is a future less threatening than the one we know at present.

John A. Challenger is CEO of the global outplacement firm Challenger, Gray & Christmas, Inc., Chicago.

COPYRIGHT 2005 Society for the Advancement of Education
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