IT Outsourcing: Economic and Policy Analysis

ANNOUNCEMENT

Monday November 8: Each team must provide a one-page project description, which will be worth 10% of the project grade: team members, topic, sub-topics, sources, team organization, etc. (We will provide brief comments on these submissions.)

ABSRACT

- still need to finalize team organization, and put the abstract together in a paragraph form.

Topic

Economic and technological incentives to outsource, and government policies that can affect IT outsourcing rates.

Sub-topics

Here's how our project could be divided - PLEASE EDIT/ADD TO THIS LIST

1) Economic considerations to outsourcing - Pros/Cons

- costs/benefits of outsourcing (looking at theory of comparative advantage, supply/demand, etc)

- discussion of India and why the US chooses to outsource there

- Compare cost of living in India

- operational costs in the US v. costs in India

- foreign currency benefits (pay local workers in money from local product sales)

- can allow US companies to avoid layoffs

- if costs savings allow company to grow, then company can hire US workers in other areas (marketing, biz dev, etc.)

- outsourcing may lower employee morale which in turn reduces productivity

2) Technological incentives to outsource - PROS/CONS

- discussion of India and why the US chooses to outsource there

- What risks do we run by outsourcing our IT to countries such as India?

- Is it safe technologically to do so?

- Are key areas outsourced?

- Helps avoid layoffs when projects are cyclical

- Allows for rapid ramp up of work force to handle strategic projects. Either (1) using outsourced workers for the strategic projects or (2) using outsourced workes for core projects and freeing US-based workers for strategic projects

- Effects of outsourcing on US innovation

3) Analysis of existing public policies (France.. any other countries that have opening initiated policies to stop outsourcing? Discuss the differences between France and US outsourcing--industry.. are they similiar? Are they detrimental to the comparison?)

4) US public policies to "manage" outsourcing.

- What does Bush administration say about IT outsourcing?

- Small case study of Silicon Valley? Could it be treated like France's 20 "competitiveness zones"? Case study of Washington State (see article below)

- Possible public policies and discussion of how feasible they are. Including:

a. Improve high school math and science to keep US competitive internationally

b. Modify college curriculums to provider training for jobs that will continue to be needed in an outsourced economy (project mgmt, architects, etc.)

c. Additional government spending to university R&D projects to produce higher/highly skilled workers

d. Tax breaks to US corporations for keeping employees in US

e. Visas (this could be a whole topic to itself).

Im not convinced that these measures are necessary. Several of the articles that were posted claimed that the effects on the US workforce in the long-run will not be negative. Instead, outsourcing is a positive phenomenon in the long-run (its really only hits us in the short-run). Also, several of them showed that its more of the blue-collar jobs that are outsourced, so i dont think extra education would be that effective, unless we can move people from a level of education where they would be blue-collar to white-collar. I think once we do our economic analysis of outsourcing, we will find this to be true. This is because each country is working with its comparative advantage. This saves money for US firms to invest in other initiatives (or skim off the top), but also work towards long-run gains. So i think the policy alternatives (a-e) suggested in section 4 should be reconsidered because i think we still have to do our economic and technological to evaluate if we need to (or should) try and keep jobs in the US. Instead, we can focus on US policies towards outsourcing and maybe based on our sectoin 1 and 2 evaluation, if they should be relaxed or more restricted.

5) Conclusion.