Difference between revisions of "Talk:Outsourcing and its impact on innovation?"

Revision as of 03:36, 19 October 2004

[Damon May] Along the lines of a blurb I just wrote on the main discussion page (http://cubist.cs.washington.edu/CSEP590TU-wiki/index.php/Talk:CSE590TU), I think it'd be interesting to do a project on the current state of outsourcing in the IT industry, projections for the future, and the things that government and industry can and/or should do to stem the trend.

SMM: Hint: If you aren't already familiar with them, you should brush up on the economic argument that free trade always makes society richer -- the buzzwords are "comparative advantage" and "returns to trade." The material is not hard: Any intro econ book should have it. Of course, we've never taken free trade to the extreme of letting human beings flow freely back and forth across borders. Outsourcing blurs that distinction.

James Welle: I am interested in this as well. It would be interesting to look at history in other industries ( the auto industry for example ) and try to predict what may or may not happen to the US technology workforce due to outsourcing. It would like to look at other related issues such as unions as well and do an analysis of how this could benefit or harm the industry.

James Welle: Here is a reference on comparative advantage. http://internationalecon.com/v1.0/ch40/40c000.html

Mandy Chang: Is it true that most of the jobs that we outsource have to do with cheaper labor? So if that is the case, and firms can lower their production costs, they can invest more into R&D domestically, incentives for innovation will be greater. However, I've recently read an article in reader's digest that suggests that the competitive level of American human capital is declining because of education standards. There are these situations where high school students' parents will file complaints against school districts to change lower their standards so that their kids will be on the school's honor rolls. This defies the central key of American capitalism and free competition. And because of this, some of the more technical jobs are being outsourced as well. Overall though, if the research and development projects are still being done within the country, outsourcing (referring mostly to production jobs) can only increase the ability for innovation.. right?

Mandy Chang, UCB

Diwaker: I'm also interested in varios aspects of outsourcing (I was the one who added the project topic ;)!) In particular, I would like to investigate (along the lines suggested by Mandy above) what kind of an impact outsourcing is having on the American IT industry. James blurb indicates that outsourcing has a negative connotation. Do we have empirical data to suggest that this is indeed the case? What about the long term impact -- it might very well be that the Google, IBM, HP, GE research labs in India might contribute more as far as innovation is concerned in the long run.

James Welle: I agree that outsourcing could lead to more innovation. Any negative connotation that I implied above was related to how outsourcing may affect the US IT workforce. Even if outsourcing improves innovation worldwide, it could still negatively affect those working in IT in the US.

James Welle: I see the main issues as the following. What situations in history are similar to the outsourcing situation today and how were those handled? Can we look at any current trends in outsourcing and predict or model how it will affect the US IT workforce. What about looking at it from the perspective of another country such as India or China. How would unionizing affect the US IT workforce and does that have any relation to outsourcing? Can we predict whether or not outsourcing will affect the level of innovation in the world-wide IT industry. What else are you guys interested in researching about outsourcing?

David Dorwin: Regarding "outsourcing... can only increase the ability for innovation.. right?", I don't think this is necessarily the case. On a worker to worker basis, companies will theoretically save money, but how they spend (or save) that money is completely up to them. They aren't necessarily going to hire more (R&D) workers to do innovation. Some companies will hire more workers overseas than they had in the US so that they can expand their projects/products. Others may just pocket the difference and increase their stock price.

As the overseas operations mature, more R&D is likely to follow. I agree with James in that while worldwide innovation may increase but it's not clear that innovation in the US will. This could be another angle for the project. Is outsourcing high tech putting our future economy (and perhaps even our national security) at risk? If innovation moves overseas, it may follow that innovation may eventually move to non-US companies. The logic here is that workers with experience at and trained by US companies may go to work for or start foreign companies. The US companies then face competition from these companies, and the US government has no influence on them to assist in national defense.

Reasons and impacts of outsourcing

Seems to me a good topic to begin with is understanding the various reasons that a company might outsource/offshore. Also, the various ways in which outsourcing/offshoring might feed back. It's not nearly as simple as "it's either a job here or a job there."

A few examples: By locating in a foreign country, you might gain access to markets. Or you might gain access to government officials who could change the way that intellectual property is viewed.

I don't want to be blind to the downsides -- only to suggest that it's a nicely complex issue, and recently there has been far more heat than light, so there's an opportunity to shed some light.