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The first wave of out-sourcing began two decades ago with jobs for making shoes, cheap electronics, and toys departing to developing countries. It caused a huge blow to the U.S. manufacturing sector. But as factories were closing, the "knowledge economy" emerged. Many thought these jobs, many of which were service- and technology-oriented, would be safe from the effects of outsourcing.
But, the explosion of the Internet, digitization and high-speed data networks around the world paved the way for a second wave of outsourcing. Now, as corporate America embraces the premise that work should go wherever production costs are lowest, "knowledge work"--largely white-collar jobs--are also being outsourced.
Around the world, accountants prepare taxes and company financial statements, medical technicians read X-rays and engineers design microprocessors and write software code for U.S. companies. While the outsourcing trend is lucrative for developing countries, it's left U.S. white-collar middle class workers feeling vulnerable and anxious, just as it did the manufacturing workers in the 1980s.
What's surprising is the rate at which this shift has occurred. By the end of the year, 40% of the Fortune 500 are expected to send work offshore, according to the research firm Gartner, Inc. Corporate America is on board because every dollar of offshore work results in a 58-cent savings.* Many U.S. companies say these savings plus other benefits of outsourcing--increased productivity, lower prices and greater demand for American products--are the only way to remain competitive in the global economy.
Even as they rely increasingly on overseas workers, many U.S. companies are offshoring very quietly. They are walking a fine line. On one hand, they're worried about being associated with loss of U.S. jobs and, at the same time, are concerned about slighting large markets if they reduce their efforts to employ workers in countries such as India, China and Indonesia.
Outsourcing and the creation of U.S. jobs is a major topic in the 2004 presidential campaign and there's a lot of speculation among economic analysts and politicians as to the long-term effects of outsourcing and whether or not something should be done about it. Some are proposing laws to regulate against outsourcing. Others are suggesting tax incentives or trade barriers as a means to slow the movement of jobs offshore. On the flip side, some analysts and politicians doubt that any protectionist strategy will slow what they see is a permanent shift in the way the U.S. does business.
According to an August 2003 report by McKinsey Global Institute
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