Trump and Clinton want to bring back millions of outsourced jobs – here’s why they can’t

By Stephan Manning and Marcus M. Larsen.

One of the big themes in the current presidential race is how decades of free trade have dealt a heavy blow to the American worker as millions of jobs were shipped overseas to take advantage of cheap labor.

That’s even turned some pro free-trade Republicans into protectionists. As a result, the candidates are promising to bring these jobs back to the U.S. – whether by lowering taxes (Donald Trump), improving skills (Hillary Clinton) or building infrastructure (Bernie Sanders).

But can all these manufacturing, service and knowledge-intensive jobs that were outsourced or offshored to China, India and other places really be “brought back,” as the candidates seem to believe?

In short, no. Our own research suggests that many of those jobs are pretty much gone for good. And it has a lot to do with how the global economy works. Instead of hoping that firms eventually bring jobs back, the focus should be on developing a new type of worker with a skill set that takes advantage of the needs and reality of our increasingly globalized and networked economy.

History of offshoring

Offshoring of manufacturing took off in the 1980s, followed by offshoring of business services and knowledge work in the 1990s and 2000s.

Labor-cost advantages, increasing availability of qualified personnel abroad and advanced information and communication technology have made it attractive to create more jobs abroad rather than at home. Free trade agreements and the collapse of the Iron Curtain have also played a huge role. For example, estimates suggest that since 2001, 3.2 million jobs have been offshored from the U.S. to China alone.

Especially larger businesses in the U.S. and Western Europe have shifted a large proportion of their operations – from manufacturing to call centers, tech support, accounting and even innovation – to emerging economies where labor is still a fraction of the cost at home. In business services, for example, initial labor cost savings are reported to average between 20 percent and 40 percent.

Ten years ago, this trend led many U.S. economists, including Princeton’s Alan Blinder, to fear the loss of millions of jobs, in particular in technology and services, to developing countries. Maybe they were right about that. But is the trend reversible?

India is the undisputed leader of emerging markets to which developed economies are outsourcing high-technology jobs.
Sherwin Crasto/Reuters

Reason for hope?

The presidential candidates aren’t the only ones who think it is.

The so-called “Reshoring Initiative,” launched in 2010 by entrepreneur and manufacturing expert Harry Moser, aims to encourage American companies to do just that: “reshore” jobs that were offshored – specifically in manufacturing.

And it claims the tide is already turning. About 67,000 manufacturing jobs were added in the U.S. in 2015, compared with only 12,000 in 2003, according to the Reshoring Initiative. Of course this is only half of the story, as companies also continue to create new jobs outside the U.S. For example, while Apple recently moved up to 2,000 jobs back to Arizona, it will keep investing “as aggressive as ever” in China.

But still: reshoring appears to be happening. And why? According to the Reshoring Initiative, wages in emerging economies are rising, which reduces cost advantages of going abroad. Plus many U.S. businesses are increasingly caught by serious offshoring challenges. Often, so-called hidden costs add up, such as unexpected quality problems and delays, language difficulties and coordination costs. For example, having encountered substantial delays and language issues with its Indian offshore tech support centers, Dell Inc. decided in 2003 to bring these activities back to the U.S..

If more companies took account of those hidden costs, the group argues, a vast number of jobs could be brought back.

Companies are global

But here’s where the argument runs aground.

While it’s true that many companies do encounter hidden costs when they ship jobs abroad, reshoring has been only one, rather rare response companies have used to mitigate them.

Instead, we find in our own studies that many businesses take those hidden costs as an opportunity to learn and develop more effective global coordination structures and capabilities that ultimately reduce them and make the companies more nimble as a result.

For example, several U.S. tech companies offshored tech support to Egypt in the 2000s. When the Internet broke down during the Arab Spring in 2008, these companies experienced serious delays. Clearly this was an unforeseen cost that could seriously hurt the bottom line by worsening customer service and leading to defections to rival businesses. But rather than reacting by reshoring those jobs in the U.S., where such a problem wouldn’t have occurred, these companies invested heavily in cloud technologies and other infrastructures that now allow them to swiftly move operations to other locations in case of disruptions.

In other words, companies like these doubled down on their global footprint while reducing their dependence on any one location, whether it is Egypt or the U.S., thus increasing their flexibility to deal with unexpected problems. This makes it even less likely they’ll bring those jobs home.

Tech companies that moved some jobs to Egypt faced disruptions during the Arab Spring.
Asmaa Waguih/Reuters

Global mindset

And this global mindset means U.S. locations have become less central for the operations of U.S.-based companies. In fact, companies from Cisco to Google now operate multiple global centers with rotating and flexible workforces.

Global outsourcing service providers, such as Accenture, IBM Global Services and Infosys, have been at the forefront of this development. In our recent study, we found that these firms have established global networks of operations that not only give them access to talent pools around the world but allow them to process client requests 24/7 by shifting work overnight to operations in a different time zone.

On top of that, face-to-face communication – both inside the firm and with external clients – is needed less and less thanks to advanced communication technology. For example, many firms today use videoconferencing tools such as telepresence, which creates virtual meeting rooms with multiple participants who, in reality, sit in offices around the world.

Jobs of the future

So what does this all mean for the U.S. and claims that a future president could bring these jobs back?

First, it’s best to accept that most jobs that were once offshored are gone and instead focus energies on preparing the workforce to get ready for the new global economy and take advantage of the jobs that will be up for grabs in the coming years. For example, significant technological advancements in robotics and 3D printing will clearly offer rich opportunities for domestic manufacturing and job growth.

Yet, to reap such opportunities, education and training are key – though in a different way than most people think. In today’s economy, generic STEM skills – in science, technology, engineering and math – can be easily replaced in emerging economies thanks to the increasing standardization of knowledge work and tech jobs around the world. What is needed instead is a more unique blend of qualifications combining local and global expertise, technical and interpersonal skills.

Certainly, U.S. workers need to be technically trained at the highest standard. But this is not enough as emerging economies are catching up fast. Thanks to population growth and improving education, India and China produce more than 10 times as many science and engineering graduates as the U.S. That is why U.S. workers also need to be equipped with strong interpersonal and leadership skills as well as local expertise to remain competitive.

More specifically, they need to learn to work in international and intercultural teams, lead local and remote staff, and become intimately familiar with both local and global client needs and supplier expectations, so they cannot be so easily replaced.

Therefore, old recipes, such as lowering corporate taxes, investing in infrastructure and technical training, will barely help the U.S. bring back old jobs. Nor will “building new walls” make the U.S. less dependent on foreign talent pools and expertise.

The focus instead needs to be on preparing a U.S. workforce for an economy that is increasingly globally connected.

Stephan Manning, Associate Professor of Management, University of Massachusetts Boston and Marcus M. Larsen, Assistant Professor of Strategic Management and Globalization, Copenhagen Business School

This article was originally published on The Conversation. Read the original article.

The Conversation

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10 thoughts on “Trump and Clinton want to bring back millions of outsourced jobs – here’s why they can’t

  1. PIt is largely B.S. as one person mentioned above because it’s all about the ALMIGHTY DOLLAR. Jobs can be brought back but you have to look at how we got this way so you don’t repeat history, or let corrupt government repeat history and sell out America again. It was NAFTA that was started by Bill Clinton that got the whole thing started in the 80’s. The reason they did it was….well, companies paid lobbyist who paid Clinton off to pass such a heinous piece of legislation. You know how that works right…the lobbyist paying off politicians thing?
    NAFTA in the end, would allow US companies to exploit cheap labor and the lack of regulations in countries like China and India was and extra savings for them, especially where manufacturing was concerned.

    So it started with manufacturing and even countries like Ireland where involved where for a short time Ireland experienced an economic growth spurt they dubbed “The Celtic Tiger”. Sadly and as is usually the case, greedy companies soon realized that the further east they moved, the cheaper the labor got and regulations became non existent. So say goodbye to your clean air and water.

    Then other companies (non manufacturing) wanted to cash in on at least the cheap labor piece. U.S Hi Tech jobs found India who was ramping up training in Hi Tech to grab some of these jobs. Today India’s plan to grab these jobs has worked out well for Indian companies, while their workers are still under paid or exploited. I use the word “exploit” because that’s really what’s going on here. We had prevailing wages in the U.S. for a certain jobs. But companies can pay pennies on the dollar to workers in different countries doing the same work. So is that not exploitation of that worker? They are not being paid the same amount of income to do similar work, so yes, they are being exploited whether they know it or not. For example, if a software developer in the U.S. can buy a home, a car, have children on his salary in the U.S., shouldn’t an an Indian worker doing a similar job be able to do the same? Yet in India all he can afford is an apartment and is on a very tight budget. That exploitation.
    So how do you get these jobs back in the U.S.? Well since the government got the U.S. in this mess they are really the only ones who can fix it if they want to. There is a video of Hillary Clinton herself in India (on YouTube) explaining when asked at a conference in India “what will you do about outsourcing to India if you are elected?” and she clearly stated that “Oh there isn’t a lot we can do to stop that….” which is absolute lie but a problem her husband created and I’m sure he was well paid under the table for passing that legislation. There are a couple things that can be done.
    First is, you can tell American manufacturing companies that if they have their products made overseas, then when those goods are shipped back and sold in the U.S., they will have a heavy tariff put on them so that those “cheap” goods will then cost as much as a similar made American product and in a country where we have clean air and water regulations.
    Then American consumers when faced with similar prices products would buy the American made product which is usually of better quality anyway. For off shoring of jobs the answer is a little more complex. The government simply tells the company doing business in the U.S. that they CANNOT offshore their IT jobs if they are providing services to a U.S. company.

    The point is….it is VERY EASY TO SEE how American companies and now foreign companies who are allowed to do business in America are exploiting workers in the U.S. and/or overseas to increase profits. Workers are not paid at the same rate overseas for similar work and so they are being taken advantage of, but they don’t even realize it. Companies overseas do not have the clean air and water regulations that the U.S. has. Not U.S. regulations aren’t perfect, but they are MUCH BETTER than those in China or India where air is so bad the people are suffering from it. But their own governments don’t care as long as the governments are being paid to allow the exploitation.
    But these differences…unfair labor and lack of regulations saves corrupt companies millions and they make it hard for the U.S. to compete so you need to level the playing field somehow and it’s not that difficult.
    Going oversears has NOTHING to do with skills so don’t kid yourself. There are still kids coming out of American schools who are sharp, but it sounds much better if a company tells you “Oh we had to go overseas to find good talent” which is BULL SHIT!
    Politicians that orchestrate these deals are great at Self Service, not public service. They will take cash under the table to do anything you pay them for…look at history to see this and the allowance of “Lobbyist” in politics. Politian’s are not SMART people….they are corrupt people. I would rather have a person of integrity and honesty making decisions that affect us all, rather than having these “SMART” people serving themselves.

    • Lazy and STUPID Americans are crying over out sourcing.If they want job get the hell out of Application Software,Invent patents in CORE jobs.Indians in India though they are paid less in dollar terms when you convert in to rupee is very high.They can have a cook, car driver etc in India which you will never hear in US.US corporate wants software to be done at cheaper rate.There is NO reason for them to listen to Trump.Application software Engineers are FOOLS.I CHALLENGE them what ever work they do in US I can get it done it at a throw away price by high school students in India.
      So moral of the story is LET THE Foolish Application software Americans Perish.Nothing will happen.Corporate will not go and BEG Americans for vote.Only Trump should be worried about loosing popularity among foolish application software Engineers.

      At the same time we do NOT want polluting selected manufacturing jobs in India.Let Americans Enjoy pollution.

  2. As technology increases, I also agree that it is inevitable for certain jobs to stay centrally located in one place. Cloud technology makes it extremely easy to share documents from seven different company locations around the world, so what’s the point in keeping these locations all in one place? A lot of businesses want to expand and build their network. Yes, incidents can happen that hinder the progress of global expansion (like what happened in Egypt.) However, what if this happened in the United States and they had no other offices to transfer data and incoming workloads to. This makes me think of house phones. Yes, they are reliable but what’s the point in having one if everyone in your house has a cell phone anyway? What’s the point of keeping these jobs in the US if the technology is there to expand and it’s only getting increasingly better to create a seamless international network.

  3. I don’t think we can stop offshoring. First of all, United States doesn’t have cheap labor. For example, In United States, the cost of a plumber ranges from $160 to $430 for a typical job with the average cost per hour ranging from $45 to $150. In China, a plumber will take less than 100 Chinese Yuan (around 15 US dollar) and get the job done. It is over 13 to 38 times more! Let’s say, if Trump stop offshoring, there is not cheap labor for US market, the average cost of American family will be increase a lot. Just imaging you have to spend 100 dollars for a poor-quality T-shirt that made in American. Secondly, most of offshoring company from United States are related to manufacturing jobs, if bring manufacturing back to us, the environment will be polluted. I don’t think any American want to live in a serious polluted environment. More importantly, for manufacturing jobs, it takes a lot of time to training workers, it won’t be easy for Americans to have the new skill. Thirdly, it is trade protectionism behavior, it will damage other country’s economy, and it also killing globalization.

  4. I agree that the key in today’s economy are training and education. It’s really important to our workers to be trained properly especially for international or intercultural. It is important that US workers globally connected

  5. it is important that we don not stop offshoring but I also think it is important to have these jobs in the US too. I found it interesting when the article talked about slower communication when things wen wrong in Egypt. This is definitely a major flaw in this but does not mean offshoring should be eliminated. This was written before the new President was elected. With Trump as our president I am interested to see what his plans are with this. Trump plans to bring these offshore jobs back to the US by tailing taxes. It is important that if these jobs come back to the US that US workers are properly educated and trained. Offshore countries have more intelligent graduates which leads to more success in the field. I agree that it is important to prepare the US workforce for an globally connected economy. Many companies have already beg bringing back jobs into the US.

  6. I agree that we cannot stop offshoring. Because there are cheaper labors in developing countries, and the global communication become more and more convenient. Offshoring is a trend, no one can really stop it. Furthermore, if we really bring some jobs back to the United States, especially manufacturing jobs, then our environment could be polluted. I don’t think people want to sacrifice their environment. Moreover, instead of trying to reshore the jobs, it will be more realistic for Americans to develop new skills that can’t be easily replaced. After all, we cannot deny that offshoring makes a lot of jobs disappear. This is a challenge to us, but also, it could be an opportunity. It’s time for us to think about what the next step will be.

  7. Total BS. America is the largest market in the world. We have allowed foreign penetration of out government to the extent foreign nations are free to buy up companies and land for bargain basement prices. Unlimited immigration have bankrupted federal and state govts to the point we are paying these countries for keeping these people here. It is time to end all immigration and to begin deporting those from Asia, Africa, and especially the Middle East. Meanwhile, build the wall and cut off trade with nations hostile to this country. America, by this trade, is paying our enemies to invest in and build up their military and industrial competition to the point America is being bled dry by all the cheap labor and imports. It is time to withdraw from free trade and invest in our own people. China’s markets would instantly collapse without their access to our markets. Break up the big banks and insurance companies as well as monopolies like Wal-Mart in order to bring back small business, the creator of most jobs the last 100 years. Get rid of federal run education and bring it back to the local level. Set up the tech and trade schools in partnership with the companies that need them so they don’t have to import foreign labor. Foreigners coming here also act as corporate spies for their nations and have ripped off more than 1 trillion dollars worth of company secrets since the 1980s. Stop funding the World Bank and IMF because it is American taxpayer money that sponsers the Chinese and Indian startups that are taking our jobs. Make science and technology scholarships more plentiful and cut way back on Law degrees from the major universities. America has always needed fewer attorneys and more engineers and mathematicians. Cut taxes on business owners and apply tariffs to imports so that American businesses can compete. Yes, prices will rise by so will better paying jobs. Our current method of unlimited free trade means our country will soon be owned by foreign owned banks and your families will be working as slaves. your choice America. Do not believe these international working talking heads. They are on the payroll of the foreign international banks and trade organizations. Trump is right and his policies will work.

  8. Trump can NOT stop off shoring.At best he can give 0% tax to those companies who employ only Americans.For software entry level positions US companies need to spend 1/5 th to 1/10 th of the cost spent in US for works done offshore.Corporate America will defenitly reject Trump’s offer.There will be NO takers of his tax cuts.It is simple arithmetic.If he forces US companies to stop offshroing other European companies will take advantage.There will be no one to buy US products because cost will be 5 to 6 times high.Then American companies will have to shut down.

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