Technology Administration Report On Offshoring Released

By David Bruggeman
August 31, 2006

At the end of July, Democrats on the House Science Committee released portions of a previously unreleased official report on globalization by the Administration; specifically the globalization and offshoring of knowledge-based industries. The report drew some controversy earlier in the year because the Administration only released a shorter 12-page version. The longer version, of which the Democrats posted only an “executive summary,” goes into more depth about trends in globalization and offshoring in the semiconductor, pharmaceutical, and IT software and services industries. It attracted our attention because of many similar findings between this report and the ACM Globalization report released in February of this year.

The report was conducted by the Technology Administration (TA), part of the Department of Commerce, which was required by law to conduct a 6-month assessment of implications of workforce globalization in knowledge-based industries. They also addressed trends in higher education in the U.S. and abroad. The review used data available through June 2004. You can access the executive summary and summary of findings and a 12 page overview online. Both are PDF files, with variations in image quality.

While the ACM examined the global migration of jobs within computing and information technology and how that migration influenced countries and businesses, the TA report focused on the effects of outsourcing on firms and U.S. competitiveness. Language in the report resonates with the competitiveness debate that has emerged from time to time since the 1970s. India and China (among other countries) are discussed in the TA report from the perspective of present and future economic competitors. Even with the broad industry focus of the TA report, the findings on some of the trends of globalization were similar to those of the ACM report. Here is a sampling of the TA findings:

  • The United States business climate, large consumer markets, and a formidable research and university system remain magnets for business activity and continue to attract leading scientific and technical talent within these industries.

  • Despite the challenges and risks associated with relying on foreign workforces, U.S. firms have and will continue to globalize in today’s competitive global marketplace.
  • U.S. businesses use workforces in other countries for a variety of reasons: cost savings, market expansion, increased focus on core competencies, and service of customers in other nations.
  • U.S. companies tap labor pools in other countries for specific segments of their operations, rather than the entire value chain of work, and appear to have maintained most higher-value work close to their home base.
  • The ability of developing economies to acquire sophisticated technology and to rapidly develop business and telecommunications infrastructure to support modern commerce allows the countries to attract foreign business investment and their domestic companies to compete with both U.S. and multinational businesses.
  • Although, both India and China are attempting to develop national science and technology education systems that meet international standards, they face huge obstacles in creating such systems.
  • Limits in available data make it difficult to quantify the effects of workforce globalization on an industry, worker displacement, national productivity, and economic growth.
  • There are a number of risks associated with IT services and software offshoring.

Taken together, both reports give a pretty good perspective of global trends in the IT software industry and are well worth a review.