Economic & Business Focus: Protecting the Offshore Advantage

Offshoring is both a business imperative and the center of a political storm with potentially devastating consequences.

Business executives attending an offshoring conference last September in California were met by protesters, some of whom had lost their jobs to overseas ventures. The protesters are part of a growing grassroots movement opposed to the shift of work overseas. They're aligned with organized labor, free-trade opponents and anti-globalization forces. In an election year, this is a volatile group with an agenda that business leaders find troublesome. CFOs must address offshoring in the political and PR arenas, or they risk a wave of regulatory and legislative moves that could undercut their strategic and financial goals.

Concerns about job losses resulting from moving operations to foreign shores are quickly translating into a bipartisan push for restrictions. Carrier Corp. announced last October that it would shut down its manufacturing operation in Syracuse, N.Y.; lay off 1,200 workers; and move the work to China and Singapore. U.S. Rep. James T. Walsh (R-N.Y.) immediately proposed a bill that would require companies which do more than 10 percent of their business with the federal government to keep at least 50 percent of their employees in the United States.

The powerful U.S. House Small Business Committee held hearings on offshoring in June and October of last year, with committee chairman Rep. Don Manzullo (R-Ill.) calling for legislation to restrict the movement of jobs overseas and to clamp down on imports. Sen. John Edwards (D-N.C.) advocates a higher tax rate on U.S. corporations that send production offshore. In addition, bills have been introduced to eliminate H1-B work visas. Six states are moving to ban the offshoring of state-funded work.

Although such proposals may seem too draconian to attract the full support of Congress in the near term, the controversy is fueling the very real threat of new trade restrictions. Citing job losses in the United States, the Bush administration is pressuring China and Japan to inflate their currencies. Sen. Joseph Lieberman (D-Conn.) proposes slapping them with higher tariffs if they don't. Rep. Duncan Hunter (R-Calif.) has introduced a bill that would mandate that 65 percent of the contents of weapons purchased by the federal government be made domestically, a move that is sure to incite trade retaliation by the Europeans.

The clamor about moving work to foreign shores did not reach full force until white-collar jobs began to evaporate along with manufacturing positions, and replacements failed to appear. A 2002 report from Forrester Research claims that, by 2015, 3.3 million U.S. white-collar jobs -- about 200,000 jobs a year -- will move to low-wage countries such as India, China and Mexico. An October 2003 study from the University of California at Berkeley makes that estimate look conservative; it claims 14 million jobs are at risk.