A New York Times article published this week discussing the fact that IBM now employs more workers in India than it does in the U.S. should come as no surprise. India continues to churn out science and technology graduates at a rate almost triple that of the United States, and at less than one-third of the cost.
For a country with a population of over 900 million — roughly three times the U.S. — India could soon overtake the United States as the world’s hub for technological innovation and business.
The wizened old executives at IBM simply cannot be oblivious to this.
For years, IBM and other technology companies 'insourced' lower cost Indian tech labor on a contractual or consulting basis. In fact, some Indian firms — for example, Infosys and Tata Consulting — have created multi-billion dollar businesses from labor arbitrage — importing Indian workers on HB-1 visas to work in the United States at a fraction of the cost of a U.S.-educated worker.
As cloud-based services become increasingly common, the need to actually import Indian workers on U.S. work visas is becoming less important. With the cloud — IT services can become location-independent; customer’s needs can be fulfilled by anyone, anytime, from any place globally
The New York Times article addtionally points out that IBM is far from the only U.S. firm capitalizing on labor arbitrage. Tech manufacturers like Apple and Dell have long relied on a primarily foreign work force for the manufacture of its products.
Apple’s justification for this was that the manufacturing relied primarily upon low-skilled labor, while the design and distribution were reserved for higher-skilled American workers. But with manufacturers like Tesla and Solar City proving that uniting both design and production on the same shop floor can drastically improve quality and time-to-market, the offshoring rationale seems less and less justifiable.
IBM’s primary business now consists of servcies, that is data storage, cloud-based software, and outsourced IT consulting. These rely on a college-educated tech work force.
In the U.S. such services are primarily produced by college graduates as well. IBM’s business has creeped up the value chain, no longer consisting primarily of low-level support services, but increasingly focusing on high-level software design and problem solving traditionally reserved for the U.S.-based technological labor force.
While India is flourishing under the outsourced labor market scenario, the U.S. worker finds himself competing on a somewhat unfair playing field. It costs roughly $100,000 to produce a competent software engineer in the U.S. The average cost of producing a software engineer in India is roughly $20,000 — with the Indian government picking up the tab in many instances.
Furthermore, while science, technology, engineering, and mathematics (STEM) education has become and almost dirty word among U.S. educators— who prefer a more liberal-arts oriented curriculum — India rewards STEM degrees to the exclusion of almost all other professions.
The global marketplace will not shrink. Investments will flow where they are most richly rewarded. Customers will seek the lowest cost and highest value options among competing providers. An America First approach, one attemping to merely impose trade sanctions on imports of goods, labor, and services will fail — flatly.
An appropriate response to rising global competition in tech goods and services should be a heightened investment in STEM education at all levels. We should understand that an educated, technologically competent workforce is not merely a function of market demand, but a core national infrastructure priority. The U.S. government should continue to invest in technological innovation and education because it ultimately protects American interests from global competition. The Indians and Chinese have proven this model — provided state-sponsored education in core industries — and over the past two decades basically risen from starvation to prosperity to a real competitive threat to the United States.
While we should not lead with protectionism, the U.S. should not give away its intellectual property either. When asked during a quarterly earnings call in 2006 why his company had not moved more of its chip manufacturing facilities offshore, Intel CEO Andy Grove responded that shop-floor innovation drives chip design to a greater degree than most of its competitors understood.
The Chinese, Korean and Indian firms manufacturing outsourced U.S. designs understand this all too well. Just compare an iPhone to a Samsung Galaxy smartphone. Their designs are remarkably similar because Samsung essentially produces all of Apple’s designs — and borrows significantly from Apple’s intellectual property along the way to developing its own competing products.
There are two primary reasons to protect the U.S. worker. The first is obvious. Without a robust work force, no one will be able to afford all of the goods sold statesside. The second reason, though at least as important, is slightly less obvious. By outsourcing manufacturing and services, we are essentially giving away the secrets going into technological innovation tgo begin with. We need to be careful that in the quest to find ever cheaper workers we don’t give away the whole store to foreign competition.
Armstrong Williams is the author of "Reawakening Virtues." He is a political commentator who writes a conservative newspaper column, hosts a nationally syndicated TV program called "The Right Side," and hosts a daily radio show on Sirius/XM Power 128 (6-7 p.m. and 5-6 a.m.) Monday through Friday. He also is owner of Howard Stirk Holdings Broadcast TV stations. Read more reports from Armstrong Williams — Click Here Now.
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