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Why Regulating Offshore Outsourcing Will Hurt the U.S. Economy: An industry View



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Sep 15, 2004, By Dr. Adam Kolawa

One hot topic in this year's election is whether (and how) to stop U.S. companies from engaging in offshore outsourcing to India, China and other countries. Many people want to limit outsourcing in order to protect the U.S. economy. But will regulating outsourcing produce the desired effect? I don't think so. Outsourcing actually offers the U.S. a tremendous opportunity, and not taking advantage of this opportunity would come at a significant cost to the U.S. economy.

It's important to recognize that outsourcing can help us develop trading relations with the nations to which we are outsourcing. Such trading relations can lead to long-term opportunities for the U.S. For example, consider the evolution of the U.S.'s now vital trading relationship with Japan. At the end of World War II, Japan was largely undeveloped; if they remained that way, we might not have a trade deficit with them, but we also would have little to no trade with them. As Japan first began to develop, they flooded the U.S. market with sometimes strange exports. By the late 1980s, there was fairly widespread fear that Japan's economic development was going to threaten the U.S. economy -- just as there is now fear that economic development in India and China will threaten the U.S. economy.

Did Japan's economic development ruin us? Hardly. In fact, starting around the early 1990s, Japan became a prime market for U.S. exports. Many U.S. companies (including Parasoft, the software development company of which I am the CEO and co-founder) enjoyed much success exporting products to Japan since the early 1990s. To this day, Parasoft and many other companies have continued to build and foster relationships with Japanese organizations -- relationships that have been key to our ability to weather U.S. recessions.

If Japan had remained a less-developed nation -- as many in the U.S. initially hoped it would -- Parasoft and other U.S. companies would not have been able to reap the benefits yielded by our exporting to Japan. Job growth would have been slower, tax revenues from corporate profits would have been reduced, and many fewer U.S. companies would have weathered the previous (early 1990s) and current recession. Now, development in India and China is starting to promote new export opportunities. If it weren't for offshore outsourcing, these opportunities would not exist. We would continue to consider India and China to be nations that are not receptive to our technology exports (like we currently consider Africa and much of South America).

I think that when we hear about short-term job losses that result from outsourcing to India and China, we also need to consider the long-term benefits of these nations developing into prime markets for U.S. exports. From my perspective as the CEO of a technology company, it appears that having these new markets offers U.S. businesses, U.S. workers (and prospective workers), and the US economy a tremendous opportunity for growth and expansion.

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