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Why Can’t Americans Compete With Indians?

Posted on | March 26, 2009 | No Comments

Today, the AP reported that IBM will outsource 5,000 jobs to Indian companies.  The jobs reportedly will come from IBM’s Global Technology Services division which provides IT, business consulting, application services and training, among other services.  IBM is making the cuts in order to lower its operating costs.

This has become a trite business tale, one that evokes head-nodding and empathy from many business execs and head-shaking and resentment from many U.S. workers.  I definitely support a business owners’ freedom to choose her own inputs–human and otherwise.  I understand that a business’ ability to compete hinges on their ability to effectively manage costs and innovate their products.  Unfortunately, Indian workers and companies are able to provide a satisfactory product for a considerably lower cost than American firms and workers.  It just makes sense that, given a choice, a smart business owner will choose the best product at the best price.  But, now, given the state of the job market and the World economy, I’m starting to wonder whether businesses are actually getting the best product at the best price, and whether or not they can truly justify outsourcing work to other countries when American workers of every conceivable background are available and willing to work for lower prices.

If you look at the kinds of jobs being outsourced to India, you’ll see that they are largely IT, finance and telecom jobs.  But, recently, clinical trials management and even fast food orders have been moving overseas.  As I watch job fair lines wind around buildings and people flock to every online site with the word “job” in the URL, I have to wonder why it is that Americans cannot compete with Indians now.

Here are my issues:

  • The Quality of Indian Schools
  • The Availability and Willingness of American Workers to Work or Lower Wages
  • The Hyprocrisy

The Quality of Indian schools – What do we know–really–about the quality of Indian schools?  Are they more DeVry than Wharton?  What’s interesting to me is that U.S. businesses aren’t falling all over themselves to hire DeVry, ITT, University of Phoenix and Kaplan grads.  They don’t send armies of recruiters to career college or vo-tech campuses.  Yet, sight unseen, they farm out millions, even billions of dollars of work to Indian firms based on two criteria: price and speaking English.

Case in Point: Outsourcing Financial Analysis and Business Services.  A 2008 survey of Indian business schools revealed that standards were uneven, that 91% of the Indian professors who taught Business Environment courses could not read a financial document and others were unaware of key economic developments in other countries.  The survey concluded that many business school students earned degrees that were “devoid of any real value”.

Another Case in Point: Outsourcing Clinical Trials.  I checked out medical schools in India and found that Indian students leave high school after 2 years and go directly to medical school for 2-3 years.  India boasts that they have 600,000 practicing physicians.  That’s great, but most of those doctors are not qualified to practice in the U.S, and India’s enforcement of trial protocols is spotty at best.  So, why would U.S. companies farm out over $1 billion in clinical trials to them (see Time.com’s “Should Clinical Trials Be Outsourced”).

That about sums up The Hypocrisy.

The availability and willingness of American workers to work for lower wages – Given a choice, no one, neither Indian nor American, wants to work for little money.  Indian workers work for less because they can afford to and because they have to in order to outcompete American workers and firms.  American workers were previously unwilling, and in some cases, unable to work for low wages.  Our cost of living and education costs are much higher than those of Indians.  Our unions, our creative financing methods, our opportunity-rich economy and our obsession with wealth meant that American workers and firms were unwilling to work for low wages.  But things have changed, haven’t they?

So, why can’t Americans Compete with Indians?

The usual arguments center on the fact that Indians receive better instruction in math and science at earlier ages; that there is a shortage of American workers with the “right” skills; and that U.S. employment laws, unions, competition and cost of living require that Americans be paid far more.  But now that there is a surplus of American workers of every background, all of whom desperately need a new job and many of whom are qualified and willing to accept lower wages for outsourced jobs (remember, the qualifications are primarily price and speak English), why are companies like IBM outsourcing?

The only answer that leaps to mind is that American workers are not willing to work for low enough wages.  It’s true that most U.S. b-school grads would run screaming away from a $10 an hour job.  But, given the economy, many might accept as little as half their expected salaries just to land a paycheck.  Sure, half of six figures is not nearly as cheap as $10 an hour, but there’s a bit of apples and oranges at work here (more hypocrisy).

If IBM and other outsourcers targeted the same level of worker in the U.S. as they do in India–the DeVry-University of Phoenix of Phoenix grads–they could get a lot closer to paying American and Indian workers a comparable wage.  It makes no sense to expect Penn State, Morehouse or Stanford grads to work for the same wages as vocational school grads.  But, it does make sense that IBM and others should offer jobs they are considering outsourcing to Indian workers to American workers at lower wages, and that American workers consider lowering their wage expectations given the scarcity of work and their need for cash.  That way, businesses and workers meet in the middle.  Americans get more jobs.  Businesses get lower costs for the same level of output.

I realize that American workers may worry that they will be lowering their value by working for less, but a Mercedes in a recession is worth less than a Hyundai.  Creative get-it-off-the-lot approaches are in order.

Notes

Now, I want to add a caveat (or, three) to my argument.  First, I’m not saying that all Indian workers are poorly educated; only that most U.S. firms have no idea which ones are and don’t care as long as the price is right and they speak English.  Second, not all Indian schools are substandard; but, again, most U.S. decision-makers have no idea which schools are which.  Third, I did not intend to imply anything negative about DeVry, University of Phoenix or Kaplan grads; many are smart, hard-working people who have opted for a more technical (versus liberal arts) education.

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