Off Shoring

Business Horizons (2005) 48, 513 — 523

www.elsevier.com/locate/bushor

Another look at offshoring: Which jobs are at risk and why? Martin Stack*, Ricard Downing Helzberg School of Management, Rockhurst University, 1100 Rockhurst Road, Kansas City, MO 64110, USA

KEYWORDS Offshoring; Outsourcing; Healthcare; Information technology

Abstract Many recent articles regarding offshoring have made sweeping, industrywide generalizations about the impact of this process, but have not typically addressed the specific types of jobs that are at risk and why. In this paper, we develop a framework that integrates several key variables—the (changing) need for proximity, the regulatory environment, firm-level security and intellectual property rights concerns, and the socio-political context within which the offshoring phenomenon is unfolding—which collectively help explain how vulnerable particular jobs are to offshoring. We use this framework to examine what types of healthcare and information technology jobs are most and least at risk to offshoring, and suggest extending this model to other industries in order to better understand which jobs are most vulnerable to offshoring and why. D 2005 Kelley School of Business, Indiana University. All rights reserved.

bThere is no job that is America’s God-given right anymore.Q —Carly Fiorina, former Hewlett-Packard CEO (Drezner, 2004, b 10) bEverything you can send down a wire is up for grabs.Q —Nandan Nilekani, Infosys Technologies CEO (Drezner, 2004, b 10) bWho needs to pay us $350,000/yr if they can get a cheap Indian radiologist for $25,000/yr?Q —(Pollack, 2003, b 4)

T Corresponding author. E-mail addresses: [email protected] (M. Stack)8 [email protected] (R. Downing).

1. Offshoring does not equal outsourcing In November of 2002, Forrester Research released a research brief entitled b3.3 Million U.S. Services Jobs to go Offshore.Q (McCarthy, Dash, Liddell, Ross, & Temkin, 2002) The following February, Business Week discussed the offshoring phenomenon in a cover story entitled bIs Your Job Next?Q (Engardio et al., 2003) These two reports stimulated a series of additional studies (e.g., BBC News World Edition, 2003; Economist, 2003; Gartner Research, 2004; Gentle, 2003; Greenhouse, 2003; Moran, 2003; National Association of Software and Service Companies, 2003) which provided anecdotal evidence of a great migration of white-collar service jobs offshore. Offshoring, or offshore outsourcing, became a major topic surrounding the

0007-6813/$ - see front matter D 2005 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2005.04.001

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M. Stack, R. Downing has not generated as much discussion concerns the types of jobs most at risk for being offshored. In direct contrast to initial examples of service sector offshoring from the early 1990s, more recent examples have gained wider attention as it has come to light that, perhaps for the first time, some higher-skill jobs may also be at risk. This paper develops a framework that addresses the reasons for and implications of these developments. The first step is to define key terms. Although some consensus is beginning to emerge regarding the terms boutsourcingQ and boffshoring,Q early articles often used the term boutsourcing,Q even when truly focused on the phenomena of jobs being shifted overseas or offshoring. More recent articles such as Schultze (2004) use the terms as defined in Table 1. Offshoring occurs when firms transfer jobs abroad for work that has traditionally been done in their home country. For example, when an American company sends manufacturing operations to Mexico or a call center to India, it is offshoring work and jobs from America to Mexico or India. In this scenario, the company is sending jobs typically done in America to another of its own branches in

2004 presidential election, and major newspapers and magazines have continued to cover the issue since then. However, while many scholars have discussed the offshoring of manufacturing production, the offshoring of services has not yet received the same level of analysis (Fig. 1). In 2004, Pfannenstein and Tsai offered a synthesis of the literature regarding services offshoring, but the paucity of scholarly references reflects the basic fact that there has not yet been much academic discussion of this phenomenon. The first series of scholarly articles on this topic began to appear in 2004. One particularly important collection of articles is found in the 2004 Special Issue of the Indian Journal of Economics and Business, which contains 15 academic articles on offshoring. Most practitioner-oriented articles thus far have focused on one of two issues: estimates of how many jobs have been or will be sent overseas, or assessments of how advantageous offshoring really is once indirect and direct costs are factored in. While the debate regarding the scale and profitability of service sector offshoring will undoubtedly continue for the foreseeable future, one issue that

Proximity Does the job require physical proximity to the workplace?

yes

no

Socio-Political context within which the offshoring phenomenon is unfolding: − isolated incidents of constraint − forcing new regulatory initiatives − backlash

Regulatory Is there a law or regulation preventing the job from being done abroad?

LESS

yes

Likely to be Offshored

no

Firm Level Security, Intellectual property rights, Privacy, Risk

yes

no

MORE Likely to be Offshored

Figure 1

Framework for job offshoring decision making.

Another look at offshoring Table 1

515

Definitions of offshoring, domestic outsourcing, and offshore outsourcing

Term

Definition

Example

Offshoring

A company moves existing U.S.-based jobs to one of its own branches or subsidiaries in another country

Domestic Outsourcing

A company decides to bhire-outQ jobs traditionally done bin-houseQ

Offshore Outsourcing

A company decides to bhire-outQ jobs traditionally done bin-houseQ to a firm in another country in which the hiring company has no direct ownership and over which the company has no direct authority or control.

Dell Computer moves help-desk jobs to its own offices in Mexico. OR Google opens its first engineering R&D center in Bangalore, India, but continues to manage the operation. A large bank holding corporation contracts with an outside firm located in the U.S. to carry out its check processing operation. Dell Computer contracts with a firm based in China to carry out a percentage (or all) of its help-desk support operations.

another country. One of the challenges in estimating the dimensions of the offshoring phenomenon is that many American firms are loathe to report precisely the amount of work that had been done by Americans that is now being handled by foreign workers. In contrast, domestic outsourcing refers to steps taken by American companies to hire out to other U.S. firms work that had previously been handled internally. For example, an American telecommunications firm might determine it would be more efficient to contract with a U.S.-based market research firm, rather than continue to perform such work internally. This is part of the bmake or buyQ decision, with which all firms grapple as they determine how vertically integrated they should be. Although the term only lately seems to be generating a lot of public discourse, firms have always been engaged in some form of outsourcing, since it is never clear exactly where the vertical integration line should be drawn. As regulations, technologies, and competitors change, the optimal vertical boundaries for individual firms will naturally evolve. While difficult for the departments that are eliminated, this process may not cost jobs if new firms hire additional staff for the contracts they win; in fact, if this process allows firms to become more efficient and concentrate on what they do best, the net number of jobs in the overall economy may actually grow. Yet, it is not domestic outsourcing that has gained the media’s attention; rather, it is the sending of jobs overseas, either when firms have outsourced work to another foreign company (offshore outsourcing) or to one of its own foreign subsidiaries (offshoring, but not outsourcing). An American firm may send operations to another country, but continue to manage the process internally. For example, in late 2003, Google announced plans to open its first engineering research and development center outside of the

United States. This center will be based in Bangalore, India; however, since Google will continue to manage this operation, this is an example of offshoring, but not outsourcing (Mangalindan, 2003). An American firm may also contract with a foreign firm for operations that had been handled internally. Several years ago, Delta Airlines contracted with firms in India and the Philippines to handle many of its reservations. In this case, an American firm offshored and outsourced work that had been done domestically by company employees (McCarthy et al., 2002). An important dimension of the current offshoring debate concerns the types of jobs affected. American companies began offshoring large numbers of manufacturing jobs in the 1970s and 1980s. In a sense, this followed an earlier pattern of moving jobs from higher wage parts of the U.S. to lower cost areas; however, moving jobs out of the country, while a logical extension of this strategy, was more complicated and depended on several additional developments. The offshoring of manufacturing jobs did not emerge as a large scale issue until low wage rates in countries such as Mexico and China were combined with a number of other variables, including: transportation costs driven in part by ! Falling dramatic improvements in containerization and

! ! !

supply chain management; Falling international trade barriers that facilitated the exporting of products to the U.S.; Declining barriers to foreign direct investment that encouraged multinationals from the U.S. and other western countries to invest in production and distribution facilities in foreign nations; and Improving worker and production standards which, over time, raised the quality of the goods produced in foreign nations to U.S. standards.

516 Collectively, these variables helped pave the way for the slow but steady decline of the U.S. manufacturing base, which fell from 28.6% of the GDP in 1950 to 15.5% in 2000 (Schiller & Trebing, 2003). Manufacturing-based offshoring, though criticized by those directly affected, did not resonate as a rallying cry in an economy that was becoming increasingly dependent on services. In his article on surviving the services revolution, Karmarkar (2004) describes the focal shift from manufacturing offshoring to services industry offshoring. He states that bwe are now riding a tidal wave of change we can think of as the industrialization of services.Q (p. 100) According to Harvard economist Dani Rodrik, politicians and opinion leaders did not pay attention to offshoring until they began to see btheir neighbors being displaced,Q which did not occur until the 1990s, when a large and growing number of service sector jobs became capable of being offshored (Davis, 2004, b 9). Just as largescale offshore manufacturing depended on the alignment of several important factors, so too the emergence of service sector offshoring depends on several new developments. As with manufacturing, lower wages for core service jobs is key. Just as manufacturing offshoring depended on government trade policies that reduced tariffs on exports and facilitated foreign direct investment, the offshoring of service jobs, at least in some key industries, depends on government restrictions regarding whether the work can be performed overseas, perhaps outside traditional regulatory purviews. Yet, there are two important differences, as well. First, whereas manufacturing workers did not require university education, many service jobs require some level of higher education. Second, in order for companies in the U.S. to utilize skilled lower-wage English-speaking workers offshore, they require dramatically lower communication costs and improved telecommunication technologies to facilitate the immediate worldwide transfer of large amounts of data. This last factor has proven particularly important. According to Drezner: b. . .technological innovation has converted what were thought to be nontradeable sectors into tradeable ones. Manufacturing sectors have long been subject to the rigors of global competition. White-collar service sector workers are being introduced to these pressures for the first time— and they are not happy about it.Q (2004, b 32) DeLong and Cohen (2004) make a similar point as they examine the parallel between the late 19th

M. Stack, R. Downing and early 20th century advances in transportation technology that led to the creation of international markets for many agricultural and industrial goods, and the recent advances in communication technologies that are creating international markets for many services. A potential difference between manufacturing and service offshoring, however, is rapidity. It took decades for the world trading system to agree to systematically reduce tariffs on imported goods, whereas bservice trade isn’t much affected by tariffs, and can move as rapidly as the improvements in computers and communications allow. Therefore, the job loss can be more sudden.Q (Davis, 2004, b 8) Thus, estimates that the number of jobs lost so far to services offshoring is rather insignificant may not tell the whole story if the floor is being readied for a more rapid redesign of the coordination of global services. This paper, however, is not intended to contribute to the ongoing discussion regarding the potential impact offshoring poses to the economy. Instead, it seeks to approach the issue from another perspective: Given that we are experiencing the offshoring of services and that nearly all projections are for increases in these numbers, can we begin to examine and forecast the types of service sector jobs that are most and least at risk for offshoring?

2. Determining which jobs are vulnerable to offshoring Several discussions regarding the impact of offshoring have been conducted on a relatively general level by attempting to rank which industries are at greatest and least threat. Harper (2003), for example, highlights the five industries he believes are most insulated from offshoring: healthcare, other in-person jobs (such as teaching), real estate, financial services, and security. However, it is not clear that industry-level generalizations like these are the most useful way to investigate the offshoring phenomenon. We believe a better approach is to examine specific jobs within particular industries to assess the likelihood of offshoring. We have developed a framework which relates the changing requirement of some work for direct physical presence in the U.S. (proximity), the regulatory environment, firm-level concerns regarding such issues as privacy and intellectual property, and the broad socio-political environment in which agents make decisions regarding offshoring. Our framework illustrates how these factors

Another look at offshoring interact to shape the degree to which a particular job is threatened by offshoring. The framework begins by examining how a series of key developments is redefining the need for personal interaction and/or geographic closeness (proximity) for some jobs. While other commentators have made similar observations, our position is a bit different. First, we believe the analysis should occur at the job-level rather than the industrylevel, since closer examination reveals there are safe and unsafe jobs even within Harper’s five bsafeQ industries. Second, while we believe history aids in understanding how markets evolve, we feel the rapid changes of the last 15 years make it difficult to project future job losses based on past patterns. This, too, separates us from other commentators. For example, Drezner (2004) asserts that offshoring has been blown out of proportion, since bclose to 90% of jobs in the U.S. require geographic proximity.Q (b 13) According to Drezner, if the services bhave to be produced and consumed locally. . .outsourcing them overseas is not an option.Q (b 13) However, since the offshoring of services phenomenon is largely a function of emerging developments that have made new approaches technically feasible and economically viable, it may not be appropriate to forecast future job immunity to offshoring based on the degree to which such work formerly, or even currently, required proximity. A number of variables combine to determine the degree to which a worker must be based in the United States, and as these variables change over time, the ability to offshore a particular job may increase or decrease. One particularly important factor is technology. Dramatically lower telecommunication costs, significant increases in telecommunication capacity, and radical improvements in computerization and digitization have redefined the range of services that may be provided remotely (McKinsey Global Institute, 2003). Together, this combination of developments is calling into question many long-held assumptions regarding which services must be delivered by nearby providers (proximity). While Drezner (2004) may be correct that historically 90% of jobs required close geographic proximity, it is clear that technology is steadily expanding the range of services that can be provided remotely. Fitzgerald (2004) relates the example of how fast food orders at some McDonald’s restaurants in Missouri are now routed through a call center two states away in Colorado. This is a simple yet telling example of how emerging technologies are redefining the need for proximity for certain service workers, and

517 serves to confirm our assertion that analysis should occur at the job level. If the first box of the framework examines what is becoming possible, the second examines how the regulatory environment helps shape which of these new technologies can be adopted by firms and organizations. The regulatory environment is dynamic and can act to facilitate or restrict offshoring. If the U.S. government passes legislation that restricts the ability of firms to offshore specific jobs, the game is over. On the other hand, if the government rescinds long-standing legislation mandating specific work be done by Americans or in America, new opportunities for offshoring may emerge. A nation’s specific rules and regulations evolve over time, and these changes will have a dramatic impact on the types of jobs a society will allow to be offshored. If a law prohibits certain healthcare procedures from being done outside the U.S., the development of new communication technologies facilitating such work is immaterial; however, if the regulatory environment allows specific tasks to be done overseas, this raises a new set of questions. Once a firm has determined it is not restricted by law from offshoring and new technologies have altered the economic calculus in favor of moving jobs traditionally done at home to new overseas providers, the third box in the flow chart asks whether there are security, quality, privacy, or intellectual property concerns that may discourage the firm from offshoring certain jobs. While technology may make the offshoring of specific jobs financially feasible, companies may still elect not to offshore key functions if they are concerned about the security of key processes or products. This has been a significant issue for many firms in the information technology sector. Finally, suppose an organization has determined some new technology has rendered proximity unimportant, and does not find any compelling regulatory or firm-level concerns. Are there still factors, then, that may inhibit offshoring? We illustrate that these three decisions are all made within a broader socio-political context in which, for example, there may be community or other pressures that restrain offshoring. According to Tarun Das, head of the Confederation of Indian Industry, bThere is no economic limit to what can be outsourced to India. The only limit is a political backlash in the west against the migration of jobs to India and elsewhere.Q (Roberts & Luce, 2003, b 10) A recent example of this backlash occurred when several American states revised government contracts to require the work be done internally by an American firm, rather than sent offshore. In

518 2003, the governor of Indiana cancelled a contract with an Indian company, even though its $15 million bid was $8 million below its nearest U.S. rival (Alden, 2004). In this instance, the socio-political backlash against offshoring trumped traditional concerns of procuring optimal value for a state’s taxpayers and serves to redefine the term bbest deal.Q During the past year or so, interest groups have begun pressuring politicians for regulatory reform to address the threat offshoring poses. Thirty-one states recently enacted legislation prohibiting state agencies from using foreign offshore labor (National Conference of State Legislatures, 2004a), and 32 federal bills are currently being considered by the United States House of Representatives that address various aspects of offshore outsourcing (National Conference of State Legislatures, 2004b). These legislative proposals reflect some of the broad pressures being exerted on politicians and firms as they make decisions regarding offshoring. We believe decisions to offshore are shaped by broad socio-political forces, as well as by the three specific factors discussed above. Before we illustrate how this framework can be applied to some specific industries, it is important to address briefly another issue this discussion raises: the skill level of jobs threatened by offshoring. Drezner (2004) quotes from an International Data Corporation analysis that bthe activities that will migrate offshore are predominantly those that can be viewed as requiring low skill, since process and repeatability are key underpinnings of this work.Q (b 13) Mann (2003) echoes the view that jobs such as binsurance claims clerks, word processors, and secretariesQ (p. 9) may be good candidates for offshoring, and concludes that bwhat is notable about all these jobs is that they are at the lowwage, low-skill end of the job spectrum.Q (p. 9) While this characterization was certainly true at first, one of the most interesting recent developments has been the steady offshoring of progressively higher-skill work. In fact, it is now emerging that some medium- and high-skill jobs within particular industries are at greater risk for offshoring than lower-skill jobs within the same industry that require proximity and/or face specific regulatory hurdles. This development regarding skill level further distinguishes service sector from manufacturing offshoring. The immediate future of offshoring will reflect the interplay of technologies (which steadily increase the range of jobs that may be offshored) and regulatory environments and company policies (which will determine which of these jobs will, in

M. Stack, R. Downing fact, be offshored). In order to get a fuller sense of how the framework may be applied to specific industries, we offer partial analyses of two quite different ones: health care and information technology. Healthcare is important for consideration both because of its size (it accounts for approximately 15% of GDP (Smith, Cowan, Sensing, & Catlin, 2005) and because several commentators have judged it as relatively bsafeQ from offshoring. Information technology is also important, not only because it represents one of the most vibrant sectors of the overall economy, but because some writers view it as at relatively great risk to offshoring. The U.S. Department of Commerce estimates that by 2006, almost half of the U.S. workforce will be employed by industries that are either major producers or intensive users of information technology products and services (U.S. Department of Commerce, 1999). More nuanced reviews of each industry show industrywide generalizations are often inaccurate, and must be replaced by analyses which concentrate on specific job-level characteristics.

2.1. Is healthcare safe? According to Harper, healthcare is one of the industries least threatened by offshoring, since bYou can’t go overseas to see a doctor or nurse or get physical care.Q (2003, 5 Safer Sectors section) This assertion, however, ignores the basic fact that some healthcare jobs are in the vanguard of the offshoring movement. A more accurate statement would be that the range of healthcare jobs being offshored has steadily increased, to the point where it now includes professional, semi-professional, and non-professional healthcare jobs. By applying our framework to healthcare, we can see how offshoring has evolved in this complicated but important industry. The story begins in the early 1990s with the impact a series of computer and communications advances had on several lower-skill, lower-wage healthcare jobs in areas such as transcription services, insurance claims, and billing. These innovations ended the longstanding requirement these workers be based in the U.S. near specific healthcare facilities. As the geographic link was broken, it became apparent these and similar jobs could be performed abroad in countries such as India. Currently, somewhere between 4% and 10% of the $15—20 billion U.S. medical transcription industry is routed to India. The impact on individual workers has often been devastating. Maher (2004) recounts how Sheryl Matta, an American medical transcriptionist, now earns about half of what she

Another look at offshoring made several years ago, as her pay has fallen in the increasingly internationalized transcription industry. So seamless has this transition been that many American doctors do not even realize they are actually using offshore transcription services. Their level of awareness is likely to improve though, as a growing number of offshore transcription firms are exhibiting at the Medical Group Management Association’s (MGMA) annual meeting (Chin, 2003). As technology improves, as clients and suppliers develop closer relationships, and as costs continue to fall, we are likely to see further offshoring pressures for lower-skill healthcare jobs in coming years. As telecommunication costs declined during the 1990s and as a range of new technologies were introduced, a second wave of more sophisticated and complex jobs began to emerge as offshoring candidates. During this stage, offshoring began to impact not only lower-skill healthcare jobs, but jobs which required college degrees and extensive training. The terms blow-skill,Q bmedium-skill,Q and bhigh-skillQ are somewhat problematic. For healthcare, these terms roughly translate to the amount of formal education required: lower-skilled jobs do not typically require a college degree, medium-skilled jobs require at least a bachelor’s degree (such as a nursing degree), and high-skilled jobs require a medical degree or its equivalent. For example, some managed care plans developed Ask-a-Nurse programs, through which members were able to call licensed nurses 24 h a day for a range of medical help and advice. As communication costs fell and member databases improved, it became apparent that large numbers of English-speaking nurses in developing countries such as India and the Philippines could help staff these programs. The potential offshoring of nursing jobs marked a significant transformation in terms of the healthcare positions that were capable of being sent abroad. The third wave of this process was made possible by recent advances in technology, which have enabled a small but growing number of high-skill physician services to be sent abroad. Perhaps the most well-known example concerns radiology. As imaging equipment began to allow radiologists to read scans remotely, the potential emerged for these scans to be read not simply in the next hospital or city or state, but in other countries by significant numbers of English-speaking physicians. Roberts (2004) relates the story of how Jonathan Schlakman, a Harvard-trained radiologist based in Jerusalem, read a Philadelphia woman’s computeraided tomography (CAT) scan moments after her arrival at a hospital, and from Jerusalem made the decision regarding whether the patient needed

519 surgery. This is an example of offshore outsourcing of the professional interpretation of radiographic imagery. According to Dr. Schlakman, radiography is a very good candidate for offshoring, since ba lot of it is based on computer imaging, which you don’t have to be physically present for.Q (Roberts & Luce, 2003, 4) Andrew Pollack’s recent New York Times article bWho’s Reading Your X-Ray?Q (2003) detailed a series of examples regarding the offshoring of radiology jobs. One potential ramification of this process is the impact of offshoring on radiologists’ salaries. Currently, radiologists are among the highest paid physicians, while primary care physicians are the lowest paid. Many radiologists are wondering why anyone would continue to pay high salaries in the U.S. when the same job can be performed offshore for less than 10% of U.S. salary levels (Pollack, 2003). While radiology has received the most attention, other high-skill physician jobs such as the analysis of tissue samples (pathology) and the reading of electrocardiograms can also be offshored. In general, most physician services that can be done through the growing field of telemedicine are candidates for offshoring. Yet, the developments listed in box 1 that make offshoring possible are only part of the story. Equally important are regulatory and firm concerns that restrict the utilization or implementation of these new technologies. Pollack (2003) noted the primary factors restricting radiological offshoring right now are not technological, but regulatory. For example, in the U.S., radiologists have to be licensed by the states in which they practice and credentialed by the hospitals for which they work. The American College of Radiology has already begun debating what steps can and should be taken to prevent or regulate the offshoring of radiology jobs. Does this simply reflect a protectionist reaction by a special interest group, or does this process raise legitimate concerns about quality, safety, privacy, and job security? As mentioned previously, regulatory environments are dynamic. In coming years, rules regarding the offshoring of physician services will be heavily debated, featuring both physicians concerned about their salaries and insurers footing the bill for rising healthcare expenses. In addition to limitations imposed by the government, the framework also demonstrates that firms may elect not to offshore for privacy, security, or quality concerns. An interesting example of how these concerns can affect decision making in healthcare comes from the transcription services industry. As noted above, this was one of the first jobs aggressively courted for offshoring, and within a relatively short period of time, hundreds of

520 millions of dollars of transcription services were sent overseas. However, in 2003, a transcriber in Pakistan threatened to post patient files on the Internet unless she was paid money she claimed a contractor owed her. The files were from the University of California-San Francisco, although its officials claimed they had no knowledge their files were being transcribed in Pakistan. Privacy concerns, especially those associated with the requirement of the Health Insurance Portability and Accountability Act (HIPAA), imply that although technology and communication improvements make offshoring transcription jobs economically feasible, hospital and physician groups may eschew this option if concerns about privacy cannot be alleviated. Finally, our framework demonstrates the three previous sets of decisions are all made within America’s broader socio-political context. One example of how this backdrop affects offshoring can be seen in Medicare reimbursement policies. Medicare does not reimburse procedures done outside the U.S., so under this policy, it will not reimburse radiological services performed abroad. The advocacy group American Citizens Abroad has been lobbying for years to change the rules which restrict Medicare from paying for healthcare services abroad. Now, they are likely to be joined by insurers and others who see the ability to offshore medical services as a way to lower healthcare costs. Collectively, these groups represent some of the positive pressures for offshoring that may emerge from the socio-political framework. Of course, these efforts will be counterbalanced by groups such as the American College of Radiology, which published its own rather restrictive guidelines in 2004 regarding the offshoring of radiological services (Chin, 2004). By applying our framework to the healthcare industry, we have shown the generalizations that deem this industry bsafeQ from offshoring are inaccurate. At the same time, it must be emphasized that only a subset of health care jobs have so far proven amenable to offshoring; thus, while technology is expanding the range of positions that can be performed remotely, to date this remains a small percentage of the overall number of healthcare jobs. However, as the discussion for medical transcriptionists (and perhaps for radiologists) shows, the average bsafetyQ of an industry can mask great job-specific insecurity.

2.2. Are information technology jobs at risk? Another important industry which may be evaluated is Information Technology (IT). While many

M. Stack, R. Downing commentators have classified healthcare as relatively bsafeQ from offshoring, many have also generalized IT as bat risk.Q Yet, just as the last section illustrated some healthcare jobs are at risk from offshoring, it is equally true that many IT positions are not at direct risk. Again, it is important to evaluate each industry in terms of the interplay of the need for proximity and the salient regulatory and firm-level issues in order to determine which specific jobs are most and least threatened by offshoring. As with healthcare, the first set of IT jobs to be offshored during the early 1990s were in the lowerskill category. The best known examples involved help desks, which act much like a triage center in a medical facility, determining which problems can be solved relatively easily by help desk personnel over the phone and which require a desktop support person to resolve the issue. Help desk activities are commonly divided into two categories: vendor and user. Vendor help desk personnel typically focus on tasks such as initial setups and the restoring of systems to original setup specifications, while user organization help desks answer questions such as bHow do I do this?Q or bWhy doesn’t this work?Q Since many help desk activities have typically been handled over the phone, improvements in communication technologies have made these tasks a particularly attractive target for offshoring. As firms gained confidence and experience in offshoring help desk and other lower-skill IT duties, they next began to offshore some medium skill-jobs such as computer programming. Programmers write, test, and maintain the detailed instructions that direct computers to convert data into information. The project-oriented nature of programming, the ease of creating and testing programs remotely, and the ability to communicate with analysts and designers remotely via telephone or email for clarification and problem resolution have combined to make programming open to both outsourcing and offshoring. Thus, while programmers require a much higher level of training, education, and experience than help desk personnel, one common feature of their work is the declining need for direct physical proximity to the end-user. Declining telecommunication costs and concomitant technological advances have combined to make the offshoring of a range of lower- and midskill IT duties both feasible and economical. Yet, although IT is often held up as an industry most threatened by offshoring, it is important to recognize that the majority of higher-skill IT jobs are not yet suitable for offshoring. Before we continue with

Another look at offshoring our analysis, let us briefly consider a higher-skill IT field in which proximity has not yet been rendered immaterial. Network administrators install, configure, maintain, and administer an organization’s physical network infrastructure and network operating system(s). Their general operational duties include developing and monitoring a network dial-up plan or virtual private network connection for company employees, analyzing a corporate network in the context of application and client—server environments, and addressing issues of performance, interoperability, security, and transition. Most experts agree this job function will continue to grow steadily in terms of responsibility, complexity, and frequency. The speed and efficiency of a company’s network is essential to the bottom line, and network engineers who can improve these areas are in high demand. Network administrator positions typically require a bachelor’s degree in computer science or information systems and 3 to 5 years of experience. In addition, most companies require specific vendor certifications such as Microsoft Certified System Engineer (MCSE). The hands-on nature of the position, the continuing escalation of additional responsibilities including network security, and the fast-changing nature of technology require the direct physical presence of the network administrator. As a result, it is unlikely that this position will be at any immediate risk for offshoring. Now, let’s return to the framework. In healthcare, improvements in technology rendering distance unimportant have, in many instances, run up against restrictive regulatory concerns which prevented the offshoring of specific work (box 2). Yet, for many industries, including IT, the government does not have a vested interest in specifying which specific jobs can be sent overseas. While there may occasionally be some areas of concern (perhaps if the government believed national security issues were involved), for the most part, companies looking to offshore IT work do not face systemic regulatory hurdles. However, as we move down to box 3, it is clear that many companies self-regulate in terms of what types of IT work they are willing to offshore. There are a host of firm-level concerns that may lead organizations to elect not to install new proximity-ending technological advances. For example, a company may worry about losing control over intellectual property, or that offshoring will threaten the secrecy or security of market or product knowledge. These types of concerns play a greater role in industries such as IT than in many areas of healthcare, where the

521 basis of competitive advantage may not be as fungible. Finally, just as the broad socio-political framework influences how healthcare organizations make their decisions regarding offshoring, so too do these influences shape whether firms will offshore specific IT duties. A company may find a new technology has enabled the offshoring of some IT work and determine it to be a relatively low-risk area to offshore; however, if community pressures mobilize against this type of relocation, the company may reevaluate its decision to offshore. As these broad pressures change over time, this will affect the decision making calculus for firms considering offshoring. This review of the IT industry illustrates how generalizations about an industry being at grave risk for offshoring can be inaccurate. A more useful and accurate analysis begins at the level of the job, explores how technology has affected the ability of specific tasks to be offshored, and examines what regulatory and/or firm-level concerns may restrict firms from introducing these new technologies.

3. Gathering evidence from other industries This paper is concerned with trying to understand what types of jobs within specific industries are most and least at risk for offshoring. The basic explanatory framework integrates the changing need for proximity with evolving attitudes by regulators, firms, and the broad socio-political climate regarding whether firms should convert the newly possible into the actual. The next step is to extend this analysis to other industries. For example, during the past two years, a number of articles have described how specific jobs in a wide range of industries are beginning to emerge as offshoring candidates. Yet, thus far, there have been few attempts to systematically analyze how and in what context these offshoring decisions are being made. A recent New York Times article discussed how Reuters was hiring some journalists in Bangalore, India to do basic financial reporting on 3000 small- and mid-sized American companies (Steinberg, 2004). Beginning with the first box of our framework, falling communication costs and increasing on-line datasets and databases have enabled the offshoring of some journalist jobs that had traditionally been done in-house by local workers. Presented with this new opportunity, Reuters had to evaluate whether these jobs involved key proprietary assets, and determine

522 whether the government had a vested interested in regulating where this type of work is completed (boxes 2 and 3). As with healthcare and information technology, the first level of journalist jobs to be offshored have been lower-skill; however, as the earlier reviews of those industries also show, it is entirely possible that, over time, more and more sophisticated jobs may become amenable to offshoring. Another example comes from the accounting industry. Some firms have recently begun to prepare the more standardized portions of some tax returns in India. The Indian firm Mphasis is using a new document management software package called Livelink to create a dynamic, interactive tax chat room that allows workers in India and the U.S. to share documents and review each others’ work (Roberts, 2004). While new technologies are greatly facilitating this type of coordinated, intrafirm work, company concerns over privacy and security have slowed the pace at which some of these innovations have been adopted. Although government regulations and the broader sociopolitical environment do not yet seem to have affected this offshoring niche, it would take only one example similar to the threats made by the Pakistani medical transcriptionist to quickly bring this area under greater review. Legal services constitute a third industry that has recently entered the offshoring arena. Abhay Dir has set up a legal research firm which charges 60 dollars per hour to study state legal precedents, a steep discount to its American counterparts, which charge 350 dollars an hour and up (Schoenberger, 2005). Dir’s business model emerged as more U.S. case law was digitized and put on-line during the 1990s. As the editor of the magazine American Lawyer suggested, bcommodity legal work that is largely repetitive can be done by intelligent lawyers anywhere.Q (Maher, 2004, b 27) Matthew Powers, a California patent attorney, echoes this view, arguing that blegal services are no different than any other services—there are some that can be commoditized, like data collection and low-level legal research.Q (Schoenberger, 2005, Research, Not Advice section, b 4) However, Powers goes on to argue that there are some legal services bthat can never be outsourced, especially when it comes to exercising legal judgment.Q (Schoenberger, 2005, Research, Not Advice section, b 4) Yet, one of the unsettling themes of our essay is that as technologies and rules evolve, the range of jobs that can be offshored continues to grow, often expanding into areas that only a few years earlier were deemed bsafe.Q

M. Stack, R. Downing There are a number of interesting parallels between legal and healthcare professionals. For example, in both of these industries, physicians and lawyers must be certified by state officials before they are qualified to practice in a specific jurisdiction. Not many jobs, even within healthcare and law, have this type of geographic protection. The regulatory hurdles mandating proximity are being challenged by new technologies that are beginning to allow a growing range of health and legal jobs to be performed by qualified people in other countries. Therefore, the ability of entrepreneurs to offshore legal and healthcare jobs will depend in part on how state and federal regulations evolve in response to these new opportunities. In an effort to gain a better understanding of what types of jobs in specific industries are most and least at risk from offshoring, we have applied our framework to two detailed cases (healthcare and IT) and to three summary examples (journalism, accounting, and law). The next step is to examine more jobs in these and other industries. Offshoring has garnered a great deal of discussion over the past few years, but we need to move beyond the initial categorization efforts that labeled some industries bsafeQ and others bunsafe.Q The model introduced here offers a mode for evaluating, industry by industry, which specific jobs are most at risk for offshoring and why.

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