Offshoring: The Future of Our Economy

Offshoring: The Future of Our Economy

Outsourcing jobs to foreign countries or offshoring is often viewed as the demise of the American economy. A more accurate view of offshoring is that it is the groundwork for the future of our economy. By enabling businesses to conserve costs, grow and have access to a large untapped pool of talent, offshoring is essentially securing the stability of our economy by securing the vitality of our businesses. In order to remain or become competitive in today’s economy, US based companies must outsource jobs to foreign countries.

The cost savings that can be derived from hiring employees in underdeveloped countries such as India or China are astounding. According to Agrwa and Farrell (2003), “For every dollar of spending on business services that moves offshore, US companies save 58 cents, mainly in wages.” The average salary for low level finance positions in 2006 is $58,500. (Report on Salary Surveys, 2006). By performing a simple calculation, we discover that by hiring offshore for low level finance positions, US based companies will save approximately $33,390 per employee. According to Jean Paul Vellotti (2006), a journalist for Business News, a typical offshore IT setup includes one technical lead, two senior programmers and two junior programmers. If the salaries of these five positions are added together, they equal approximately $100,000 a year. What makes this statement more telling is that this amount is the same as the salary of one senior programmer in the United States. In a 2005 survey conducted by the Financial Executives Research Foundation, 71% of businesses who sent jobs offshore did so for the cost savings (Sennett, 2006)

On top of the savings from salaries, US based companies can save an additional 35 to 40% of the salaries paid to offshore associates on benefits (L. Francillon, personal communication, April 27, 2006). If a company were to choose China for their offshore location, they would have no employer healthcare costs because the government of China provides social medicine for its citizens. Employer sponsored healthcare coverage is one of the highest priced benefits an employee received. The cost of healthcare is only topped by federally required benefits, such as FICA, federal and state unemployment and workers’ compensation. The cost of federally required benefits in 2004 added an additional $2.07