The New York Times' Anand Giridharads loooks at how India's outsourcing sector is maturing. He finds that -- gasp! -- Indian firms are outsourcing their outsourcing to other countries.... including, among others, the United States:

Thousands of Indians report to Infosys Technologies’ campus here to learn the finer points of programming. Lately, though, packs of foreigners have been roaming the manicured lawns, too.

Many of them are recent American college graduates, and some have even turned down job offers from coveted employers like Google. Instead, they accepted a novel assignment from Infosys, the Indian technology giant: fly here for six months of training, then return home to work in the company’s American back offices.

India is outsourcing outsourcing.

One of the constants of the global economy has been companies moving their tasks — and jobs — to India. But rising wages and a stronger currency here, demands for workers who speak languages other than English, and competition from countries looking to emulate India’s success as a back office — including China, Morocco and Mexico — are challenging that model....

In May, Tata Consultancy Service, Infosys’s Indian rival, announced a new back office in Guadalajara, Mexico; Tata already has 5,000 workers in Brazil, Chile and Uruguay. Cognizant Technology Solutions, with most of its operations in India, has now opened back offices in Phoenix and Shanghai.

Wipro, another Indian technology services company, has outsourcing offices in Canada, China, Portugal, Romania and Saudi Arabia, among other locations.

And last month, Wipro said it was opening a software development center in Atlanta that would hire 500 programmers in three years.

In a poetic reflection of outsourcing’s new face, Wipro’s chairman, Azim Premji, told Wall Street analysts this year that he was considering hubs in Idaho and Virginia, in addition to Georgia, to take advantage of American “states which are less developed.” (India’s per capita income is less than $1,000 a year.)

Three years ago, I argued in Foreign Affairs that the growth projections about offshore outsourcing were wildly overstated. Others have suggested that growth projections about offshore outsourcing are wildly understated.

This Economist story provides a point for me and against the Blinder-Friedman hypothesis:

The latest quarterly report on the state of global outsourcing from TPI, a consultancy, was published earlier this month. It showed that both the number and value of contracts awarded during the first half of this year had declined in comparison with the same period in 2006. In 2007 the total value of contracts awarded in the first six months was the lowest since 2001....

As growth slows it is clear that making money is becoming more difficult for outsourcing firms. Competing on price is getting ever harder. Established vendors are hiring workers in the same low-cost locations as their offshore rivals—the likes of Accenture and IBM have been furiously ramping up their operations in India, for example. One response is to keep searching for ever-cheaper locations, both within India and outside it, but a race to the bottom on price threatens both the quality of service and profit margins. For the top-tier providers, the way to stand apart from the crowd is to deliver more valuable services....

Outsourcing firms are moving into more countries in order to deliver the right mix of cost, risk and quality. As Western providers concentrate on beefing up their presence in low-wage centres, Indian vendors are focusing on the markets where the buying decisions are made. Physical and cultural proximity is important for building closer client relationships, for delivering certain types of services (such as unscripted selling) and for soothing concerns about data security and confidentiality. Hiring locals also has the effect of cutting down on visa hassles.

Wipro, one of the big three Indian providers (along with Infosys and Tata Consultancy Services), is close to reaching an agreement with the authorities in Atlanta, Georgia, to set up its first software-development centre in America. The three other cities shortlisted during the selection process—Austin, Texas; Raleigh, North Carolina; and Richmond, Virginia—stand a good chance of hosting other centres. Azim Premji, Wipro's chairman, says that the proportion of local employees (as opposed to visiting Indians) in the company's overseas locations will rise from 10% to one-third over the next three years.

Few providers expect the topic of offshoring to lose its political sting—despite plenty of evidence, including a recent OECD report on the subject, showing that it is not a big cause of job losses and has an overall positive effect. But the maturing of the outsourcing industry ought to mean that scaremongering about jobs flowing from rich countries to poor ones will sound less and less convincing.

Your humble blogger has been unusually consistent in his position on offshore outsourcing:

1) The initial offshoring of tasks will slow as a) mistakes are made and as b) labor markets begin to equilibrate;

2) Offshoring will be limited to tasks that can be segmented into simpler jobs.

The Influence Peddler reports that some Silicon Valley firms are now engaged in "reverse offshoring":

No Joke:

The rising cost of paying engineers in Bangalore has prompted at least one Silicon Valley start-up to save money by closing its Indian engineering centre and moving the jobs back to California.

While this “reverse offshoring” remains unusual, it points to a broader belief in the US technology industry that the savings that drove software engineering jobs to India’s technology capital are quickly eroding.

Like.com, a search engine company that uses image recognition software to find pictures on the web, took the step of closing in India after seeing the wages of top-level engineers in some cases rise close to US levels.

“Bangalore wages have just been growing like crazy,” Munjal Shah, chief executive, complained in a blog post. In the next few months, Like.com would have had to lift the salary of one of its Bangalore engineers to 75 per cent of the US level, even though the same engineer earned only 20 per cent as much as an equivalent US-based worker two years ago, Mr Shah said.

It's almost as if there's this crazy... international labor market -- and higher value skills and greater value added lead to higher wages. And then when companies no longer save money by locating jobs abroad, the potential actually exists for them to return to the US.

The other problem is local knowledge, as this New York Times story by Steve Lohr suggests:

“Once you start moving up the occupational chains, the work is not as rules-based,” said Frank Levy, a labor economist at the Massachusetts Institute of Technology. “People are doing more custom work that varies case by case.”

In the field of technology services, Mr. Levy said, the essential skill is “often a lot more about business knowledge than it is about software technology — and it’s a lot harder to ship that kind of work overseas.”

The offshore specialists in India are learning that lesson. As they increasingly compete for higher-end work, the Indian companies are hiring thousands of workers this year in the United States, adding an odd twist to the offshoring trend. Tata alone plans to recruit 1,000 workers in America, said Surya Kant, president of the company’s American unit, for “the near-shore work that requires regular contact with clients in person.”

Lohr demonstrates the need for hands-on workers by profiling an IBM project for a Texas utility. IBM is using both domestic and international units to complete the assignment. For the domestic employees, the skill set required would be difficult, at best, to outsource offshore: The utility project I.B.M. is doing in Texas offers a glimpse of the global formula. The far-flung work team includes research scientists in Yorktown Heights, N.Y., and Austin, Tex.; software developers in Pune and Bangalore, India; engineering equipment and quality-control specialists in Miami and New York; and utility experts and software designers like Mr. Taft that have come from Philadelphia, San Francisco, Los Angeles, Chicago, Raleigh, N.C., and elsewhere.

I.B.M. plans to use the skills learned and software written for the smart-grid project in work with utility clients around the world. In the services field, these are deemed “reusable assets,” reducing costs in the future.

Ron Ambrosio, a senior I.B.M. researcher, has been down to Houston a few times, attaching sensors to power lines and collecting gigabytes of data on electricity flows. He and others at I.B.M. are studying how to predict and prevent power failures, optimize performance, reduce costs and conserve energy. “We’re looking at this as part of a worldwide opportunity,” he said.

Dennis Hendon, an account executive, and Rob Calvo, a senior services consultant, lead the I.B.M. team in Houston. Mr. Hendon is an engineer by training, while Mr. Calvo has a business degree, but their real skills lie in years of on-the-job training — what labor experts call “passive knowledge” and “complex communications,” observing, listening, coordinating, negotiating and persuading. The two men say they think of themselves as orchestra conductors, getting all the human parts working smoothly together, inside and outside I.B.M. “We aren’t mounting the poles, but our subcontractors are,” Mr. Hendon said.

One of the difficulties with the Blinder-Friedman hypothesis is that it can't really be tested right now (though perhaps this is where Blinder and Friedman disagree. Friedman already thinks the world is flat, whereas Blinder just thinks it will be much, much flatter over the next few decades).

Nevertheless, one would expect the industrial organization of call centers to closely resemble the future according to Blinder and Friedman. These were the jobs that everyone was yammering about disappearing a half-decade ago. Does this sector look flat?

Thanks to Cornell University's Industrial and Labor Relations school, we now have some data... and most of it does not support the Blinder-Friedman hypothesis. From the press release:

Contrary to what many people think, most call centers serving U.S. customers -- service centers in remote locations that handle telephone and Web-based inquiries -- are operated in the United States, not in India or other overseas locations.

So said Rosemary Batt, the Alice H. Cook Professor of Women and Work and professor of human resource studies at Cornell's ILR School (industrial and labor relations) and a lead author of a report on the largest-scale study to examine call center management and employment practices in Asia, Africa, South America, North America and Europe, covering almost 2,500 centers in 17 countries.

The study, "The Global Call Center Report: International Perspectives on Management and Employment," was a collaborative effort involving more than 40 scholars from 20 countries....

The large majority of centers around the world -- except India -- serve their own domestic markets and consumers. There is no common global face to call centers, since they tend to take on the character of their respective countries and regions based on that country's or region's laws, customs and norms....

Two-thirds of all call centers are in-house operations, serving a firm's own customers. Subcontractors operate the remaining one-third of centers. In-house centers across all countries have lower turnover rates and higher quality jobs than subcontracted ones.

The mobility of call center operations has led many to view this sector as a paradigmatic case of the globalization of service work. And we find that the call center sector looks quite similar across countries in terms of its markets, service offerings, and organizational features. But beyond these similarities, we find that call center workplaces take on the character of their own countries and regions, based on distinct laws, customs, institutions, and norms. The ‘globalization’ of call center activities has a remarkably national face....

Call centers typically serve national rather than international markets. Eighty-six percent serve their local, regional, or national market.

Let it be noted that Anand Giridharadas had a story in yesterday's New York Times that offers some support for the Alan Blinder-Thomas Friedman view of offshore outsourcing:

Outsourcing is breaking out of the back office.

For years, most service industry jobs that were moved to countries like India were considered relatively low-skill tasks like answering customer inquiries. But that has been changing in recent years, and increasingly the jobs of Western white-collar elites in fields as diverse as investment banking, aircraft engineering and pharmaceutical research have begun flowing to India and a few other developing countries.

In the view of most specialists on the phenomenon, the kinds of jobs that cannot be outsourced are slowly evaporating.

Boeing and Airbus now employ hundreds of Indians in challenging tasks like writing software for next-generation cockpits and building systems to prevent airborne collisions. Investment banks like Morgan Stanley are hiring Indians to analyze American stocks, jobs that commonly pay six-figure salaries on Wall Street.

The drug maker Eli Lilly recently handed over a molecule it discovered to an Indian company, which will be paid $500,000 to $1.5 million a year per scientist to ready the drug for commercial use — work that would be significantly more costly if carried out by Americans.

With multinationals employing tens of thousands of Indians, some are beginning to treat the country like a second headquarters, sending senior executives with global responsibilities to work there. For example, Cisco Systems, the leading maker of communications equipment, has decided that 20 percent of its top talent should be in India within five years; it recently moved one of its highest-ranking executives, Wim Elfrink, to Bangalore, the center of the Indian industry, as chief globalization officer.

Accenture, the global consulting giant, has its worldwide head of business-process outsourcing in Bangalore; by December it expects to have more employees in India than in the United States.

This is not a zero-sum game, in which every job added in India comes at the expense of an American or European one.

In many ways, the shift reflects a changing view at multinational companies as they find it easier to meet growing demand by taking advantage of the improved skills of newly educated people in the developing world. And some companies are returning certain jobs to the United States, finding that the work in India and elsewhere is not up to snuff.

But there are trade-offs as well. As Indian back offices become more sophisticated, Western companies are finding that large parts of their work, even high-end tasks, can also be done from India. From the consumer perspective, India has emerged as a pool of 1.1 billion potential customers for companies seeking faster growth. And so many companies are shifting their energy to where they see their futures being written.

“India is at the epicenter of the flat world,” said Michael J. Cannon-Brookes, vice president for business development in India and China at I.B.M., which has reduced its American work force by 31,000 since 1992 even as its Indian staff mushroomed to 52,000 from zero....

Still, specialists warned that a continued flow of work to India required drastic improvements in its educational system and basic facilities. Water and power shortages are endemic, and industry experts predict that India could lack 500,000 engineers by 2010. Yet the country has already tapped a deep well of English-speaking engineers, attracting more outsourced work than any other country.

UPDATE: Friedman's column prompts a bizarre comment from Matthew Yglesias:

The reason KenCall works is that its wages are so low. Its wages, in turn, are low because in Kenya at the moment the IT infrastructure necessary to operate a call center is very scarce relative to the level of English competency necessary to work in one. If an undersea cable makes it significantly easier to start up call centers, that may change. It all depends on how large Kenya's "large pool of educated, English-speaking talent" really is.

What would be more accurate to say is that if the education picture remained constant, the returns to being an offshoring magnet are a) limited to the upper tier of the popilation, and b) decline over time as wages would go up for (relatively) skilled labor.

On the latter point -- so what? Offshoring flows would decline as wages rise -- and rising wages are a good thing. On the former point, here's the question you have to ask -- what's better, a society that has a relatively even distribution of income or a society where the poorest are not made worse off but the educated earn much higher returns for their education?

I suspect Matt would say the latter but not be happy about it. Over the long haul, however, market signals about the increasing returns to education would encourage an expansion of educated individuals -- which counters the effect that concerns Yglesias, and happens to be a good thing in and of itself.

UPDATE: Yglesias clarifies his position here:

Friedman is portraying the issue as one in which Kenya needs to build better broadband access, and then the IT jobs would come. The counterpoint I meant to make was that the real chokepoint here seemed to me to be the Kenyan education system. Only a very small proportion of Kenyans are qualified for KenCall-style jobs. At the moment, only a small proportion of the qualified people can get KenCall-style jobs precisely because the physical infrastructure to easily set up competing firms isn't there, which makes wages low by world standards which makes Kenya an attractive outsourcing destination. Build more infrastructure, you'll get more firms, the labor market will tighten, wages will go up, and then growth will slow down as future outsourcers look to other, cheaper countries.

That's all fine as far as it goes. My only observation was that insofar as only a very small proportion of Kenyans are qualified for these sort of jobs, it won't actually go very far. Kenya not only needs more infrastructure, it needs more workers qualified for these sort of jobs. Dan Drezner writes that "market signals about the increasing returns to education would encourage an expansion of educated individuals."

This, to me, seems slightly backwards. As I see it, improving school systems is hard and education levels often don't improve even when market incentives to do so exist. Increasing internet connectivity is, by contrast, relatively easy to accomplish and relatively more responsive to market signals. I have no doubt that countries that produce large pools of workers well-suited to IT work that market signals will cause companies to invest in expanding the IT infrastructure necessary to employ those workers profitably. I'm not by any means certain that the mere existence of remunerative labor market opportunities for well-educated Kenyans will cause the number of such Kenyans to spontaneously increase.

Robert Weisman reports today in the Boston Globe on how the local IT job market is doing three years after offshore outsourcing devastated the tech sector:

Five years after the dot-com bust ravaged the technology industry, erasing tens of thousands of jobs in Massachusetts, the "Help Wanted" signs have been pulled out of storage. State figures released Thursday show several high-tech job categories growing at more than triple the rate of overall employment over the past 13 months.

The job market hasn't returned to the feverish state of the 1990s, and fields such as telecommunications have been slower to recover. But multiple job offers are no longer rare for managers and consultants, software developers, researchers, website designers, marketing and sales professionals -- even newly minted college graduates -- knocking on the doors of resurgent high-tech companies. Especially hot are Internet businesses riding the new wave of digital commerce.

And, on the flip side, employers are struggling for the first time in years to hire technology talent. Many are paying signing bonuses ranging from $15,000 to $40,000, often structured as tuition forgiveness, to lure masters in business administration graduates from top schools.

More junior employees are finding themselves in demand, too. Internet consulting firm Molecular Inc. offered a job to a woman who interviewed at its offices in the Arsenal on the Charles River last month. She is a software engineer relocating to Boston from Alabama.

"She flew up for a few days, interviewed with three companies, all referrals from friends, and had job offers from all three the next week," Molecular managing director Patrick Heath reported in an e-mail last month to Ralph Folz , chief executive officer of the Watertown company. Heath concluded the e-mail, which Folz shared with the Globe, by observing, "The market is crazy right now." (Late last week, the coveted software engineer accepted Molecular's offer.)

New data from the Massachusetts Department of Workforce Development show the number of non-farm jobs in the state increased 1.2 percent since the start of 2006. At the same time, employment grew 3.7 percent in computer systems design, 4.5 percent in technology management and consulting, and 4.9 percent in research and development, fields encompassing many of the employees being snapped up by Internet companies. "The hiring market is tougher than it's been since 1999 or 2000," said Folz, recalling the last boom.

Via Greg Mankiw, I find this Andrew Cassel column in the Philadelphia Inquirer pointing out that, around or about three years ago, everyone was freaking out about offshore outsourcing. Yeah, what happened there?

[T]his month marks the third year since the Great Offshoring Scare of 2004.

Remember? It was this month three years ago that Americans woke up to the shocking realization that many of the voices on the other end of the tech-support help line were in India, or Ukraine, or the Philippines. The news hit like a rock, and life was never the same again.

OK, I'm exaggerating. A lot of us actually knew about offshoring before then. And as for life never being the same... well, you decide.

That month, Wired magazine, which keeps its finger on the pulse of the information-technology community, published a cover article about the spreading revolt of American tech workers against firms that filled programming and other jobs overseas.

One of Wired's key interviews was with Scott Kirwin of Wilmington, who had lost his job doing back-office tech work for a bank in Delaware. The experience had shaken Kirwin's faith in American business and prompted him to start a grassroots activist group to lobby for protection against offshoring....

And what happened next? Nothing.

Nothing, that is, like the massive outflow of jobs that many feared. Employment growth, which had been notably slow after the 2001 recession, picked up in the United States. (We've gained more than five million jobs since early 2004.) Recruiters who specialize in information-technology workers say they have more openings than they can fill.

And as a hot-button headline issue, offshoring appears to have gone the way of Y2K and the Red Menace. File it under N, for Not as Big a Deal as We Thought.

Yes, some still see offshoring as a threat, sort of. A Brookings Institution report last week said some metropolitan regions with lots of high-tech employment could see as many as 4.3 percent of their jobs go overseas. (Philadelphia isn't so vulnerable - the Brookings report estimates our potential losses at 2.5 percent at the most.)

But most economists who've looked at the issue rate the long-run economic impact of offshoring as either (1) minimal, or (2) positive. Using overseas workers to save money or boost productivity generally results in better or cheaper services, which in turn leads to more competition, more innovation, and growth.

But you don't have to take my word for it. Listen to Scott Kirwin, who made a return appearance in December to Wired magazine. Things have changed. He shut down his anti-offshoring Web site in 2006 and has since found himself a better job in the software business. "I don't view outsourcing as the big threat it was," he told the magazine. "In the end, America may be stronger for it." (emphasis added)

UPDATE: Whoops!! The original title to this post read "anti-offhoring" rather than "anti-offshoring," which takes the conversation to places I do not want to go.

Fixed now.

The demand for trained IT workers is having some interesting effects in both India and Massachusetts.

India first -- Somini Sengupta reports in the New York Times that skills shortages could act as a bottleneck for the Indian service sector:

As its technology companies soar to the outsourcing skies, India is bumping up against an improbable challenge. In a country once regarded as a bottomless well of low-cost, ready-to-work, English-speaking engineers, a shortage looms.

India still produces plenty of engineers, nearly 400,000 a year at last count. But their competence has become the issue.

A study commissioned by a trade group, the National Association of Software and Service Companies, or Nasscom, found only one in four engineering graduates to be employable. The rest were deficient in the required technical skills, fluency in English or ability to work in a team or deliver basic oral presentations.

The skills gap reflects the narrow availability of high-quality college education in India and the galloping pace of the country’s service-driven economy, which is growing faster than nearly all but China’s. The software and service companies provide technology services to foreign companies, many of them based in the United States. Software exports alone expanded by 33 percent in the last year.

The university systems of few countries would be able to keep up with such demand, and India is certainly having trouble. The best and most selective universities generate too few graduates, and new private colleges are producing graduates of uneven quality.

Many fear that the labor pinch may signal bottlenecks in other parts of the economy. It is already being felt in the information technology sector....

Demand is beginning to be felt on the bottom line. Entry-level salaries in the software industry have risen by an average of 10 to 15 percent in recent years. And Nasscom, which helps companies wanting to outsource find workers, forecasts a shortage of 500,000 professional employees in the technology sector by 2010....

Higher education is still available only to a tiny slice of India’s young. No more than 10 percent of Indians ages 18 to 25 are enrolled in college, according to official figures. Nearly 40 percent of Indians over the age of 15 are illiterate.

The industry is lobbying hard to allow private investment in Indian higher education. Right now the government allows only nonprofit ventures, and often they are of varying quality or are the brainchildren of politically connected entrepreneurs.

The Commerce Ministry has recently floated the idea of private foreign investment in higher education. Indians account for among the largest groups of foreign students in the United States, and India increasingly sends students to other countries, like Australia and Canada.

Massachusetts' economic recovery has gathered momentum in recent months, and there's a good reason: The technology sector is back....

Employment in professional and business services, comprising a variety of tech firms, has grown a healthy 2 percent in the last year, twice the rate of overall employment growth in Massachusetts, according to the state Department of Workforce Development. Makers of technology products are bucking the trend of job losses in manufacturing and adding jobs -- more than 3,000 in the last year. Massachusetts tech exports are surging; foreign sales of semiconductor manufacturing and testing equipment nearly doubled in the past year.

Technology has long driven the state's economy. The two technology-dominated employment sectors, professional and business services and manufacturing, account for about one-fourth of state employment, but they capture only a small part of the industry's impact because it increasingly reaches into areas from pharmaceuticals to financial services. High-tech machinery, instruments, components, and similar products account for nearly 60 percent of the state's exports.

Demand for technology workers, meanwhile, is growing. The state's most recent survey of job vacancies, at the end of 2005, showed openings for information technology occupations jumping 13 percent from a year earlier. Monster Worldwide Inc. , which operates the job-matching web site Monster.com, reported last month that on line job postings for IT workers grew 10 percent in Greater Boston over the year.

The Federal Reserve found in a recent survey of businesses that the supply of technical workers in the Boston region is shrinking to the point of companies boosting wages as much as 15 percent.

"It's not 2000, but it's also not 2001," said Larissa Duzhansky, regional economist at Global Insight of Waltham, referring to the tech boom and bust years. ``The sector has grown at a healthy pace and it's continuing to recover well."

Certainly, the state's technology sector faces a long road to recovery. Professional and business services so far have regained only about half the nearly 70,000 jobs the sector lost in the last recession. Tech manufacturing, which also shed about 70,000 jobs, has recovered only about 5 percent.

But analysts and industry officials add that today's technology industry is different from that of the dot-com craze, when it seemed any company with an Internet domain could attract millions of dollars from investors, regardless of whether they had profits or even products. Today's sector is more diverse and better grounded financially, reaching across an array of markets and technologies....

Global demand for technology products, from cell phones to MP3 players, also is boosting Massachusetts tech firms, which make the equipment for manufacturing such products. Booming electronics companies in China, for example, need the advanced manufacturing and testing equipment designed and made in Massachusetts. Those equipment sales have helped make China the state's sixth largest foreign market, as well as one of its fastest growing.

Sales to China and other Asian nations account for at least 70 percent of sales for Axcelis Technologies Inc., of Beverly, a maker of semiconductor manufacturing equipment, according to Mark Namaroff, senior vice president of strategic marketing. The company, which employs about 1,000 in Massachusetts, has reported double-digit revenue growth this year, while adding about 50 manufacturing jobs.

"Asia, particularly China, is hot," said Namaroff. ``Their growth has meant opportunities for us."

The tech rebound also means more opportunities for tech workers....

Greg Netland, chief executive of Sapphire's parent, Vedior North America of Wakefield, expects the market for tech workers to only get tighter. "The war for talent is back," he said.

The Financial Times' Francesco Guerrera and Alan Beattie report on a new trend in offshoring:

Multinational companies are favouring Europe over Asia when expanding abroad – a sign that they want to be close to customers and suppliers rather than simply tap into cheap labour and plants, according to a new study of outward investment.

The surprising findings of the survey by IBM’s consulting arm, to be released on Monday, suggest that the recent boom in outsourcing of manufacturing and services to emerging markets such as China and India may be abating.

At the same time, western Europe, led by the UK and France, is regaining an edge in high-value areas such as research and development, putting pressure on developing economies to raise the skills and education levels of their workforce.

“The recent recovery in the global economy has made companies more interested in being close to their markets, suppliers and decision-makers rather than just looking for a low-cost base,” said Roel Spee, Europe’s leader for IBM’s global location unit.

The survey – the only study that looks at all announced foreign direct investment (FDI) by companies around the world – found that Europe attracted 39 per cent of all new plants and projects in 2005, with Asia-Pacific receiving 31 per cent and North America 18 per cent. In 2004, Europe and Asia were tied at 35 per cent each.

The results show that globalisation and the increase in capital and trade flows are enabling companies to exploit the competition between regions to reap the biggest rewards for their investments....

The UK was Europe’s biggest recipient of inward investment, especially in the research and development field, where it accounted for more than a quarter of all projects launched in the region last year, followed by France with 19 per cent.

I've debated a lot of people on the whole offshore outsourcing issue, and regardless of the position one takes, there has been unanimity on one subject: if the Labor Department provides Trade Adjustment Assistance to manufacturing workers displaced by trade, the program should be extended to include service-sector workers affected by offshore outsourcing.

According to this Paul McDougall story in Information Week, it appears that the Department of Labor has finally recognized this fact as well:

The federal government appears to have reversed a long standing policy that prevented thousands of "outsourced" computer programmers from collecting the same employment benefits routinely extended to factory workers who've seen their jobs disappear amid a flood of cheap, manufactured imports.

In a turnabout from earlier decisions, the Department of Labor—in a note published this month in the Federal Register—said that four employees of IT services vendor Computer Sciences Corp. that were laid off in 2003 from a facility in East Hartford, Conn., are eligible to apply for benefits under the Trade Adjustment Act. The act provides a number of relief measures for workers who've lost their jobs to cut-rate foreign competition, including extended unemployment payments, federally funded retraining, and relocation allowances.

The department has long held that programmers who've lost jobs to cheaper, foreign workers aren't eligible for the TAA program because their employers, or employer's customers, are not importing a physical good in the same way as, say, steel manufacturers. A number of federal and state lawmakers have introduced bills that would automatically grant eligibility under the act to IT workers and other white collar professionals, but none has become law.

The labor department initially said that although CSC moved production of its Vantage-One insurance software from East Hartford to CSC India, the software was not an imported "article" as defined by the act. In a lawsuit, the workers asked the U.S. Court of International Trade to overturn the department's ruling. In January, trade court judge Nicholas Tsoucalas ordered the department to revisit the case, noting that, "Labor's interpretation of the law, that software code must be embodied on a physical medium to be an article under the Trade Act, is arbitrary and capricious."

In a Federal Register note published April 11, the Labor Department conceded the point and ruled that the four CSC workers would be eligible to apply for TAA assistance. In ruling, the department said it would henceforth look upon software, whether shipped into the U.S. on a disc or transmitted into the country via telecommunications networks, as a physical product.

"Software and similar intangible goods that would have been considered articles for the purposes of the Trade Act if embodied in a physical medium will now be considered articles regardless of their method of transfer," the department wrote.

The Department stresses that it will continue to implement the
longstanding precedent that firms must produce an article to be certified under the Act. This determination is not altered by the fact the provision of a service may result in the incidental creation of an article. For example, accountants provide services for the purposes of the Act even though, in the course of providing those services, they may generate audit reports or similar financial documents that might be articles on the Harmonized Tariff Schedule of the United States. Because the new policy may have ramifications beyond this case of which the Department is not fully cognizant, the new policy will be further developed in rulemaking.

As part of its cover package on India, Newsweek's Keith Naughton writes about the interesting fact that offshore outsourcing to India is not the political hot potato it used to be:

Not long ago, what seemed most possible was that India would steal the jobs of American workers. But as George W. Bush visits there this week, he'll find a maturing economy that is no longer all about call centers and basic tech support. Now big American investment banks and drugmakers are joining tech firms on the passage to India. R&D centers are springing up so fast that there's now a shortage of Indian engineers. And the stigma of outsourcing jobs to India is disappearing. American companies once afraid to put their names on the doors of their Indian offices now issue press releases touting their latest investments there. "American firms have gotten over their anxiety about India," says financial-services consultant Harrell Smith of Celent Communications. "Now the new anxiety is if you're not in India."

What happened to the outsourcing backlash? It has been muted by the fact that India didn't suck Silicon Valley dry after all. Actually, U.S. tech employment is growing. There are 17 percent more tech workers in the United States today than back in the bubble days of 1999, says a new study by the Association for Computing Machinery. And the Bureau of Labor Statistics predicts that the U.S. economy will add 1 million tech jobs over the next decade, a 30 percent increase. "Everyone was worried about the offshoring bogeyman," says Moshe Vardi, an author of the ACM study. "But the big whoosh of jobs to India never happened.'' Indeed, that gush slowed to a steady stream once American companies realized it's tough to set up shop in a country with bad roads and a patchy power grid. Lately, American consulting firms that once predicted runaway growth in outsourcing to India have been slashing their estimates by half or more. Now American companies are hanging on to the high-skilled work that requires face-to-face interaction, while everything that can be done "over the wire" gets shipped offshore.

Last year there was a lot of hysteria among the business press over the fact that China and India were allegedly graduating hundreds of thousands of engineers a year, while the U.S. could only muster around 70,000 or so.

I blogged last October about how even outsourcing critics were skeptical of these numbers. Now, courtesy of Duke University's Engineering Management Program, there are some harder numbers on this subject -- and it turns out there's not much reason to panic (link via the Wall Street Journal's Carl Bialik). Here's the report abstract:

The effect of the dynamics of engineering outsourcing on the global economy is a discussion of keen interest in both business and public circles. Varying, inconsistent reporting of problematic engineering graduation data has been used to fuel fears that America is losing its technological edge. Typical articles have stated that in 2004 the United States graduated roughly 70,000 undergraduate engineers, while China graduated 600,000 and India 350,000. Our study has determined that these are inappropriate comparisons. These massive numbers of Indian and Chinese engineering graduates include not only four-year degrees, but also three-year training programs and diploma holders. These numbers have been compared against the annual production of accredited four-year engineering degrees in the United States. In addition to the lack of nuanced analysis around the type of graduates (transactional or dynamic) and quality of degrees being awarded, these articles also tend not to ground the numbers in the larger demographics of each country. A comparison of like-to-like data suggests that the U.S. produces a highly significant number of engineers, computer scientists and information technology specialists, and remains competitive in global markets.

The outsourcing debate has been complicated due to conflicting definitions of the engineering profession....

Through our research, we have identified two main groups of engineering graduates: dynamic engineers and transactional engineers. Dynamic engineers are individuals capable of abstract thinking and high-level problem solving using scientific knowledge. These engineers thrive in teams, work well across international borders, have strong interpersonal skills, and are capable of translating technical engineering jargon into common diction. Dynamic engineers lead innovation. The majority of dynamic engineers have a minimum of a four year engineering degree from nationally accredited or highly regarded institutions.

Transactional engineers may possess engineering fundamentals, but not the experience or expertise to apply this knowledge to larger problems. These individuals are typically responsible for rote and repetitive tasks in the workforce. Transactional engineers often receive associate, technician or diploma awards rather than a bachelor’s degree....

Graph 2 depicts the annual production of bachelor’s and subbaccalaureate degrees in Engineering, CS and IT awarded per million citizens. These data imply that per every one million citizens, the United States is producing roughly 750 technology specialists, compared with 500 in China and 200 in India....

Outsourcing creates a clear threat to certain professions and it is likely that this trend will continue. It seems that the jobs of transactional engineers are easily outsourced and are routinely being taken by relatively low paid engineers in countries like India and China. However, the outsourcing of high-level engineering and IT professions is another story. These jobs often require specialized dynamic engineers: individuals with strong interpersonal skills, technical knowledge and the ability to communicate across borders....

The great majority of engineers involved in outsourced professions hold a minimum of a four-year degree. As a result, one could argue that approximately half of China’s and India’s annual engineering and IT graduates are capable of competing in the global outsourcing environment. However, a recent McKinsey global labor market study
argues that this estimate is far too generous. McKinsey concluded that only 10% of Chinese engineers and 25% of Indian engineers can compete in the global outsourcing arena.

Damn, that sounds familiar.

David Barboza of the New York Times wins my Outsourcing Outrage of the Year award with, "Ogre to Slay? Outsource It to Chinese" :

One of China's newest factories operates here in the basement of an old warehouse. Posters of World of Warcraft and Magic Land hang above a corps of young people glued to their computer screens, pounding away at their keyboards in the latest hustle for money.

The people working at this clandestine locale are "gold farmers." Every day, in 12-hour shifts, they "play" computer games by killing onscreen monsters and winning battles, harvesting artificial gold coins and other virtual goods as rewards that, as it turns out, can be transformed into real cash.

That is because, from Seoul to San Francisco, affluent online gamers who lack the time and patience to work their way up to the higher levels of gamedom are willing to pay the young Chinese here to play the early rounds for them.

1) The story highlights the apparent sloth and excessive affluence of Americans that inflames the passiuons of the puritanical left and right;

2) The transaction -- Chinese gamers taking care of drudge levels of computer games -- has that whiff of cheating that will spark the ire of social conservatives (not to mention hard-core gamers);

3) The idea that sums of money are being paid for what appears to be an unproductive economic activity will cheese off traditionalists who believe that unless a job is located in an industrial factory, it serves no good purpose;

4) The Chinese benefit, which will annoy the realists;

5) In the process of the transaction, the U.S. is outsourcing its decadent Western culture to the Orient, which will annoy those uncomfortable with American power.