Manufacturing is not America’s only Outsourcing Problem

Over the past eight months, I’ve been leading the technology effort on a project for a large U.S.-based restaurant chain. The experience has not been a happy one, mostly because poor staffing decisions have led to a dysfunctional team. The team consists of 5 people onshore, including 2 H1B’s from India, as well as over 60 people offshore in India. 70% of the offshore resources are fresh out of technical school and have never worked on another project. Several of them aren’t fluent in English. Needless to say, the customer has been less than satisfied with the results. I have made several recommendations on how to fix things to no avail. So, I decided to leave the project.

This wasn’t my first poor offshoring experience. And my experiences are not uncommon in the industry.

I have been involved in the technology business for over 30 years as a Software Engineer, Solution Architect, VP of Engineering, and CTO. Technology used to be one of the best ways to pursue a rewarding career in America. But in 1990, the seeds were sown for the slow destruction of the U.S. tech services industry when George H.W. Bush signed the bill creating the H1B VISA program. We were told that H1B would bring the “best and brightest” people to America to help us compete in the digital age. But that is mostly not what happened.

H1B is not an immigration program. It’s a temporary worker program that lets foreign nationals work in the U.S. for a few years, hone their skills, learn how the U.S. conducts business, and build relationships with key decision makers at U.S. companies. Then many of the H1B’s go home and leverage offshore teams to compete against U.S. workers. It’s not an exaggeration to say that the H1B program created the IT outsourcing business.

Today, a majority of H1B’s are not even employed by U.S. companies. They are employed by giant Indian outsourcing firms, whose business model is to replace U.S. workers. And the outsourcing companies don’t typically bring in the “best and brightest” on the H1B program. The latest statistics show that the average salary for a H1B employed by Google or Microsoft is over $120,000, while the average H1B salary employed by an outsourcing company is only $65,000. The outsourcing companies are using H1B as a source of cheap labor, which was the exact opposite of the original intent of the program.

Covid-19 made Americans aware of how much manufacturing has been moved to China, including 80% of antibiotics; over 90% of textiles; a majority of microchip fabrication and consumer electronics; as well as machine tools, automotive parts, and more. During the 80’s and 90’s we were told that it’s okay for manufacturing to be moved offshore because America was going to focus on high value “services”. But now our high value services jobs are moving offshore too.

It’s not just Indian outsourcing companies that are doing this. American and European companies like Accenture, Ernst & Young, and Capgemini also have huge outsourcing operations in India. The last few years has also brought new competitors to the outsourcing marketplace. Many of them are in Russia and Eastern Europe.

Many outsourcing companies do employ or contract a small number of senior-level Americans. But few of them offer entry and mid-level career opportunities for Americans. So, it’s becoming increasingly difficult for a young person in America to build a great career in technology. It’s not a coincidence that the percentage of American students pursuing computer science degrees peaked in the early 1990’s, shortly after the H1B program became law.

Few people outside of tech realize the breadth and depth of the problem and what it means to America’s future as the world’s leading economy. I don’t blame the Indians, Russians, Eastern Europeans, or anyone else for pursuing their dreams. But I do blame American politicians of both parties for passing legislation that facilitates and even encourages outsourcing jobs overseas.

So, what can be done now? Rebuilding America’s high-tech services industry will not be easy because the problem has been growing for three decades. But there are steps that we can take. Some will have immediate impact while others will take time. Here are a few ideas.

We need to replace the H1B temporary worker program with an immigration program targeted at STEM graduates. It’s ridiculous that we have a program (H1B) that encourages foreign nationals to learn their skills in America and then go back home to compete against us. Many H1B’s want to stay in America permanently, but the current system makes it difficult. We need a program that allows the “best and brightest” from around the world to immigrate to the U.S., become citizens, and help us compete in the digital economy. But foreign nationals should only be used to supplement Americans, not supplant them.

We need to rework the bizarre student loan program which encourages students to go deeply into debt to pursue college degrees that don’t impart marketable skills. We need a way to encourage students to pursue STEM degrees in college, perhaps by targeting the student loan program at students who pursue a STEM discipline. We also need to develop continuing education and cross-training programs for Americans without STEM degrees to learn STEM-related skills. Students that don’t have the math and science background to pursue a STEM degree, should be encouraged to pursue a skilled trade.

We should also disallow corporate tax deductions for the cost of employing overseas workers who are working on U.S. projects. It’s fine for a company to hire workers in a particular country to serve the local market. But it’s ridiculous to provide tax deductions to companies that hire offshore workers to serve the U.S. market.

Finally, we need to fix our primary and secondary schools, so they graduate more students with the math and science background needed to pursue a STEM degree in college. Reforming primary and secondary education will be a monumental task, given the sclerotic, misguided, and self-centered bureaucracy that controls the government schools. But it must be done.

America is a rich country because of our technical prowess. From the cotton gin to the microprocessor, America’s prosperity has been closely tied to our ability to innovate. Over the last few decades, our politicians have allowed and even encouraged that to slip away. We need to change this now before it is too late.