Cover Image


View/Hide Left Panel
  • Proximity to offshore manufacturing.12

  • Lower costs of conducting R&D, particularly labor costs.13

  • Reduced labor costs associated with employing foreign workers.14

  • Proximity to growing markets.

  • US regulation and R&D climates, including strict regulatory regimes, high risks of legal liability, and technology transfer limitations.15

  • High-technology centers with skilled personnel, world-class R&D infrastructure, vibrant research cultures, government incentives, and intellectual-property protection.16

  • Lower corporate tax rates and special tax incentives.

  • Increasingly high-quality research universities.

The global forces that affect employment have swirled into the service sector, once thought secure from international competition. First, there was outsourcing, which allows employers to reassign some jobs by contracting them to specialty firms that can do the jobs better or more cheaply. At first, jobs were outsourced within the United States, but “offshoring” soon sent jobs overseas, beyond the reach of US workers. That practice has become especially controversial, and there has been an outcry for measures to protect those jobs for the domestic market. In some states, legislation has been proposed to curb outsourcing through such initiatives as Opportunity Indiana, the Keep Jobs in Colorado Act, and the American Jobs Act of Wisconsin.17

Offshoring has become established, however, and it is merely one logical outcome of a flatter world. Furthermore, protectionist measures have historically proved counterproductive. For several years, US companies that outsource information-technology jobs have all but ordered their contractors to send some portion of the work overseas to gain hiring flexibility, cut employment costs—by 40% in some cases18—and cut overhead costs for


B. Mehlman, Assistant Secretary for Technology Policy, US Department of Commerce. “Offshore Outsourcing and the Future of American Competitiveness.” Speech to Business Roundtable Working Group presented on July 31, 2003. Available at:


Dalton, 1999.


See, for example, “High Tech in China: Is It a Threat to Silicon Valley?” Business Week online, October 28, 2002.


B. Callan, S. Costigan, and K. Keller. Exporting U.S. High Tech: Facts and Fiction About the Globalization of Industrial R&D. New York: Council on Foreign Relations, 1997.


Dalton, 1999.


D. C. Sharma and M. Yamamoto. “How India is Handling International Backlash.” CNET, May 6, 2004.


The Gartner Group, an organization that analyzes the information-technology sector, estimates that companies can achieve cost savings of 25-30% through successful outsourcing. But Gartner also warns that offshoring could produce lower savings than estimated if backup service and other costs are not considered.

The National Academies of Sciences, Engineering, and Medicine
500 Fifth St. N.W. | Washington, D.C. 20001

Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement