Boy, the stir John McCarthy and his crew have caused! The wailing and gnashing of teeth over the 3.3 million jobs that the US will lose offshore before 2015 started with a report from John McCarthy’s firm, Forrester Research. McCarthy is sticking to his guns, however, and he tells the various industries that will feel the pinch the most–software development, finance and call centers–that they would be wise to stop crying in their beer and start figuring out how to retrain the outplaced personnel. McCarthy, who is group director of research for the Cambridge, MA-based Forrester, originally put out the findings in November of last year. But the impact is still rippling through the US economy–the commercial real estate sector–still hoping that the recovery won’t be totally jobless–is bracing to bear the brunt of the bad news. You’ve predicted that 3.3 million jobs will move offshore by 2015. Is it all about cost?

McCarthy: It’s cost, it’s quality, it’s the ability to run multiple shifts. But we can run multiple shifts here.

McCarthy: Yeah, but you’re not paying people in the middle of the night, which is totally unproductive. Is any portion of the 3.3 million jobs yet to be created or is this all from existing jobs?

McCarthy: Most of it is existing. It’s never one thing that gets you. It’s always a combination of factors. And what’s happening is that a lot of these jobs that are going offshore are going to go away anyway. Just as in the ’60s, ’70s and ’80s, we didn’t pay a premium to assemble products, going forward we’re not going to pay a premium to assemble software programs. Neither will we pay a premium to those people who reassemble, reformat and repackage information. Industries like insurance have peaked in terms of their employment numbers, I would guess. I’ve seen an application where an auto-body shop with a digital camera takes a picture, fills out an online form, attaches the form to the picture and sends it to the adjuster who approves it right there. No paperwork, no rekeying stuff into the system. There will be a lot more of that. It’s frightening in a way.

McCarthy: But it’s also productivity. It is frightening. But look at the fact that whenever someone rekeys a piece of information, there is a 10% to 20% error rate. This represents big-time productivity. When I mentioned frightening, it was from the standpoint of the real estate industry.

McCarthy: But real estate has to address the basic demographics that said between 1960 and 1965 the birth rate in this country dropped by half. Trust me. In comparison to baby boomers retiring, jobs moving offshore is a drop in the bucket. That’s what? Fifty or 60 million people? I joke that the reason why the John Hancock Tower in Boston was sold is that they looked around and said, “We’re not going to need this much space going forward.” Will any of those jobs be relocations? Taking Bob from Boston and moving him to Jakarta?

McCarthy: There is some percentage of jobs that will get moved, but that defeats the purpose of the cost-savings. Can you break the exodus down by US region?

McCarthy: No. It’s pretty even. Will they all come out of Oklahoma or Iowa? I don’t think so. It’s going to be geographically centered to the extent that certain impacted industries are geographically centered. For instance, many of the jobs are going to come out of the financial-services sector, which is headquartered largely on the coasts. The featured interview last week pointed out that we’re fooling ourselves by trying to put a number to the jobs that will leave. Do you agree?

McCarthy: That’s baloney. We know what’s happening now. We know how these different geographies are gearing up with skills in different areas. We know the cost-pressure that companies are under. Yeah, there will be ebbs and flows in that number. If Pakistan and India go to war in 2008, that will put a total damper on that number in the short term. But I guarantee you someone will step in and fill that gap. Do you see homegrown sectors that could replace the number of jobs leaving?

McCarthy: Over the timeframe we’ve talked about, there will be growth in certain categories that will compensate. People will reinvent themselves, as we saw with the layoffs of the early ’90s. Then, there was a flurry of entrepreneurial activity as people started up new businesses in the service areas. The offshore issue puts a premium on a whole new set of project-management skills and the ability to use technology to tailor a solution to a business problem. The research specifically named India, Russia, China and the Philippines. Are certain sectors more likely to go to certain countries?

McCarthy: For the foreseeable future–everyone is playing for second place after India. Why?

McCarthy: It’s a combination of things, some random and some proactive. The population is 1.2 billion, a big percentage of whom speak English. There’s also a focus on the part of the government to train people in technology. India also offers a relatively well-organized industry body to both lobby the government from a public-policy point of view and to herd the goats who are the different suppliers in the space in order to represent a united front. And, of course, there are the basics of lower wages, which at the base level are 70% to 80% lower. Now, you don’t see all of that because of the management overhead and some of the tech infrastructure costs. All of this makes an interesting dynamic possible between the real estate companies and the unions. Overseas?

McCarthy: No. Here. The enemy of my enemy is my friend. The unions and the real estate guys want to keep as many jobs here as possible. So I think you’ll see an alignment there. But one of the big issues we need to focus on is that we are not going to stop this trend from happening. We would be much better off putting our energies and our focus around how to retrain these people as opposed to creating artificial barriers that keep these jobs on shore for an extra six months. Painful as it is on an individual level, you can’t ignore the macroeconomic trend and what it means to productivity and the economy, and productivity is the big measure of how you create wealth.

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