http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/05/18/OFFSHORING.TMP

Jobs flying faster from U.S.
Estimate for 2006 raised by 40% -- to 800,000

John Shinal, Chronicle Staff Writer

U.S. corporations are sending work overseas faster than previously thought, according to Forrester Research Inc., whose controversial report 18 months ago helped stoke the national controversy over offshoring American jobs.

In its latest study, Forrester predicts that by the end of next year, U.S. firms will offshore more than 800,000 service jobs, 40 percent more than the firm estimated previously. Forrester's overall estimate remains the same: The firm predicts that about 3.3 million jobs will go overseas by 2015.

The Cambridge, Mass., researcher said the largest U.S. employers are expanding the types of work they send overseas. Where telemarketers and software developers used to bear the brunt of the job loss, bank loan processors, insurance claims adjusters and even legal assistants now share the pain.

Critics of offshoring seized on the original Forrester report as evidence that shipping jobs overseas would devastate service-sector employment and the middle-class workers who fill those occupations. Yet the report itself was criticized by economists, company executives and others who have defended offshoring as a painful but necessary result of a global economy.

The issue has become a political hot button, with some in Congress calling for laws to limit the type of work that can besent abroad and privacy advocates saying the practice puts sensitive data into the hands of overseas firms.

Despite the criticism, the largest U.S. companies are accelerating their offshoring plans, and by 2008, more than half the Fortune 1000 will have overseas operations, according to the report.

Even companies that aren't prepared for the transition are choosing to export jobs anyway, said Forrester analyst Stephanie Moore. "We're seeing crazy interest in offshore outsourcing for the cost savings," said Moore, who spoke at a news conference in Orlando.

The aggregate number of jobs sent overseas to date will pass half a million this year, and the figure will surpass 1 million by 2006, Forrester said.

In contrast to conventional wisdom, the majority of those jobs will not be farmed out to large outsourcing firms in India and other countries. Rather, they will be located in foreign subsidiaries of Fortune 1000 companies, according to Forrester.

That contention is similar to one reached by two UC Berkeley economics professors in a book they published last year.

"People don't realize that when (U.S. firms) go abroad, for the most part they use their own workers," said Ashok Bardhan, a senior research associate at the Fisher Center for Real Estate and Urban Economics.

In fact, two-thirds of the U.S. companies that sent work offshore during the 1990s kept the work with their own units and affiliates, said Bardhan, who co-authored the book "Globalization and High-Tech Industry: California and Beyond."

Many in Silicon Valley have faulted Forrester's methodology and say its conclusions amount to nothing more than fear-mongering. Speaking of the previous Forrester Report, Vinod Khosla, a partner with the Menlo Park venture capital firm Kleiner Perkins Caufield & Byers, called the methodology suspect and its conclusions misleading.

"The forecasts are wrong," Khosla said last week at a meeting of Silicom Ventures LLC, a group of angel investors.

The Forrester team that assembled the report said they interviewed more than 300 of their corporate clients to learn which types of jobs they planned to offshore. Then, they used statistics from the U.S. Bureau of Labor Statistics to calculate the total job loss.

Still, others have said that a debate about how many jobs American corporations create overseas should include a discussion about the number of jobs created by foreign firms here.

"During a difficult economy, people look for scapegoats," said Carl Guardino, chief executive of the Silicon Valley Manufacturing Group, whose member companies employ more than 250,000 workers.

Rather than implementing protectionist measures, "let's focus on the right problem, which is competitiveness," said Guardino, who added that his group supports funds to retrain workers whose jobs have gone overseas.

Bardhan stopped short of criticizing the report but said he was skeptical that anyone can identify exactly how many jobs will go within a specific time frame.

"There's no way to do that with precision," said Bardhan. "I don't know how anyone can say with precision that this (exact) number of jobs will go by this (particular) year."

Even as they embrace the trend, U.S. companies worried about political fallout from their employment moves are being more secretive about their offshore plans.

The offshoring moves aren't made in a vacuum, and the issue has been raised by elected officials who decry the loss of U.S. jobs. As a result, many of Forrester's clients who are offshoring are doing so "underground," said Moore.

"We have one client who refused to use the word offshore, she said.

E-mail John Shinal at jshinal@sfchronicle.com.