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Myths on outsourcing give it an undeserved, bad reputation

November 22, 2010
By Art Kelly

Editor's note: The following appeared as a guest essay in the Aug. 9 edition of Crain's Chicago Business. Art Kelly is president of Kelly Nissan in Oak Lawn, chairman of the CATA, and a director of the AIADA.

As owner of a Nissan dealership with more than 50 employees, I understand that despite recent strong economic growth, many people in the Chicago area are still concerned about their own job prospects. Extensive media reports about outsourcing U.S. jobs to lower-cost, overseas providers have brought free trade issues into the spotlight. And in an election year, many politicians are rushing to blame outsourcing for nearly every hiccup in the U.S. economy. However, outsourcing is an integral part of free trade. It drives investment in our economy and raises our standard of living by increasing consumer choice and creating better jobs. I am keenly aware that competition from international automakers has forced Detroit to keep pace. The average initial quality rating of domestic nameplate vehicles has improved 32 percent in the last seven years. That's a real benefit for American families. Outsourcing is only half the picture. For years, foreign- based firms have been "insourcing" high-skill, family- supporting jobs. In fact, more than 6.4 million Americans draw their paychecks from companies that are based abroad. To help clear up misunderstandings, the American International Automobile Dealers Association recently launched the Trade Works coalition. We recently released some top myths about outsourcing: Myth: Outsourcing hurts the job market. In the past three years, only about 300,000 jobs have been transferred overseas. Market research firm Forrester Research  Inc. estimates that 3.4 million jobs could go overseas by 2015 - but that's only 227,000 jobs per year, less than one-quarter of 1 percent of the nearly 140 million U.S. jobs. Myth: The U.S. is outsourcing jobs faster than it is insourcing them. Over the last 15 years, the number of jobs insourced into the U.S. grew, on average, almost 8 percent per year, or 117 percent overall. In contrast, the number of jobs outsourced has grown only about 4 percent per year, or 56 percent overall. Myth: When U.S. companies outsource, the economy suffers. A recent McKinsey & Co. study found the opposite: Every dollar spent on foreign outsourcing creates about $1.13 of additional economic activity in the U.S. economy through spinoff effects. Cost savings realized through outsourcing help boost profits at home. Myth: U.S. manufacturing is in decline due to outsourcing. Manufacturing output has increased an enormous 93 percent since 1980. Although the U.S. has a large trade deficit, it runs a sizable surplus in services, valued at $59.2 billion last year. Myth: When companies move service jobs overseas, that's outsourcing. Outsourcing is simply the wrong term. According to Alan Reynolds, an economist at the Cato Institute, outsourcing means "having business services done by specialist firms instead of your own firm." You don't need India to do that; you can go next door.