THE BLOG
03/08/2013 11:38 am ET | Updated May 08, 2013

The US Employment Debate: Offshore or Onshore?

Today, plenty of employers are sending their work overseas, where the cost of labor is often much cheaper. Many pundits fear that this trend is accelerating and will cause increased unemployment here at home; in fact, the opposite may be true.

If U.S. employers want American workers to have stable job opportunities, it's time to start implementing a hybrid model of offshore/onshore labor instead -- and use new technology and product development methodology in order to sustain growth in the U.S.

There are two reasons for this. Firstly, for companies to thrive today, there is a need to move fast, innovate on short cycles and adapt quickly -- and the talent needed to support this cycle is not always available in the U.S. Secondly, the economy is global; China is now the largest market for cell phones and cars, Latin America with its booming middle class is amongst the fastest growing markets for consumer goods, and Korea has the world's highest broadband penetration. Enabling American companies to compete in these markets effectively depends on understanding these markets and operating in them.

When considering the long-term shifts in our workforce vis-à-vis a global economy, we can learn a useful lesson from history. In the 18th century, Europeans moved to the U.S. to create what they called a "New World." They saw opportunity for harvesting raw materials in America's rich land, and as the population grew, a market for finished goods as well.

However, they did not appreciate the potential to manufacture locally. European companies, who had a tradition of reliance on skilled labor and artisan, often proprietary knowledge, didn't want to adapt to the growing needs of this market by shifting manufacturing to the U.S.

The result? The development of the "American system" of manufacturing, one in which a new breed of American companies used automation, interchangeable parts, assembly lines, and new models for management instead of skilled labor, handcrafted goods, and family control of firms.

If employers want to adapt, they need to apply the lessons of the American Revolution in reverse. Employers must think creatively about the global economy and invent a new American system, one that allows for creativity on both sides, and that goes beyond the dichotomies of designing here and manufacturing there. In the digital age, we have endless access to information via smartphones, high-speed Internet access, and new software that makes collaboration over vast distances possible. A new American system doesn't need to be based around manufacturing, but on knowledge.

In many ways, this is what big companies like Apple, Intel, Google, and IBM are doing already. They don't simply generate ideas here at home and outsource the labor. Instead they create networks of research, development, manufacturing, marketing, and sales centers around the world. For this model to sustain job growth in the U.S., the same models need to be adopted by the world's biggest companies, such as Wal-Mart, General Motors and Proctor & Gamble -- and most importantly, by the hundreds of thousands of small and medium-sized businesses that serve as the backbone of the American economy.

Clearly this is not a panacea: Many new jobs require different skillsets. Workers who are used to working on manufacturing lines are hardly ready to write mobile apps or take on social media marketing jobs. Many employees in industries across the nation will need to be retrained. This shift takes time, maybe even a generation.

In the meantime, we need strategies to help the transition along. So how will shifting the few jobs that are left be good for the workers here? The key idea is that hybrid onshore/offshore operations allow companies to grow faster. Stateside we need to focus on the aspects of the research -- development -- commercialization cycle that make sense here, and turn to global markets when it does not.

For SMBs these principles can be distilled into four operating dictums:

  1. Follow high talent, not low cost. Saving 50 percent on manufacturing costs is great. But hiring talent that can improve sales by 50 percent is better. Seek the talent that can help the business grow. Your top software engineer had been hired by Google for double what you can afford? How about outsourcing some programming work to Eastern Europe, so you can finish the software release on time and not miss the holiday season?
  2. Think about the rest of the world not as a cheap alternative to manufacturing, but as a hungry market. Old thinking: let's use low paid radiologists in India to do remote x-ray analysis of rich patients in the U.S. New thinking: let's use retired teachers in the U.S. to teach English to a booming middle class in China and Brazil over videoconference.
  3. Use technology in order to optimize talent and cost. The potent combination of collaboration technologies, cloud computing, and 3D printing, for example, allows SMBs to create a product blueprint stateside, to outsource localization to various countries, and to optimize manufacturing into multiple locales, just like Intel splits its R&D, fabrication, and sales between Ireland, Israel, India, China and Silicon Valley. Now small businesses can do the same.
  4. Think globally, act locally. Remember that employing local talent and selling to global markets requires adaptation and localization. A good case in point is the process many companies call 'tropicalization' when getting ready to operate in Latin America. This consists of a combination of translating the product and packaging to Spanish and Portuguese, adaptation of pricing, and considerations for taxes and local trade agreements.

My company, Kaltura, is an example of a business spearheading these trends and following these dictums. While still a small company, over the past few years we've created 200 jobs worldwide, half of them in the U.S. We have R&D in Israel, professional services and sales in London, and resellers in Mexico and Australia. Our investors are from the U.S., India, and Japan. Headquarters, sales, and marketing are in the U.S.

Because of our carefully planned hybrid model, we're able to grow rapidly while building foundations for even further growth. We plan to hire 100 more people in the next few years as we prepare to go public.

Relying on hybrid models for onshore and offshore jobs is not trivial. It adds operational complexity, and requires the right mindset. But employers that adapt first stand to gain the most by creating opportunities for fast growth, and protecting the jobs at home. Those who ignore it will undoubtedly lose out, together with bigger losses for the economy at large.