Yet companies big and small, in industry after industry, in Minnesota as elsewhere, are doing it, sparking warnings of the threat posed to companies that don't -- and to American workers in any event.

The practice: offshoring back-office operations to low-cost countries like India or the Philippines.

Sending work -- processing insurance claims or applications for bank loans and credit cards, booking airline seats/hotel rooms/rental cars, or HR functions such as keeping track of holiday usage or the details of employees' defined benefit plans -- to countries where wages are a fifth or even one-fifteenth of American levels.

Simplistic news coverage of offshoring has scared most companies into silence on the matter. But it hasn't halted the practice. In fact, by any measure offshoring is expanding and accelerating.

The biggest service providers, which include American companies like IBM and Accenture, continue to aggressively expand their overseas service centers, located in boom towns like Gurgaon, Noida and Chennai, all in India, or the Philippine cities of Manila and Cebu. In June, IBM said it planned to triple its investment in India to $6 billion over the next three years. Over the past three years, IBM's workforce in India has soared from 9,000 to 43,000.
And offshoring is expanding -- in range of services, number of service providers, geographically.

Governments and entrepreneurs in developing countries throughout the world are now hurrying to replicate India's success in parlaying low wages -- even for highly educated workers -- into businesses providing back-office support services to Western enterprises. In Eastern Europe the Czech Republic, Poland and Russia are already home to many so-called business process outsourcing (BPO) companies. Brazil, Mexico, Chile and Argentina are too, aided by time-zone factors which give call centers in Latin America advantages in catering to the U.S. market.

Even middle-income countries like Israel, Singapore and Malaysia are sprouting BPO companies offering high-value services -- the most significant new development in the global labor market.

BPO has expanded beyond merely high-volume, low-margin grunt work. Its origin, and still its public image, is of factory-floor sized offices, filled with "cyber coolies" performing laborious tasks: providing transcription services to Western doctors, doing data entry work for Western banks and insurance companies, or churning out computer code.

To be sure, that work keeps flowing to BPO service providers in low-wage countries. And work volumes continue increasing as the Western companies engaging in offshoring expand well beyond the Fortune 500. Global giants like GE, British Airways and Citibank still account for the vast bulk of spending. But even small and mid-sized enterprises (SMEs) are beginning to offshore -- initially in pursuit of "game-changing" advantages, in time probably merely to survive.
"Offshoring is at the point today where the Internet was in 2000," Paul Davies, former managing director of Unisys India, writes in his 2004 book What's This India Business? Offshoring, Outsouring, and the Global Services Revolution. "Five years from now, not having an offshoring strategy will be like not having an e-commerce plan."

India's National Association of Software Service Companies (NASSCOM), the body credited with guiding India's emergence as the world's top provider of BPO services with just over half of the global market, describes the industry as entering a third phase. The 1990-2000 period was a time of experimentation and "proof of concept," followed by three years of the practice expanding to most globally active corporations. By 2004, about three-fifths of the Fortune 500 companies were offshoring work to India, according to NASSCOM.

"Anything that isn't nailed to the floor"

Still the Indian BPO industry keeps growing at 35-percent-plus a year, as the client base expands well beyond multinational corporations and the range of services far beyond just labor-intensive processes. "Growth...is being driven by steady increases in scale and depth of existing service lines; the addition of...emerging niche business services; and continued expansion of service portolios and higher-value processes," NASSCOM said in releasing an annual report earlier this year.

Services offered have expanded to include virtually any job that doesn't require physical presence or face-to-face contact. So the work of surgeons, trial lawyers and firefighters isn't being offshored, but the work of radiologists, tax lawyers and actuaries determining fire insurance premiums is up for grabs globally. In the words of AFL-CIO chief economist Thea Lee: "Anything that isn't nailed to the floor is being considered for outsourcing."

Those trends boosted Indian export revenue from BPO services 37 percent to $6.3 billion in the past year to March, with no slowdown expected for years. "The BPO industry has significant headroom to grow, with the offshorable potential being 12 times current revenues," NASSCOM said in early June.
The Philippines earned more than $1 billion during 2005 from BPO services, and targets a five-fold increase by 2010 to $5 billion, or five percent of predicted global spending by then, that nation's Department of Labor and Employment said in January.

Independent researchers support those forecasts.

"...the number of information technology jobs outsourced to low-cost countries such as India and China is just a trickle compared with what's going to happen over the next 10 years," InformationWeek reported in March 2005, referring to a study prepared by Gartner. Estimating less than five percent of IT jobs in the United States and other developed countries had been offshored so far, Gartner forecast the figure would spiral to 30 percent by 2015.
"The increasing ease and decreasing cost of transferring digital files across continents, combined with companies' desire to do more IT work without increasing their IT budgets, is what is driving the shift," said Gartner researcher Frances Karamouzis.

In OUTSOURCE: Competing in the Global Productivity Race, author Edward Yourdon describes that boardroom thought process in detail.

"If you're the senior executive of an organization with 1,000 knowledge workers whose average salary is $50,000 a year, you've got a $50 million annual payroll. Throw in another 50 percent for insurance, benefits, office space and other overhead costs, and your total labor cost is closer to $75 million. If you reduce that by 40 percent (through offshoring), you've moved $30 million from the 'cost' category of your P&L statement right to the bottom line. Who wouldn't be excited by such an opportunity. And even if you weren't excited, how could you avoid investigating the opportunity if you found that your competitor had achieved a $30 million cost advantage by doing the same thing?"
Reports of 30-70 percent cost savings, mixed with hair-on-fire proselytizing about other offshoring benefits, has created the impression offshoring is destined to revolutionize the delivery of white-collar services throughout the developed world.

GE is said to have saved $1 billion in operating expenses by 2005 thanks to offshoring. Citibank saved about $75 million in 2004 by offshoring just its trade finance processes, and British Airways slashed its operating costs $42 million by offshoring work to India, according to Offshore Outsourcing: A Path to New Efficiencies in IT and Business Processes, by Dr. Nandu Thondavadi, a professor at Northwestern University's Kellogg School of Management, and freelance journalist George Albert.

In the book's preface, written by Scott Bayman, the CEO of GE India, offshoring is portrayed as inevitable. It's described as a juggernaut, an apt image since the word "juggernaut" itself is of Indian origin. It's derived from the Hindu god Lord Jagannath, who rides a massive chariot which crushes any who try to stop it. "Despite the hurdles, offshore outsourcing will prevail. Global competitiveness drives it; the basic law of economics command it; and shareholder returns demand it," Bayman wrote.

Business experts who see offshoring changing the way companies everywhere operate also exist closer to home.

"The diffusion of resources across the world requires us to rethink how we manage U.S. corporations," says Professor Mani Subramani of the Carlson School of Business at the University of Minnesota, who teaches a course called Managing Globally. "We've had an integration of financial markets, and an integration of the market for goods. Now we're witnessing the integration of labor markets."

So if offshoring is inevitable and already so pervasive, why are companies so reluctant to discuss it?

Minnesota companies surveyed about offshoring

A Twin Cities Business Monthly survey of 15 top Minnesota-based companies found only one -- Eden Prairie-based ADC Telecommucations Inc -- willing to talk openly about every aspect of its offshoring activities. The only other companies willing to address the issue on the record were mostly companies which offshored nothing.

Off the record, top executives of companies here and throughout the United States say it's fear of being viewed as unpatriotic, and pursuing profit at the risk of decimating the American middle class, that keeps them mute.

And for good reason. Media coverage of the practice so far has been remarkable for a single quality: fueling paranoia. The practice has become equated with U.S. job losses, falling incomes and a shrinking American middle class. U.S. companies announcing layoffs tied to decisions to transfer functions abroad risk appearing to be putting profit before anything else, and certainly the economic well-being of the American middle class.

Naturally, companies in turn are anxious to say as little as possible about offshoring with middle-class angst already so high.

A survey conducted for PARADE magazine early this year of Americans with annual household incomes of $30,000-$99,000 found more than a third worried about lossing their jobs, as other evidence showed many were already struggling financially. Nearly 83 percent said there was little money left to save after they'd paid their monthly bills. Half those employed said they'd experienced either increased healthcare costs or cuts in health benefits, while 39 percent had experienced slowdowns in wage increases or cuts in bonuses or overtime.

Many factors have combined to bring about those conditions, globalization and the offshoring of white-collar jobs being just one. Yet offshoring alone is a taboo subject for discussion by business leaders. No one hesitates a moment to comment on the impact on employment of soaring healthcare costs, sliding educational standards or of government policy, restrictions or red tape.
Offshoring alone is given the silent treatment, a subject too portentous and sensitive to address. But is that wise, or even necessary?

Though seldom reported, powerful arguments can be made for why rather than shuddering at the mention of offshoring, Americans ought to energetically embrace the practice. And conversely everyone -- executives, labor leaders, workers, policymakers, educators and particularly parents -- ought to begin thinking about the consequences of burying discussion of this profound change in the global economy. Ideally, pressure from both directions will come together to burst the dam of silence now surrounding offshoring.

Terrified by the prospect of losing their job to someone half a world away willing to work for a fraction of the salary, few Americans stop to ever contemplate whether offshoring could in fact prove economically beneficial. Yet it could, and here's why.

As a solution to a looming U.S. labor shortage

With the national unemployment rate at only 4.5 percent in August and Congress under pressure to curb illegal immigration, few realize the United States faces a greater threat from a labor shortage than from job losses to offshoring.

With 76 million Baby Boomers set to retire over the next 15 years -- 25 percent of today's working-age population -- and only 44 million Generation Xers to pick up the slack, the U.S. could experience a labor shortage for years to come. The Bureau of Labor Statistics estimates a shortage of 10 million workers by 2010, when it calculates there will be 168 million jobs but only 158 million workers.
A study released in March by the Federal Reserve and the Brookings Institution identified two other trends likely to worsen that labor market squeeze: the declining labor force participation rates of both women and teenagers.

The percentage of working women rose steadily for three decades before peaking in the 1990s. It's since declined amid indications fewer women want to work outside the home while raising families. Meanwhile, the labor force participation rate for teenagers has been declining for nearly 30 years -- from a peak of 72 percent in the mid-'70s to 53 percent last year.

Offshoring could prove even more useful in filling gaps in the number of highly trained workers critical to maintaining a leadership position in high-tech industries. Shortages of engineers and research scientists with advanced degrees in areas like chip design and molecular biology have worsened in recent years because of cuts in the number of visas the U.S. issues to enable foreigners to work here.

This year only 65,000 three-year visas were available for skilled workers, and demand was so strong that all were snapped by last August, more than month before the October 1 start of the fiscal year.

"The government also gives out 140,000 employment-based visas yearly -- so-called green cards that put immigrants on the track to citizenship. But those visas are shared equally among all sending countries. That means that an employer hoping to hire a Chinese- or Indian-born worker now has at least a five-year wait before the immigration service even reads the application," the Wall Street Journal reported in May.

Offshoring can limit upward pressure on wages caused by labor shortages, which otherwise might fuel inflation and jeopardize the global competitiveness of American companies, especially in labor-intensive service industries. Seven out of 10 Americans work in service-sector jobs, making it vital to remain competitive in services following the loss of so many manufacturing jobs over recent decades.
In that quest, key aspects of the international labor market actually give the United States -- along with Britain and other English-speaking countries -- a huge advantage in using offshoring to bolster their global competitiveness. Language is why.

Countries like Japan, South Korea and Germany could never utilitize offshoring to nearly the same degree, simply because there are no low-income Japanese, Korean and German speaking countries to provide BPO services to them. Economists have noted language isolation partly explains why those three countries became manufacturing powers. They never spawned globally significant service companies because language is integral to delivering services. Instead, all the world-class companies produced by Japan, Korea and Germany are manufacturers, where the significance of language has been less.

But offshoring will change that as well. Huge manufacturing companies traditionally have developed correspondingly large back-office operations: separate departments to handle accounting, finance, HR functions, marketing, etc. By contrast, offshoring enables a manufacturer to focus purely on making product, while outsourcing every other business support function to service specialists in low-wage countries.

The cost savings and other benefits can substantially improve the competitiveness and profitability of companies which reengineer their operations in that way, and of course work against traditionally organized companies with higher operating costs. And what is true at the company level is just as true in terms of national competitiveness. Companies and societies which aggressively embrace offshoring could be cementing their dominance in industries they already lead, and positioning themselves to compete better in any others.

Paranoia and Silence

But good decisions and planning require good information, something in awfully short supply when it comes to offshoring because of the paranoia and silence that envelops the subject. Companies engaged in offshoring typically keep all information about the operations to themselves -- types of processes being offshored, to whom, at what cost, and the results achieved. Nor are the offshore service providers any more forthcoming.

They identify clients only in general terms -- one of the five largest U.S. banks, a leading Canadian phone company.

Academic researchers have fared little better in breaching the wall of secrecy surrounding offshoring. There are virtually no authoritative, broad studies yet on the subject. Most research has focused on analyzing the experience of individual companies, results of limited value due to the prevalence of so many idiosyncratic factors in any offshoring deal. Such reports inevitably end up telling you more about the peculiarities of the companies involved than producing new insights into offshoring with wide relevance.

Really the only source of broad, detailed information about offshoring now comes from consulting companies like Gartner, Forrester, AT Kearney and McKinsey. Their privileged access to the top executives of so many companies on both the outsourcing and service vendor sides, across industries as well as in many countries, has given them tremendous power to influence perceptions of the industry, especially given the lack of publicly disclosed information. But consultancies are often accused of tailoring their conclusions to suit the objectives of whomever is paying the bill, and that charge is leveled even more frequently where offshoring is concerned.

A case in point are the wildly different estimates for potential global spending on legal process outsourcing projected by Cambridge, Massachusetts-based researcher Forrester, and the New Delhi-based business intelligence firm Evalueserve.

In a widely reported 2005 report, Forrester projected the work of 35,000 U.S. attorneys would be offshored to low-cost countries like India by 2010, with the number more than doubling to 79,000 by 2015. But Evalueserve, in a report entitled "Legal Process Outsourcing (LPO) - Hype Vs Reality" and issued in January, estimated the number of such jobs in India by 2015 at only 16,000, and added virtually all of those would be in a single area, patent law.
The reporting and research on offshoring is rife with such examples, often a reflection of companies' unwillingness to divulge any information about their own offshoring activities and plans. And it's in that environment that all planning for the future takes place.

Companies which have never offshored contemplate whether to begin. Educators draw up plans for deciding how to spend their budgets, what areas require greater resources and where to cut back spending. And parents advise their children about how to prepare for the future, and what professions and occupations to steer kids toward or away from.

Offshoring is already having a profound impact on certain occupations, most notably computer programming. It's also only a matter of time before the practice impacts many other occupations. But how soon? What occupations? How big an impact? No one's saying.