DiscussionSource: Brookings Trade Forum, , Offshoring White-Collar Work (2005), pp. 424-426Published by: Brookings Institution PressStable URL: http://www.jstor.org/stable/25058774 .

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Discussion

Despite the fact that it came at the end of a very long day, this panel generated a

very active discussion. Nearly all speakers commended the panelists for their

richly informative and thought-provoking presentations. The first commentators related the industry experiences back to points made

in the theoretical sessions of the conference. Lael Brainard asked whether insti

tutional development constrains offshoring in reality or whether this is simply a

theoretical hypothesis. In this context, she pointed out that the discussion of

India had focused on labor supply not institutional constraints. Alan Deardorff

suggested that the "complexity of the symbolizers" was one interpretation of the

K in Jim Markusen's model.

Reflecting on Frank Levy's discussion of radiology, Brainard expressed the

view that professional licensing is one of the channels through which protec tionism seems most likely to appear. She also suggested that the skill require

ments for doing particular kinds of work help to explain the traditional localiza

tion of services in the United States. Levy responded that, in the case of

radiology, professional standards reflect the difficulties of acquiring and publi

cizing information about skills. Thus it is very hard to tell whether the restric

tions are simply guild protection. Much of the discussion related to the issue and implications of task com

plexity. Catherine Mann asked how Ravi Aron's point about differences in views

of what is complex relates to the work Frank Levy has done with Richard Mur

nane on which tasks can be codified. Levy noted that this earlier work focused

on which tasks can be easily done by computer. If people have different skills in

different countries, the implications for offshoring are not straightforward. Aron

explained that his research has examined 316 specific processes, studying which

424

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Awn and LiwArora /Levy and Goelman: Discussion 425

can be codified. He sees his findings as closely related to Levy's distinction

between deductive and inductive ways of specifying work. But perception mat

ters too. What makes work offshorable, he said, is whether it can be described by codifiable rules. But what makes managers perceive a task as difficult (or com

plex) is whether they believe they have workers who can perform that task suc

cessfully. Furthermore, their research suggests that when U.S. managers off

shore work they consider complex (such as number crunching), they find fewer

errors and higher quality than they expected. But when they offshore work they consider easy (such as writing a corporate banking report), they experience lower returns than expected?sometimes negative returns. Thus, his analysis

suggests that U.S. and British companies are paying a premium (14 to 25 per

cent) for work that they consider complex. Martha Laboissiere reported on some of the findings from ongoing work at the

McKinsey Global Institute (MGI) to study both the supply and the demand sides

of offshoring. They study a set of representative sectors, including packaged soft

ware, as well as health care and pharmaceuticals. Like Brad Jensen and Lori Het

zer, they also examine occupational breakdown. They find the three main factors

that inhibit offshoring are the need for a physical presence, the need for local

knowledge, and the existence of complex interactions. The latter is most impor tant at the upper management level. She noted that complex interactions are also

reflected in the agglomeration effect raised by Robert Lawrence in his discussion

of the Jensen-Kletzer paper. This helps to explain why so many IT service com

panies moved to Silicon Valley in California and to Bangalore, the even bigger Silicon Valley of India. Similar concentrations are evident in the pharmaceuticals

industry. Thus she stressed the distinction between process complexity confined

to a single company and network complexity between companies, which adds

another layer and is also important. Finally, she reported MGI estimates that only about 3 percent of occupations in health care are potentially offshorable, while

49 percent are potentially offshorable in packaged software. She saw differences

in complexity as the main reason these estimates are so different.

Lori Kletzer asked whether cross-country differences in judgment about what

constitutes complexity correlate with international rankings of numeracy. She

noted that the United States ranks relatively poorly, and that she believed India

ranked somewhat more highly. Aron replied that it is important to consider selec

tion issues. Roughly half of the Indian population is not literate. But he believes

there is a strong bias among the Indian middle class toward occupations that call

for mathematic and scientific skills. Numeracy among this group is probably

quite high.

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426 Brookings Trade Forum: 2005

There was also discussion about the extent to which restrictions on defense

related work constrained the offshoring of software work. Mann noted that, to

her knowledge, all employees of firms in the Northern Virginia software com

plex have a Department of Defense (DOD) clearance, and that those firms can

not offshore to firms whose employees do not have such clearance. She also noted

that, since 9-11, the range of areas considered sensitive has expanded?for

instance, to include programming for some types of mapping technologies.

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