Ever since the offshore shift of skilled work began a political flame war a few years ago, it has been portrayed as the killer of well-paying jobs "at home." These "Benedict Arnold CEOs" hire software engineers, assembly workers, design engineers and IT staff (not to mention credit-card bill collectors and computer help desks) to exploit the low wages of poor nations. United States workers suddenly face a cutthroat threat, with even highly educated tech and service professionals having to compete against legions of hungry college grads in India and China, as well as in the Philippines, willing to work twice as hard for one-fifth the pay.

Workers' fears have some grounding, in fact, as a special report by BusinessWeek on outsourcing noted earlier this year:

The prime motive of most corporate bean counters jumping on the offshoring bandwagon has been to take advantage of such 'labor arbitrage' — the huge wage gap between industrialized and developing nations. And without doubt, big layoffs often accompany big outsourcing deals.

Nonetheless, because all companies are now operating in a global business ecology, the offshoring issue at this point seems to have become a matter of business survival, an attitude that is emerging in corporations across the U.S. and Europe in virtually every industry.

Moreover, "multinationals based in France, Germany, Spain, Japan, Canada, Australia and elsewhere have recently begun adopting offshoring so they can compete with other multinationals based out of the United States and the United Kingdom — the traditional offshore service buyers," said international management consulting firm A.T. Kearney's "Execution Is Everything: The Keys to Offshore Success" report earlier this year.

To wit, offshoring, especially to India, has become an important issue in Australia. According to Global Services, many of Australia's largest companies have outsourced operations offshore, mostly to India. It is mostly large and high-profile Australian companies that are outsourcing IT and other work to foreign countries. The banks are leading the way.

Companies continue to pursue offshoring aggressively — moving selected functions or processes to places in the world where they can be conducted at lower cost, either by third parties or by their own efforts.

The changes can be harsh and deep. But "a more enlightened, strategic view of global sourcing is starting to emerge as managers get a better fix on its potential," noted BusinessWeek's special report in January. The new buzzword is "transformational outsourcing."

Many executives are discovering offshoring is really about corporate growth, making better use of skilled U.S. staff, and even job creation in the U.S., not just cheap wages abroad. True, the labor savings from global sourcing can still be substantial. But it's peanuts compared to the enormous gains in efficiency, productivity, quality and revenues that can be achieved by fully leveraging offshore talent.

Is it?

The cost advantages of outsourcing overseas are beginning to narrow as wages for workers providing services in China, India and other popular outsourcing locations rise at an annual rate of 20 percent to 40 percent, according to A.T. Kearney's latest annual outsourcing survey.

"What is most striking about the results of this year's Global Services Location Index is how the relative cost advantage of the leading offshore destinations declined almost universally, while their scores for people skills and business environment rose significantly," Paul Laudicina, managing officer and chairman of A.T. Kearney, said in an announcement.

One reason is that the countries showing accelerated growth in wages (and currency appreciation) are also showing an improvement in the quality of their workforce. "Key emerging markets have continued to improve their attractiveness in terms of talent, industry experience, quality certifications and their regulatory environment," according to the report.

"Skills are rising sharply in these countries," Financial Week recently quoted Martin Walker, senior director of the Global Business Policy Council (the A.T. Kearney unit that sponsored the survey), as having said. "The ongoing reason for the attractiveness of these places won't be costs; it will be the increasing skills of their labor force."

One indication of the improving skills of workers is the double-digit increases in university enrollment reported by China, Brazil and Egypt, Walker said.

At the same time that quality talent has increased wages, some other costs — most notably in telecommunications — have actually declined. Further, the offshoring labor savings are expected to last another 20 years, only at smaller rates.

"[The study's] findings reinforce the message that corporations making global location decisions should focus less on short-term cost considerations, and more on long-term projections of talent supply and operating conditions," Laudicina said.

A.T. Kearney's annual survey ranks 50 countries according to 40 different statistics that measure the cost of doing business in each country, the quality of its workers and its business environment. The latest survey was conducted over two months in the fourth quarter of 2006.

Asian countries continue to dominate the A.T. Kearney rankings: India is first, China is second, and six other Asian countries are among the top 10 (See Asia's Major Players). And while the survey notes that Latin American countries improved in the rankings this year, the index has an increasing number of African countries, too.

See also:

Outsourcing's Future Holds Major Surprises for Global Providers