Manufacturing is not America’s only Outsourcing Problem

I was recently leading the technology effort on a project for a large U.S.-based restaurant chain. The experience was not a happy one, mostly because poor staffing decisions led to a dysfunctional team. The team consisted of 5 people onshore, including 2 H1B’s from India, as well as over 60 people offshore in India. 70% of the offshore resources were fresh out of technical school and had never worked on another project. And several of them weren’t fluent in English. Needless to say, the customer was less than satisfied with the results. I made several recommendations on how to fix things to no avail. So, I left the project. This wasn’t my first poor offshoring experience. And my experiences are not uncommon in the industry.

The Negative Consequences of The H1B Program

I have been involved in the technology business for over 30 years as a Software Engineer, Solution Architect, VP of Engineering, and Chief Technology Officer. Technology used to be one of the best ways to pursue a rewarding career in America. But in 1990, the seeds were sown for the slow destruction of the U.S. tech services industry when George H.W. Bush signed the bill creating the H1B VISA program. We were told that H1B would bring the “best and brightest” people to America to help us compete in the digital age. But that is mostly not what happened.

H1B is not an immigration program. It’s a temporary worker program that lets foreign nationals work in the U.S. for a few years, hone their skills, learn how the U.S. conducts business, and build relationships with key decision makers at U.S. companies. Then many of the H1B’s go home and leverage offshore teams to compete against U.S. workers. It’s not an exaggeration to say that the H1B program created the IT outsourcing business.

Today, a majority of H1B’s are not even employed by U.S. companies. They are employed by giant Indian outsourcing firms, whose business model is to replace U.S. workers. And the outsourcing companies don’t typically bring in the “best and brightest” on the H1B program. The latest statistics show that the average salary for a H1B employed by Google or Microsoft is over $120,000, while the average H1B salary employed by an Indian outsourcing company is only $65,000. The outsourcing companies are using H1B as a source of cheap labor, which was the exact opposite of the original intent of the program.

The Problem Keeps Growing

It’s not just Indian outsourcing companies that are doing this. American and European companies like Accenture, Ernst & Young, and Capgemini also have huge outsourcing operations in India.

The last few years have also brought new competitors to the outsourcing marketplace. Many of them are in Russia and Eastern Europe. Russia’s invasion of Ukraine last year caused many American corporate managers to stare in disbelief as their entire software engineering teams stopped work to flee from the Russian military. American companies with engineering teams in Russia are also finding it difficult to pay them, as Russian banks have been expelled from western financial networks.

Many outsourcing companies do employ or contract a small number of senior-level Americans. But few of them offer entry and mid-level career opportunities for Americans. So, it’s becoming increasingly difficult for a young person in America to build a great career in technology. It’s not a coincidence that the percentage of American students pursuing computer science degrees peaked in the early 1990’s, shortly after the H1B program became law.

Ideas for Reform

So, what can be done to fix this? Rebuilding America’s high-tech services industry will not be easy because the problem has been growing for three decades. But there are steps that we can take. Some will have immediate impact while others will take time. Here are a few ideas:

The H1B temporary worker program must be replaced with an immigration program targeted at experienced technologists with STEM degrees. It’s ridiculous that we have a program (H1B) that encourages foreign nationals to learn their skills in America and then go back home to compete against us. Many H1B’s want to stay in America permanently, but the current system makes it difficult. We need a program that allows the “best and brightest” from around the world to immigrate to the U.S., become citizens, and help us compete in the digital economy. But foreign nationals should only be used to supplement Americans, not supplant them.

The bizarre student loan program, which encourages students to go deeply into debt to pursue college degrees that don’t impart marketable skills, needs to go away. Students should be encouraged to pursue STEM degrees in college, and not degrees that lead to a dead end for the student and the country. Students who don’t have the math and science background to pursue a STEM degree should be encouraged to pursue a skilled trade.

Corporate tax deductions for the cost of employing overseas workers who are working on U.S. projects should be disallowed. It’s fine for a company to hire workers in a particular country to serve the local market. But it’s ridiculous to provide tax deductions to companies that hire offshore workers to serve the U.S. market.

Finally, our primary and secondary education system needs to be fixed, so it produces more students with the math and science background needed to pursue a STEM degree in college. Reforming the education system will be a monumental task, given the sclerotic, misguided, and self-centered bureaucracy that controls the government schools. But it must be done.

The Bottom Line

America is a rich country because of our technical prowess. From the cotton gin to the microprocessor, America’s prosperity has been closely tied to our ability to innovate. Over the last few decades, our politicians have allowed and even encouraged that to slip away. Few people outside of tech realize the breadth and depth of the problem and what it means to America’s future as the world’s leading economy. I don’t blame the Indians, Russians, Ukrainians, or anyone else for pursuing their dreams. But I do blame American politicians of both parties, including our illustrious Senator Thom Tillis who is an unapologetic supporter of the H1B program. We need to change this now before it is too late.