'Outsourcing ' Is Not A Dirty Word in Silicon Valley Calif

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Date: Thursday August 2, 2012 09:40:38 am
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    ‘Outsourcing ‘ not a dirty word in Silicon Valley California

    SAN FRANCISCO — President Barack Obama’s attack on challenger Mitt Romney as an "outsourcing pioneer" and an "outsourcer-in-chief" is unlikely to get a rousing reception when he stumps in Silicon Valley Monday.

    The rhetoric might win hearts and minds in swing states like Pennsylvania, Iowa or Florida, where the pain of unemployment is sharp. But it doesn’t play well in the nation’s offshoring capital, where Apple, Hewlett-Packard, Intel and other tech firms embrace globalization as a way of life.

    That may help explain Romney’s new-found popularity on the fundraising circuit here — or at least make it a little awkward for Obama as he makes a swing through the area Monday looking to raise some cash for his campaign.

    The Obama campaign is trying to turn “offshoring” and “outsourcing” into “four-letter words,” Craig Barrett, former chairman of Intel and a Romney supporter, told POLITICO. The campaign, he said, is “appealing to emotions of people not involved in international business.”

    On Sunday, Romney is slated to make the rounds of three fundraisers in the San Francisco area, including one at the home of Tom Siebel, the founder of software maker Siebel Systems. Others co-hosting the event are well-known Valley Republicans, including HP CEO Meg Whitman and Scott McNealy, former chief executive of Sun Microsystems.

    Obama, meanwhile, visits on Monday, where his events will all be in the East Bay. These include appearing at a 2,000-seat theater in Oakland, a fundraiser at the home of real estate developer Wayne Jordan and another event billed as a “broadly tech-related campaign discussion,” according to campaign sources.

    Romney, too, has tried to get mileage out of the outsourcing fracas in locations that don’t rely as much on contracting with overseas suppliers to manufacturer gadgets cheaper or to write code around the clock. He told an audience in Colorado recently that “if there’s an outsourcer-in-chief, it’s the president of the United States, not the guy who’s running to replace him.”

    As Washington has a field day over the shootout over offshoring jobs, the tech industry has kept its head down. Examination of Romney’s history at Bain Capital has involved allegations that the firm offshored companies, such as Stream and Modus Media, whose services the tech industry used in the 1990s.

    Silicon Valley has sought cheaper labor in countries that have developed niche industries with specialty skills, shifting manufacturing, call centers, tech support services and other operations overseas. Popular electronics such as iPods, Xboxes, iPhones, iPads and other smartphones and tablets are manufactured in China or other Asian countries. 

    U.S. firms, many of them tech companies, have more than $1 trillion in untaxed profits overseas. Apple alone had $64 billion overseas, as of March. Observers have noted that some tech companies, such as IBM and Xerox, have recently been cutting their U.S. workforces while expanding overseas.

    The tech industry’s top policy issues deal with globalization, such as changing the U.S. tax system, creating more incentives for research and development occurring in the U.S. and being able to bring skilled immigrants to the U.S. to work.

    “When I started with Intel, we had major operations off shore. It was the only way to be cost competitive at that time,” said Barrett, who started with the chipmaker in 1974 and worked his way up the ladder. “It was non-skilled labor and we couldn’t pay for it in the U.S. There wasn’t much value add, and it was a way to get the industry going.”

    Many of the jobs initially sent overseas were “non-skilled” jobs, but these days more and more engineering, software coding and higher skilled tech jobs are also being sent to markets like Bangalore, in India, where there is a glut of well-educated workers.

    The U.S. should be creating incentives for foreign firms to outsource their work to American firms, some tech leaders argue.

    “One hundred companies should come out and say, ‘We offshore, and Uncle Sam made us do it,’” said Rob Atkinson, president of the Information Technology and Innovation Foundation and author of the upcoming book, “Innovation Economics, The Race for Global Advantage.” “The right question is how do we create an environment where the heads of corporation will be putting the next 1,000 jobs in the U.S., not is offshoring good or bad.”

    Congress has joined the fight, too, with the Bring Jobs Home Act, promoted by Democrats. Sponsored by Sen. Debbie Stabenow (D-Mich.), the bill would allow certain businesses a 20 percent tax credit for costs related to bringing outsourced jobs back to the United States and end a tax deduction for companies that outsource jobs. It was defeated in the Senate Thursday in what was seen as a symbolic vote. 

    The outsourcing issue hit the presidential political stage in 1992 with Ross Perot’s description of the “giant sucking sound” of jobs going to Mexico post-NAFTA. It was revived again in 2004 by Sen. John Kerry (D-Mass.). Then, Greg Mankiw, chairman of the White House Council of Economic Advisers, told reporters that outsourcing jobs is “something that we should realize is probably a plus for the economy in the long run … a new way of doing international trade."  That was followed in 2008, when Obama slammed then-candidate Hillary Clinton for her support of NAFTA.

    Meanwhile, globalization has evolved beyond the image of the call center in India or the Philippines. Tech industry leaders say that now many firms see more than 70 percent of their annual sales outside of the U.S. — and that number is growing. They need to put operations there, they argue, and face pressures within those countries to create jobs there if they want to sell into those markets.

    But the practice known as “offshored outsourcing,” where companies subcontract whole functions they may have done in house to foreign firms, has turned the world into an endless business day for some Silicon Valley workers and executives. Some wake up early to collaborate with coding teams in India, or stay up late to work with civil engineers in the Philippines or designers in Taiwan.

    The practice is so entrenched that Google made headlines recently when it announced a new media player would be made in the U.S. Even Apple CEO Tim Cook told a recent technology conference that the company makes more iPhone and iPad parts in the United States than most people realize — including microprocessor chips and display glass.

    The sound bites from the campaign trail attacking outsourcing and offshoring are almost seen as personal insults in the tech industry.

    “People who support either candidate should be making calls that they are undermining America’s innovation economy,” said Carl Guardino, president and chief executive of the Silicon Valley Leadership Group and a registered Democrat. “We don’t need politicians who want to appeal to base fears that divide people.”

    “When President Obama, a brilliant man, talks about companies shipping our jobs overseas, and when Gov. Romney, an incredibly accomplished businessman, talks about Obama giving tax dollars to cronies who ship our tax dollars overseas, that type of divisiveness is not only inaccurate but also toxic to what America needs to be competitive,” Guardino said.

    Tech leaders “are really scared,” said Ralph Hellmann, a longtime lobbyist for tech. “It’s a very high-level nervousness. It’s not like Obama blasting Clinton on NAFTA back in 2008. This is indicative of a hostile philosophy to the way we do business globally. They are scared of Obama getting elected and sticking to his rhetoric about higher taxes.”

    A 2010 report by PWC found that almost 40 percent of tech firms worried about political backlash at home as a risk of offshoring.

    “The tech community is probably rolling their eyes at this point,” said Gary Shapiro, president of the Consumer Electronics Association. “The U.S. is the innovator of the world. That is our strategy. We have to change the tax code to stop encouraging outsourcing, as well as pass laws that support high skilled immigration visa.”

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