Tom Donohue, U.S. Chamber of Commerce on outsourcing and offshoring

In this exclusive interview, Thomas J. Donohue, President and CEO of the U.S. Chamber of Commerce shares insight with VentureOutsource.com.

Read what Mr. Donohue says about the loss of U.S. jobs; America as a competitive power; global economics of contract manufacturing outsourcing and offshoring, foreign manufacturing productivity and product quality serving global markets, and more.

Transcripts from that discussion follow.

VentureOutsource.com: The United States Chamber of Commerce interacts regularly with leaders of the nation’s largest associations. Looking at the product manufacturing sector in particular, can you please share your thoughts on what some industry associations are doing to effectively communicate some of the advantages of outsourcing and offshoring for our society and how U.S. companies are looking to find ways to become more competitive and are able to do so on an international level?

Donohue: By taking advantage of greater access in new markets, U.S. companies, particularly manufacturers, have been able to strengthen their bottom lines; reduce consumer prices, focus on more profitable operations, and create new and better jobs here at home.

The Chamber issued two landmark reports on the topics of outsourcing and U.S. competitiveness. Our 2004 report titled “Jobs, Trade, Sourcing, and the Future of the American Workforce,” found little hard data to support fears about outsourcing and claims of an impending exodus of U.S. jobs overseas. Our 2006 follow-up report, “Global Engagement: How Americans Can Win and Prosper in the Worldwide Economy”, found that overwhelmingly, Americans benefit from the nation’s openness to trade; foreign investment, immigrants, and international visitors.

The 2004 report also found U.S. exports directly supported one in every five manufacturing jobs here at home. The U.S. manufacturing sector has been sourcing around the world for over 30 years, during which time our manufacturing output has more than doubled. Some manufacturing workers have lost jobs due to technological advances as well as changes driven by outsourcing and the just-in-time production process. We have supported strong retraining programs to help these workers and will continue to do so.

 

Tom Donohue - U.S. Chamber of Commerce Thomas J. Donohue
President and CEO
United States Chamber of Commerce

 

The bottom line: outsourcing has made the manufacturing process more efficient and productive, which has helped consumers and our overall economy. Outsourcing allows manufacturers to buy components from a vast array of suppliers, lowering costs for the manufacturer who is able to pass on the savings to consumers.

Outsourcing has also made us work smarter and made workers able to take advantage of one of the United States greatest assets – the spirit of innovation. The changes in the manufacturing sector have resulted in some of our best workers improving their workforce skills and in many cases, transitioning to careers in high-technology fields. With the help of the Federal Trade Adjustment Assistance programs, many of these workers have been retrained and are now working in high-tech industries.

For all of these reasons, the Chamber strongly believes manufacturing and service companies alike should have the freedom and flexibility to source and trade across our country-and around the world. We are not in the business of telling companies that they should outsource, but we are fighting to preserve their right to do so. Flexibility is one of the American economy’s greatest strengths, and we are working hard before governments and regulators everywhere to preserve it.

 

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VentureOutsource.com: Outsourcing and offshore product manufacturing is not always part of the solution for every company (U.S.-based or not). Meanwhile, it’s probably safe to say companies have been outsourcing at least portions of their product supply chains since the beginning of commerce. What have you witnessed with regards to outsourcing and offshore manufacturing as it relates to improving or hampering international trade; the quality of goods and services, and the economic standing of individuals; communities, and organizations across various regions of the globe?

Donohue: Overseas, I’ve seen an unprecedented number of American companies set up shop in the European Union – not only for the purpose of sourcing but to position themselves to sell locally from within one of the world’s richest markets. In India, I’ve seen highly-educated, well-trained workers manning call centers and performing office tasks for clients all over the world, including some U.S. clients. And you know what? Virtually all of the equipment they use is American-made. In fact, everywhere you look, you can see a major U.S. presence in terms of our products; services, expertise and technologies.

The point I’m making is that trade is a two-way street. Critics of outsourcing often overlook the benefits, such as the creation of jobs by foreign firms that open operations in the United States. No other society in the world has benefited more from the migration of money, people, and jobs than the United States.

The fact of the matter is we insource at least $50 billion more in service work than we outsource. The jobs we gain in the U.S. far outnumber the amount of jobs we outsource. Direct foreign investment supports more than five million jobs in the United States and tens of millions more indirectly. Even with significant investments overseas, more than 70% of American business investment (including employment and capital expenditures) occurs right here in the United States-not in other countries.

 

VentureOutsource.com: Several decades ago, foreign governments sought help from the US on how to become competitive in their regional markets and abroad. Many of these governments took notes carefully and have since become competitive on a global scale – often resulting in the loss of US jobs. What are your thoughts on the loss of U.S. jobs related to outsourcing or offshoring? What can companies do to ensure some jobs remain on US soil?

Donohue:
I travel the world as a representative for the U.S. Chamber’s three million business members and everywhere I go, I see foreign countries who have stepped up their games in a significant way. We shouldn’t be surprised — for the last 60 years we’ve gone around the world telling other countries how to be successful. Now they’re finally doing it and we’ve got real competition!

To ensure that our economy continues to generate plenty of American jobs, we have to get rid of policies that foster an unfriendly business environment and undercut our own competitiveness. We have to bring under control frivolous class action and securities lawsuits that are sucking the vitality out of our companies. We must ensure our businesses have access to reliable and affordable energy supplies, including upgrading our energy infrastructure and expanding our resources. We also must make serious improvements in the education and training of our workforce. The list goes on.

 

VentureOutsource.com: What are your thoughts on fair and free trade and the role technology has played in manufacturing-based achievements of U.S.-based businesses and their counterparts in other developed countries, and in developing countries?

Donohue: The global gains that can be achieved from a free, fair, and open trading system are well documented. The University of Michigan estimates a one-third cut to international trade barriers could raise the income of the average American family by an additional $2,500 a year.

One of the benefits that are not as well publicized is the fact U.S. factories and facilities often contribute to raising local labor and environmental standards, particularly in developing countries. Workers routinely make more than they ever had the opportunity to earn in the past, leading to more productivity for the companies and better lives for the citizens of that country. Trade is the 21st century’s most powerful development tool.

The Chamber’s TradeRoots [grassroots advocacy program] puts out several publications that highlight American small businesses that have overcome the challenges and enjoyed the benefits of trade. These “Faces of Trade” publications feature companies ranging from a synthetic turf manufacturer to a wholesaler of buttons and trim products. It really runs the whole gamut and they’ve all got inspiring stories to tell.

As for technology — information, ideas and people are moving at speeds never before thought imaginable. As a result, the global market place has become a much tighter-knit community and the world has grown smaller. You can send an x-ray to a radiologist or your tax return information to an accountant in India as quickly as you can to a radiologist or tax accountant in Los Angeles. Technology is not going anywhere and will continue to make things easier, more efficient, and more affordable for companies to source offshore to the benefit of businesses and consumers.


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  1. Theresa
    Posted at 11:06 pm on September 21, 2008

    Apparently, Mr. Donahue hasn’t been following the jobless rate which continues to increase. Maybe it’s time to outsource his job.

  2. MD
    Posted at 3:15 am on September 22, 2008

    Smoke and mirrors. Working for a huge technology company, I have seen the erosion of around 60K-70K US jobs under Mr. Donahue’s guise. Most of those effected find a downward spiral of offerings on the job market, and nearly all end up in a worse position. Retraining has worked out for some. Yet, most do not qualify due to the loopholes. Those that do are not offered retraining into high-tech, but rather service industries. I am not for protectionism, but I am for retaining jobs that support a good standard of living which includes secure incomes that allow hard working folks to pay their mortgages and we all should now understand that mortgage defaults are a bad thing.

    Maybe Mr. Donahue should evangelize the notion for balance and sustaining a good standard of living here and applying that culture to the rest of the world. We are now seeing the effects of everyone running to the outsourcing side of the boat. We certainly don’t need any more smoke and mirrors which only serve to line the pockets of a certain few privileged ones.

    MD

  3. Dave from Raleigh
    Posted at 8:34 am on September 22, 2008

    Please make sure you distinguish between outsourcing (outside provider) and off-shoring (overseas cheap, low quality labor). Any wonder who he works for? What a bunch of bunk! Our state has lost over 80k manufacturing jobs, and where are these rocket scientist jobs that these people are being re-trained to perform? I’ll tell you where…McDonald’s. I think we need a law that requires the CEO to be located where the majority of their workers are located, like India, where there were a record number of bombings last month…or better yet, Pakistan. It’s time to off-shore CEO jobs, for lower cost and better performance. Based on this and the past few year’s results, American companies could do very well by off-shoring CEO jobs to India and China.

  4. MFJV
    Posted at 11:14 pm on September 23, 2008

    How mis-informed can one individual be to publish such rubbish. Having come from a fortune 50. I’ve seen the forces of off-shoring at work. I lost my position as an exec eight years ago and 3,000 out of 5,000 of our employees lost their jobs as well – much off-shored to Eastern Europe and India.

    Corporations have rallied around the off-shoring maypole to get their one-time cost reductions and prop up their financial reports.

    Today’s economic data clearly exemplifies that in spite of the impressive statistical data and the quality references presented, incorrect conclusions can be easily interpreted. What we see in the US is more US unemployment of highly educated individuals (not just manufacturing), great corporate financial results for companies that are in their 1st or 2nd year of off-shoring due to the windfall reduction in operating costs, loss of US intellectual property as ideas and development are now performed off shore, failing consumer confidence due to loss of jobs and their inability to meet their own credit & loan obligations and lastly the small group of select executives defining their own compensation packages and preparing to use their golden parachutes.

    The perceived benefits of off-shoring is not long-term – it can only be short term (a couple of years). There is no long-term benefit to the US if jobs are lost, retooling and reeducation costs far out weigh the willingness of parties to pay those costs. Lets face it, would your company pay the education costs to reeducate you at Yale or MIT? Of course not. So the retooling can only be for less desirable, lower paying jobs. And pretend that your company (or government) did pay for your re-education. Do you think your new employer would pay you your old salary? Of course not, he’d try to pay you $1K-$5K more than a new college graduate. And if you were 45+ years old, what company will invest in you for the long term? Let’s be serious – Let’s be honest, the system is broken and there’s no one around to fix it. .

  5. Mark Z.
    Posted at 3:43 am on October 8, 2008

    Mr. Donohue has not said outsourcing is right for all businesses. However, what he does say is there can be benefits in the right situations; both to companies in industry plus, for buyers of products and services these companies offer — in terms of higher quality and lower prices.

    Companies that lose jobs and market share to other companies (domestic or abroad) should look in the mirror before pointing fingers.

    Car enthusiast and show biz entertainer Jay Leno often cites Detroit for making poor quality cars that people don’t want to buy. For the most part, I agree. Many of the cars coming out of American factories are poorly designed and it seems they’re engineered more so for after-market parts sales (read: they break down frequently). Add to this, high union wages with worker job protection clauses written in contracts and its a bad recipe for longevity in a competitive, global business model.

    The world is changing, indeed.

    Mark

  6. Jeff
    Posted at 12:05 am on February 13, 2009

    Maybe we should outsource Mr. Donahue’s job to a foreigner who will will do it for a fraction of his wages and see how he feels.

    The fact of the matter is…..Americans can’t compete with people who can do the same job for pennies per hour. This is because Multinational corporations take advantage of currency exchange rates in order to exploit the cheapest labor in the world in order to maximize profit. This in turn…trickles up (not down!!) in the pockets of corporate investors and CEOs.

    This makes American workers losers…because it puts downward pressure on their wages in order to compete and they lose their jobs.

    Wake up Tom Donahue.

  7. Danielle Birtha
    Posted at 8:26 am on July 14, 2011

    Just curious, 4 years later, if Mr. Donohue, in light of the current state of the economy, of which outsourcing has a major role in the current unemployment rate, still believes that outsourcing is helping the American economy. During the first quarter of 2011 there were 232,000 new jobs in America… only 54,000 of those jobs are being filled by Americans. The other 178,000 are filled by people in other countries, most of which employ children as wageless slaves. Additionally, contrary to Mr. Donohue’s statement that outsourcing lowers the price of goods, the price of outsourced goods is double what they were when this interview was done. Additionally, the companies who do the outsourcing get tax breaks from Reagan/Bushonomics. IMHO – outsourcing benefits only the owners of the companies that outsource. American taxpayers are forced to pay for companies that outsource through trickle down. Unemployment is over 9%, unheard of since the depression of 1930′s. Right Mr. Donohue, outsourcing is good for America’s rich. OUtsourcing is NOT good for the 90% other Americans.

  8. Jamie
    Posted at 1:16 pm on August 4, 2011

    Dear Mr. Donahue: Do you still stand behind all of this rubbish, here in 2011? Where are the supposedly “new and better” jobs that you promised? I have worked in American Electronics Manufacturing for 16 years now and have seen the damage that your beliefs have caused, first hand. There are no new jobs created by offshoring – plain and simple.

    Without a steady domestic manufacturing base in America, we are doomed as a country. We are seeing those effects right now. Thank you Mr. Donahue!

  9. Steve DeCollibus

    Steve DeCollibus    
    North Kingstown RI | North America
    Posted at 11:26 am on September 8, 2013

    “The bottom line: outsourcing has made the manufacturing process more efficient and productive, which has helped consumers and our overall economy.” This only works for consumers when they have good paying jobs to make the purchases. Manufacturing is the engine that drives and economy, because of this kind of rational we have given our manufacturing edge away.

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