Some Small Businesses Suffer, Others Profit from Outsourcing

As outsourcing accelerates, it can be the best of times or the worst of times for U.S. small businesses.

Take for example Craig Schroer, president of Unitech, a tool and die manufacturer in Lee's Summit, Mo. His company’s revenues were slashed in half almost overnight when his biggest customer, a U.S. truckmaker, decided to purchase cheaper parts from a Chinese manufacturer.

"One month they were talking to us about doubling their orders," said Schroer, who until recently employed 16 workers and enjoyed annual sales of $2 million. "The next month they were gone."

Shroer’s story, reported in Fortune Small Business, contrasts with that of Ed Travis, CEO of American Predator, a manufacturer of computerized control systems for industrial and medical equipment. For years the 45-employee firm hired U.S. contractors to solder components onto motherboards, at a cost of millions of dollars.

Now a Mexican company does the work and charges 30 percent less. American Predator has shifted its attention to its more profitable software-design business. "We are able to offer more services without increasing overhead," Travis said.

A recent study of outsourcing's impact on the U.S. economy found that sending computer systems work overseas led to higher productivity and created 90,000 U.S. jobs last year. The study, conducted by the consulting firm Global Insight for the Information Technology Association of America, estimates that twice the number of U.S. jobs were created than were lost in sectors ranging from manufacturing to financial services. Companies with higher profits have more money to expand, creating new jobs.

However, many businesses are being hit hard, and the outsourcing trend shows no signs of slowing down. By 2015, more than 3.3 million jobs are expected to go elsewhere, with metal workers, call-center operators, software programmers, X-ray technicians and accountants suffering the most, Fortune Small Business reported. Experts estimate that about 14 million U.S. workers are at risk of losing their jobs to outsourcing.

Meanwhile, lawmakers are considering a bill that would protect consumer privacy as firms outsource data processing, tax prep work and accounting to foreign countries, the Wall Street Journal reported.

U.S. Rep. Edward Markey, D-Mass., who co-chairs the congressional privacy caucus, said Tuesday that he plans to introduce legislation shortly to close privacy loopholes overseas, as consumer protections are much stronger in the U.S. than abroad.

In a statement, Markey said reports he has received recently from the Internal Revenue Service and the Public Company Accounting Oversight Board are "quite troubling" and suggest offshore outsourcing puts consumer privacy into "a regulatory black hole."

Markey worries "Americans could lose their job and their privacy in one fell swoop," said spokesman Mark Bayer.

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