Last week, Hewlett-Packard made headlines and angered many when it announced it plans to eliminate up to 30,000 jobs in the next three years. CEO Meg Whitman said the layoffs are the “effect of the IT market changing so rapidly.”
While a slowdown in the PC market has been well documented (results from Gartner in August showed PC shipments fell 9.5% from the second quarter of 2014 to the second quarter of 2015 – the largest PC shipment decline since the third quarter of 2013) and HP’s impending split into two entities may be expected to create some redundancies, the layoffs also have a great deal to do with shifting U.S. jobs overseas.
Mike Nefkens, the head of HP Enterprise Services, said HP is “exiting labor in high cost countries,” including the U.S. and European nations, and shifting to lower cost regions such as Manila, Costa Rica, Bangalore, and Sofia, Bulgaria. HP said they expect the share of its workers employed overseas in low-cost locations to grow to 60% by 2018 from 42% today.
A necessary evil?
While shifting jobs overseas often generates controversy, HP executives say it’s necessary for survival of the company itself and to protect the jobs that do remain in the U.S. Whitman said as new technologies come in, the company has “got to restructure that labor force to low-cost locations, to much more automation than we have today.”
Clearly, outsourcing can make sense for a number of reasons. It can help companies reduce and control operating costs (for example, a Java programmer earns $60,000 a year in the U.S., but just $5,000 a year in India), improve company focus, gain access to world-class capabilities, and free internal resources for other purposes, among other things.
But there are many against outsourcing. Recent legislation introduced in California seeks to prohibit businesses from shifting jobs overseas after Southern California Edison workers complained over 500 of them were laid off so the company could outsource labor at a lower cost. Layoffs and large-scale outsourcing can clearly affect the U.S. workforce, and if we damage our own countries’ ability to provide jobs for our people, have we really come out ahead?
There is some good news. The U.S. unemployment rate dropped to 5.1% in August, according to the Bureau of Labor Statistics. That is the lowest unemployment rate since March 2008.
Keeping up with the competition
At the same time, companies have to keep costs down in order to sell products in an increasingly competitive consumer marketplace. How do you provide the best quality and the most advanced products at the low cost U.S consumers, in particular, demand? HP and other large IT companies say they simply can’t compete unless they outsource significant parts of their operations.
The IT market is also becoming increasingly global. While the U.S. used to lead the world in sales of technology products, evidence suggests we are becoming increasingly saturated, while countries such as India, China and even Africa are the emerging markets HP and others will need to rely on to survive in the future. If HP is selling more products in global markets, it makes sense that they also have a very global presence.
There is certainly no clear-cut answer as to whether or not HP is doing the right thing or the wrong thing in moving 60% of its labor overseas. Outsourcing is a complicated issue likely to remain hotly debated for years to come.
