Posted on 03/04/2004 3:49:27 PM PST by Luis Gonzalez
Outsourcing gets a bum rap. Outsourcing is blamed for everything from low programmer pay (or no programmer pay) to jock itch, but the people who criticize the business process are aiming at the wrong target. Armed with the facts, we might be able to target the real problems.
Offshore outsourcing is inevitable. Even if it weren't, it should be considered for its desirable benefits. Global outsourcing creates and expands new markets, it effectively and efficiently promotes global citizenship, it recognizes the benefits of a global economy, and it enhances technological creativity and diversity. Overall, as I'll explain in the coming pages, it makes good social, financial, and economic sense.
This isn't an impersonal viewpoint. My job is on the chopping block, due to a recent corporate acquisition. I do not look forward to the foreseeable employment quest, especially since I need to provide for my family. I'm well aware that the state of the job market and trend toward outsourced IT skills will complicate my search and alter my options. The way that outsourcing is being introduced and managed sucks. So does the way it is being used as an excuse.
Nor do I imagine that outsourcing is a perfect solution. I've experienced mixed results from the offshore development projects in which I've been involved. Some benefits come in unexpected and poorly quantifiable packages. You do get what you pay for, but sometimes the prize in that inexpensive Cracker Jack box is a good one. For example, in an early 80s joint offshore development effort with NEC, a different cultural perspective resulted in a precursor to hot-swappable components. On another project, to develop banking encryption, an Indian engineer applied a different mathematical analysis than did the rest of the team, and helped us arrive at an elegant solution.
On the other hand, an effort to accelerate product delivery by including foreign programmers and a twenty-four hour day appeared to work well, only until costly change management and export compliance requirements got in the way. Although ongoing operations weren't cost justified, my team learned lessons that shortened our subsequent development cycles.
It's all a matter of management. Properly planned offshore outsourcing not only works, but it can be a key factor in corporate innovation and expansion. A company considering offshore outsourcing must first be positioned to operate in a global environment, both culturally and financially. Without global focus and an economic understanding, offshore efforts will fail.
Offshore outsourcing has its obstacles. Costs of social and educational development, product design and delivery, communications, and connectivity can rapidly consume any calculated savings. The decision for outsourcing must be made knowledgeably. Companies that lack global experience should proceed with caution.
Yet, I firmly believe that, given an awakening to our membership in the global community and economy, offshore outsourcing is an inevitable outcome.
The most personal criticism of outsourcing is that it takes away jobs from us hard-working Americans. However, job displacement cannot be blamed solely, or even primarily, on outsourcing. As product and service lifecycles evolve, technical and corporate skill requirements change. Demand for IT workers is becoming weaker because of the evolution of autonomic computing and increased system reliability. When products and processes mature, companies don't need specialized design engineers and enterprise architects, unless the company expands its product portfolio through research and development.
Continued employment requires personal development. It always has. Even without outsourcing, IT employees must learn new skills. They compete with recent college graduates, who require less pay and often offer expertise in the latest, desired technologies. From a job competition perspective, outsourcing is merely one more source of lower cost resources. But it can also create opportunity, because someone will need to manage the remote technological effort, train the new workers, and integrate the results – all opportunities that can enhance a career.
Many arguments against overseas outsourcing revolve around loss of income, or income opportunity -- that is, what about my job? Unless companies can stimulate the economy through their efforts, they will not have the money to offer more jobs. Expanding markets mean more income, and thus more jobs. I concede that some corporate managers may become rich at the expense of their (former) employees. That is an issue related to distribution of wealth, and cannot be blamed on outsourcing. If management is predisposed to personal gain at any cost, they will explore each new promising opportunity. Or, to put it another way, unethical companies will always find a way to cheat their employees.
It's all about money. Small companies focus on what they do best, while relying on external expertise to support short-term deliverables and provide operational support. Acquiring or developing in-house expertise increases corporate operating costs, including headcount, beyond the level sustainable by current revenues. For instance, why develop an internal graphics and print department to produce an annual report, when a commercial print shop already has the equipment, process, and know-how? Large corporations face the same issues, but may be able to acquire selected specialties if their scale and need allow. Find a way to offer what is needed, at a competitive rate, and you keep your job.
Throughout the centuries, man has expanded operations through trade. Society's evolution relies on the sharing and trade of technological advancement.
Closed economic environments are not self-sustaining. Agrarian societies had to relocate when the soil was depleted, and hunter-gatherers wandered when supplies dwindled. In fixed population centers -- that is, cities -- the larger the population and the more comfortable the life-style, the more dependent the population center becomes upon trade.
Expanded trade requires the development of new markets, new trade items, and an exchange of knowledge, service and commodities. Trust develops through the exchange of knowledge, and true partnerships are formed. Such partnerships survive through periods of external challenge, and diversify the risk.
Exporting jobs helps to create a balanced global audience. The need to export is particularly true of the technology sector, because the United States is the leader in technological advances. This offers the greatest bargaining power, which equates to greater gains.
U.S. companies have a limited customer set unless they contribute to the improvement of global technology, or at least introduce beneficial elements to other societies and cultures. The overseas markets that you might consider as "taking away our jobs" are product markets in themselves. The more people who buy software development tools, wireless phones, or the gizmo your company makes, the bigger the company becomes and the more jobs it can create -- both here and remotely. Technological parity will enhance product demand and help to alter trade deficits in favor of U.S. corporations.
The marketing of technology requires an educated clientele operating in an economy where basic needs are met, wherein technological purchases can be justified. If you can't afford to put food on the table, you aren't likely to buy a home computer. But how do you find the trading partners you want?
People defined as "middle class or above" typically have the income necessary for discretionary spending. Of India's one billion population, 300 million are classified as middle class. This is larger than the entire U.S. population, and represents an enormous marketing opportunity. In China, with a population of 1.2 billion, only about 5% (65 million) are considered middle-class. Yet, given China is early in its explorations into a market economy, this is a significant potential market. Sweetening the pot, India and China offer preferential treatment to companies that participate in their local economies, such as reduced entry barriers, lower taxes or tariffs, and better currency exchange rates.
What we should most have learned from 9/11 is that we are part of a global community and we must expand our horizons. To participate in that community and to build understanding will lead to trust. Only by establishing that trust can we return to the economic and social freedoms that preceded the attack. The economic and lifestyle disparity between the U.S. and most foreign countries necessitates a more global distribution of wealth and opportunity.
Although this sounds altruistic, it is part of the practical solution to stabilize global economies as well as global brotherhood.
No company will immediately perfect offshore outsourcing. This is just the nature of exploring new territory, territory we have ineffectively explored for too long. It may take years to achieve measurable progress and to generate a true win-win scenario that establishes trust. A win-win scenario suggests not only economic advantage, but the application of healthy conflict to stimulate the creative process. Such healthy conflict only occurs when both partners respect cultural values. This leads to the open exchange of skills and ideas.
In Economic Times (July 16, 2003), Henry Kissinger said, "A country must have a strong industrial base to play a significant role in the world. And I am concerned from that point of view." From this, the Economic Times writer suggested that American jobs must not be lost. Using the same quote, we must consider assisting our allies and potential allies to achieve industrial parity, in order to affect and maintain a global peace.
From a marketing perspective, global outsourcing expands supply and distribution channels, product recognition and loyalty. It also expands market opportunities and supports greater choice.
Only companies that look outward grow. Recall what happened to the U.S. automotive industry during the 1980s. "Made in Japan" became synonymous with low cost quality rather than inferior craftsmanship. To compete and survive, the U.S. automotive industry had to adapt. Nowadays, the automotive industry operates globally, exchanging ideas, technological components, and lessons learned. That industry is now sustainable and evolving, rather than succumbing to the competition. Consumer choice is also broader due to the evolution. Automotive safety, economy, luxury, and general durability improved. Global outsourcing and exchange kept the U.S. automotive industry viable.
Every industry experiences product lifecycles. Each cycle requires change and an appropriate corporate response. As a product reaches maturity and optimum profitability, a portion of the proceeds need to be placed into research and development for the next revenue generator. Maturity also implies global distribution and exposure, to optimize returns for the original investment. The largest markets for mature technologies exist outside the U.S. The transportation, communication, and banking infrastructure are in place for cost effective expansion.
Diversification of currency, costs, infrastructure, and the development base keeps a global company viable in a changing world economy. Single country shifts don't damage corporate solvency, cash flow, or balance sheets as significantly as does dependence on a single economy or market. The risks are shared, and therefore so must be the benefits.
Corporate evolution depends on diversity, and offshore development introduces great potential in that regard.
What companies really want is to find the creative edge before someone else does. Building on success is less expensive than starting from scratch. Why do you think so many companies hire the best and brightest graduates each year, and then add those workers to successful teams? Before people can contribute new ideas to a team or to a project, they need to understand what you already know. The cost of new-hire training and experience can be significant.
If companies could find a low cost resource pool, willing to pay for their own training, and who bring a totally new and different perspective to the process – do you think they would be tempted? What if the company could enhance revenue and lower operating costs at the same time?
Properly selected outsourcing can affect these outcomes. I have seen it work. Direct sponsorship of foreign development allows U.S. companies to keep an eye on the competition. Offshore outsourcing expands the creativity base, and offers the sponsor control over foreign technological advances, maintaining their own technological advantage. How do you think the rest of the world feels about technological advance? Do they come to the United States to purchase technology, or to learn about technology so that they can produce it themselves?
I recall with a shudder the lengthy differential equations from my economics courses. A company cannot spend money it does not have. Nor can it afford expenses outside its budget projections. Outsourcing is one way to spend limited dollars, acquiring needed skills at a lower price. These arguments are fairly obvious.
If global economists could factor in culture, time zone, language, and education, they would do so. The empirical data does not currently support such inclusion. Even the use of Gross Domestic Product (GDP), a commonly used value in economic evaluation, is of questionable significance when it comes to predicting global economic behavior. Determining the relevant factors associated with international trade, of which oversees outsourcing is one component, is a daunting task.
Theoretical arguments suggest that trade promotes specialization, allows realization of economies of scale by expanding markets, and facilitates diffusion of technology. That's all well and good, but what does that have to do with outsourcing, or its possible benefit to US companies or the US economy? Studies (such as this one) show a direct relationship between economic inequality and trade. As the inequalities are reduced, trade increases. Where the disparity is greatest, efforts to affect parity have the least benefit on trade. Selecting larger countries that are closely approaching industrial and economic parity as outsourcing partners has a direct and positive impact on trade.
We need to bring the world along with us economically, and help them to enjoy similar standards of living, or the trade deficits will continue to grow until we rely so heavily on our own resources that we implode. We need customers who are interested in the goods, services, creativity, and technological advances that we have to offer. And they need to have the financial resources to pay for them. Economics suggest that the best way to do this is to partner with countries closest in parity with us. They then partner with countries in the next economic tier, and so forth.
India and China are amongst the countries in closest parity to the United States. They are also willing trade partners.
Global partnerships can help us to eliminate global income disparities that breed misunderstanding and hatred rather than a desire to negotiate and trade. Trends indicate that the difference in global income disparity is decreasing. A properly managed effort will eventually develop an ever-expanding world market.
Given a tight economy, limited cash, and a variety of sources, companies must consider every option that allows them to remain solvent and achieve their mission objective. Responsible companies consider the impacts and benefits to all stakeholders, including employees, when making an outsourcing decision. Offshore outsourcing holds intrinsic value when the goals are long term, foreign market entry is desired, or the localized resource pool does not offer the diversity needed for global expansion. Outsourcing has repeatedly proven itself to be a viable resource alternative.
Responsibly implemented, offshore outsourcing expands opportunity and can only benefit us all.
I'm willing to bet dollars to doughnuts that your lobbyist is a Democrat.
Educate me where I'm wrong. I do not know whether you need education --- maybe you have enough and simply did not indicate it in your post. The only thing "wrong" with what you wrote was the absence of argument: in many places, you simply declare things, often nontrivial that require clarifiaaction, wrong.
It well may be that you have a point. But you have not made it in your post, nor have you shot down the article. All we have learned was that it irritated you. That is your right, of course, but if you try yo make a point it would be nice if you could explicate it.
By the way, what do you think about his global audience arguments?
Thanks for asking. I think it's leftist utopian nonsence in general, and in his case also factually incorrect. For instance, the following is a total nonsense:
Exporting jobs helps to create a balanced [what on earth does this mean? -- TQ] global audience. The need to export [whose need?] is particularly true [sic! It cannot be true --- he meant acute] of the technology sector, because the United States is the leader in technological advances. [Aha! So we have to be guilty and relinquish our lead. It is this kind of unearned guilt that is the first step towards socialist and other utopias] This offers the greatest bargaining power [this is ridiculous: he says, in essence that giving away makes your position stronger. That is, if you want to win a fist-fight --- cut off your arm. If you want to win a gun fight, give your pistol to the opponent and fight with a knife], which equates to greater gains [non sequitur].
The "logic" in the foregoing is, "If I am kind to my opponent, he'll be kind to me. My kindness increases my bargaining power." What planet is he from?
This change constitutes OUTsourcing only if you are a Republican.
But you are correct in principle: when people switch their votes or formal party affiliation, that is what they do --- they pick the less costly/more profitable candidate. The benefits and costs are not measured by money alone, but you are correct in saying that this is what happens. Economists tell us the same thing.
We can prove that the current GOP admin has not been a cost efficient as the previous democratic one!
That's not as easy as you make it sound: the question of how to count costs and benefits is a tricky one. Moreover, it may not even be possible to do that for a group of people, that is, to move beyond a personal evaluation of the president.
So, you may want to substitute "we van prove" with "I believe."
Can you really?
Bush expenditures are only slightly higher than Clinton's as a percentage of the GDP...and Bill did not have to fight a global war. Reagan's and Bush I expenditures were significantly higher than both Clinton and Bush II.
Ronald Reagan defeated, and the Bush's have taken on militant radical Islam.
Bill got a blow job and cried about it on TV.
The argument that the previous administration was somehow more cost efficient than the current one is a pantload. Bill Clinton destroyed the military (remember the base closings, the deactivated divisions), and failed to replace one single piece of ordnance used in his quest to bury the Lewinski affair behind bombs.
Let me out in in simple terms.
If I am driving my car, and refuse to spend a dime maintaining it, you could say that I was more cost efficient because I did not spend any money. Of course, the car engine will eventually seize from lack of oil, water, or both, and then I will need a new car.
Clinton let the engine seize, and Bush had to buy a new car.
You have to make American labor attractive to companies. You can do that either by (i) keeping the money but being more productive, or (ii) being as productive as today but taking a pay cut.
There is a small readjustment going on, much like many we experienced for centuries: some jobs become extinct, and in some wages must drop. What's new is the noise about it. And the noise, in turn, is loud, because for the first time in our history anti-capitalism is mainstream. The left has won the dumbed-down masses. That's all.
At that level, you wouldn't want to pay for it either.
Notion for what? What you propose is a measure against what?
I think the whole issue is an emotional one rather than a rational one. It's just amazing to me that we have many Freepers here who share the sentiments of the freaks who riot at WTO meetings.
Globalization is inevitable, and it's a good thing. Trade is a good thing. Having the most efficient producers producing goods and services is a good thing.
Yes, it sucks to lose your job. But if the economy is growing, something which all those good things listed above makes happen, you will find a new job if you only quit pouting and start looking. Keeping your skills sharp and relevant is critical. Being willing to start something completely different can be vital.
It's a brave new world where flexibility is the key to prosperity.
Last time I was in New Jersey, I hopped out of the rental car to refuel, and got yelled at. Apparently it's against the law to dispense your own gasoline there.
What an amusing claim. I doubt you are one tenth as well read as Shermy or as well educated. I base this on the few hundred posts I've seen.
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