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.
Over the years I've learned to be particularly suspicious of anyone who dismisses logical arguments with a facile remark.
Because both Dubya and Hillary Klinton want us to?
Treasury's Snow defends U.S. job outsourcing
Hillary Clinton stands up for Tatas, outsourcing
I will never shop at Circuit City again.
I got 2 different Indian guys (yes, I asked them and they told me) on the phone and neither one of them spoke enough English so I could understand them.
I cancelled my order.
Later, I realized that our credit card numbers are outsourced too, and I hereby predict that it won't be long before terrorist attacks will arrive in the form of people in other countries using them!!!
Well, I suppose if you're referring to Dubya,
that would make the Hildebeast a boogeywoman.
And many will shop at discount stores, paying the lowest price they can find for whatever they buy, which often means something imported from China.
(I don't, though. The quality of Chinese stuff sucks. But I do buy Japenese vehicles because I think they are a better value than American equivalents.)
He didn't say he faces outsourcing.
It is also nonsense that steps cannot be taken to require fair rules of competition. If China wants to manufacture and sell products to America, American products must be allowed to be sold in China. The Chinese government, and India, have serious restrictions on such American imports.
The idea of a person continuing to retool himself for a disappearing universe of opportunities is nonsense. Most skills take quite a while to acquire. It is a sucker's choice to train for the skills required for new employment opportunities if those opportunities disappear faster than the rate at which you can train.
There are hundreds of millions of more poor people in the world than there are middle class workers in the United States. If all work is outsourced, we will eventually have the same standard of living as Bangladesh.
Worse, without strong domestic manufacturing, we cannot even defend ourselves.
Argument by deflection. Redirect focus from argument about outsourcing to other matters that might have some ascribed similar affect. Simply, so what? It’s a senseless comparison to detract.
Continued employment requires personal development. It always has. Even without outsourcing, IT employees must learn new skills. They compete with recent college graduates,
Same argumentative technique, deflection. This guy is actively mischievious.
From a job competition perspective, outsourcing is merely one more source of lower cost resources.
Oh, he knows the argument here! Outsoucing, ie labor, is just one cost. That is, it’s independent of taxes, regulations, unions, etc., all the bugaboos often trotted out to deflect direct attention from outsourcing itself.
Many arguments against overseas outsourcing revolve around loss of income, or income opportunity -- that is, what about my job?
Income opportunity theory...won’t be addressed accept for an appeal to guilt about self-interest. What about other Americans’ jobs?
Unless companies can stimulate the economy through their efforts, they will not have the money to offer more jobs.
Senseless. Outsourcing doesn’t stimulate the economy. Aren’t there numerous ways anyway? He supposes it’s the only one...typical tactic in these type of articles.
Expanding markets mean more income, and thus more jobs.
Outsourcing as “expanding markets.” False.
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.
This is one of the most non-sensical arguments in this piece. Why can’t it be blamed on outsourcing insomuch as outsourcing is the cause?
If management is predisposed to personal gain at any cost, they will explore each new promising opportunity.
Weird. What “cost?”
Or, to put it another way, unethical companies will always find a way to cheat their employees.
So?
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.
This guy is chock full of platitudes. What on earth do “new markets” have to do with outsourcing? Outsourcing telephone operators does nothing for America or Americans except for a few short term profits for a few.
Exporting jobs helps to create a balanced global audience.
Ah, now the corporate left arguments start. America doesn’t deserve what it has, and shouldn’t keep it.
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.
This is hilarious! His hint about “bargaining power” it a tip of the hat to arguments about reciprocal trade treaties - we let you take our telephone operator jobs, you must give us “x” and open up “y”. This is NOT free trade, and is anti-thetical to everything else he’s argued here.
Etc., etc. with the left-wing corporate arguments. Such a deceptive piece.
All things being EQUAL the one that does not have to adhere to the rules and regs of the land will out perform the one that does.
And so it is with global sourcing.
First, silly, such things are NOT subject to "other things being equal:" such two restaurants would not (i) be allowed to exist if detected from the start, and (ii) remain undetected for long.
More importantly, the second sentence seem to have no relation to, and certainly not implied by, the first.
Why does “outsourcing” the position of president from one party to another so distress us?
Because this has nothing to do with outsourcing. You do not seem to have a clue what it is, and use it as a synonym for "change." It is not.
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