Why can't more American firms be like Rural Sourcing?
I think there are too many lazy CEO's out there, who basically just take the easy way out, and outsource jobs to India or wherever at the drop of a hat.
If some IT firms are making a profit moving the IT jobs to cheaper locations in the USA,why can't others?
I needed to get a new microwave.
I finally found two brands made in the US. I buy American when possible.
Now, if I can just find a toaster. Everyone I checked from highend to low, is China made.
Bring back the manufacturing, please.
Many CEOs are simply idiots, who just follow the latest trend. The trand over the last few years was short-term cost cutting by off-shoring. I said at the time (and have repeatedly reiterated) that it was a stupid move, not because I was agreeing with the protectionist crowd, but because it didn't make business sense in the long run.
The cost savings of off-shoring, much of the time, is an illusion when compared to the costs of trying to manage things remotely, shipping/currency/taxation issues, and productivity. E.g., if the American worker may cost 40 times more, but is 60 times more productive, then it's a bargain. Maybe off-shoring makes economic sense for low-skill, labor-intensive manufactring jobs, but the CEO fad-of-the-year was to off-shore things that required high skill or could be improved eaiser by automation.
I have vast experience in managing suppliers. What I have found is that, although sourcing in Asia will reduce base materials costs of the items procurred, the costs of logistics, quality and overhead on the home front go up. Due to language barriers, corruption, theft of IP and a number of other issues, new costs show up that did not exist with domestic sourcing. Plus, one export control violation (reminder - export control applies to things like product specifications and schematics, test scripts and the like) can ruin your day. Etc. I think many firms have real idiots doing their cost modeling (or, liars doing it) who miss all the added intangible costs. More typically, the intangibles get peanut buttered in other areas, and are never specifically apportioned to the actual products that got offshored.
If I had to live in Jonesboro, I'd shoot myself.
My company outsources to India (insources H1B's too), Brazil and Argentina. Two of those countries are on the State Departments "nations that are friendly to terrorists" list. Every time I boot up my email I get a note from the big cheese saying what a patriotic guy he his and how he supports the troops. Right.
The problem is economic profit vs accounting profit. Let's say that there is a firm that has a product (made and sold in St. Paul Mn - I love hot dish LOL) that has revenues of 7 million and costs of 6 million. At the end of the year your accounting profit will be 1 million dollars.
Now, let us include the China factor. If you move to China the costs will drop from 6 million dollars to 3 million dollars.
The financial report of the firm will be as follows:
Revenues of 7 million - expenses of 6 million = 1 mil accounting profit
But what about the Economic profit? Economic profit adds opportunity cost (the most valuable opportunity foregone). By NOT moving to China the firm just gave up on 3 million dollars (the difference between the 6 mil cost in the US and the 3 mil cost in China). In deriving Economic profit this has to be taken account of. Thus, the economic profit of the firm is
= 7-6-3= -2 million dollars.
Thus, True American just made an economic LOSS of 2 million dollars (even though it had an accounting profit of 1 mil).
Accounting profit only looks at the cost part of accounting cost. Economic profit on the other hand looks at the cost part of economic cost (meaning accounting cost plus opportunity cost).
Anyways, there are other factors that are considered (obviously). For example there are several firms that have come back to the US after having moved to India a couple of years ago. However these decisions have primarily been due to intangibles such as hard to comprehend accents. The fiscal stuff still points towards outsourcing (since no matter how cheap OKC is Bangalore is still cheaper - and probably has more corporate specific infrastructure, and a more specialized labor pool, for certain firm niches). And most of the firms that have come back have been limited to a narrow range.
Anyways, it is not that the CEOs are stupid. And they are not greedy - erm, well, maybe they are LOL. It is just that if your firm stays in a high cost place, and my firm moves to a viable low-cost area, then your firm is living on borrowed time.
One more thing. The shareholders (as well as analysts and members of the board) would chastise any c-level executive (CEO, CFO, CIO) who stayed behind while the company's rivals implemented stratagems that provided greater returns. Hence, even the CEOs do not have much choice (that is if they want to keep their jobs, and stave off angry rants from board members and cut-downs from analysts).
Anyways, i had to analyze the Dell facility coming up in Oklahoma City (which had a few fits before coming on line. There was a quasi-scandal where some government officials in that state were accused of giving Dell a sweetheart deal by purchasing several million dollars worth of computers if Dell agreed to set up the facility over there). Anyways, the jobs that are going to that facility (and a similar one in Twin Falls Idaho and I believe another somewhere in Oregon) are 'soft skill' jobs. Customer service, sales and contact. Jobs that would be difficult for an Indian to do, no matter how well their accent has been honed (it is possible but hard to train away an accent). Thus Oklahoma is perfect.
But saying that those areas are fledgling Silicon Valleys might be pushing it a tad bit too far.
Anyways, it is easy to pound the table and call the firms greedy (and in a way they are), but far and large they really do not have much of a choice. The only way they can afford to stay is if there was to be a wide base of consumers who were willing and able to pay extra (in some cases a lot extra) so as to have American made. There are many (millions upon millions who are ABLE), but sadly the ones who are WILLING number in the few.
Hence for most cases where there is no talking involved, a firm will at the very least serously consider outsourcing. Because they can be sure their rival is doing the same.