Posted on 01/02/2010 6:03:32 AM PST by Son House
While not all of those jobs will be lost overseas, those workers will face wage pressures. -- Hewlett-Packard has asked many of its EDS employees to take 50% pay cuts.
Even the most pro-offshoring report, written by McKinsey Global Institute's Diana Farrell, which asserted that the U.S. will be better off with offshoring, concedes that American workers will experience major losses in wages and jobs.
Offshoring is a major structural shift in the way the economy works. Alan Blinder has called it a shift equivalent to the industrial revolution. Ponder that!
What needs to change so that companies reject outsourcing options that make economic sense for them? This is a very important observation, one that is lost on most politicians.
When John Kerry was running for president, he called the CEOs who outsource "Benedict Arnolds." They act rationally in their self-interest, and there's nothing wrong with that.
Unfortunately, President Obama named Farrell, who is the leading offshoring evangelist, to the No. 2 post in his National Economic Council. Farrell has done more than anyone else to spread the gospel of offshoring, so it's hard to believe that Obama takes his own rhetoric about Buffalo vs. Bangalore seriously.
The Obama administration has been worse than disappointing on the issue of offshoring, practicing a bait-and-switch approach.
By using the issue for political advantage, Obama has given a false sense to the public that he is taking action on offshoring. His only policy action to date is to try to close the tax loophole that encourages offshoring. It is highly unlikely he will have the political support to close the loophole, even though it should be a no-brainer.
And of course, the Obama administration has done nothing to close the loopholes in the H-1B and L-1 visa programs that spur offshoring.
(Excerpt) Read more at computerworld.com ...
Uh oh. You just made an unemotional statement. I hope you're wearing asbestos underwear, because you're going to get flamed, LOL!
If Apple was making those products in America, it couldn't compete and there would be FEWER jobs in America.
Cue the Apple fans, 1, 2, 3 . . .
Make that 3, 2, 1, . . .
Australia is looking better and better to me. I’m worried about my 18-year-old daughter and what the economy is going to be like for her here.
You are exactly correct.
It is a common misconception that China and others have attracted our industry.
Not correct.
We have driven our industry out of the country and they ended up in China, Vietnam, etc., simply because they had to go someplace.
EPA has been the biggest driving force.
Just make a list of how many industries EPA has made difficult or impossible.
Tax laws, health insurance laws, etc., close behind.
I was once a major distributor of heavy equipment to an industry that has gone overseas and my customers had to have degreed engineers whose job as to keep up with federal and state EPA regulations.
Then there was the personnel department head that had to be expert on all of the many new laws relative to everything from sex discrimination to benefits.
Some of the laws are admittedly good. However, too many of them are needlessly complex, harassing, overly expensive.
All figure in overhead as well as direct labor costs.
Industry is not coming back until we invite them back by making the manufacturing climate more hospitable.
Agreed. I think there is some mythical status people assign to these foreign engineers. But truth is their quality is severely lacking.
It's not that a company cannot survive by hiring Americans. It's that they make more money by off-shoring their work. That's all that matters.
You could remove taxes and slash regulation and companies will still off-shore. The cost of employees is too low and the profit margins too high. All you'll do is tax them less and regulate them less on the money they make by shipping work overseas.
Proponents of offshoring refuse to see the forest for the trees, or maybe they’re making handsome profits from offshoring. But the US population is around 300 million, and China and India have combined populations of around 2.3 billion with large numbers of unemployed and underemployed. Other nations easily move that number up to 3 billion.
So, the US is going to move manufacturing jobs to cheap labor nations and offshore all the work that can be performed through modern communications, and still somehow have job opportunities for its 300 million population, the so-called high tech jobs of the future.
The real driving force is cheap labor, not regulation or corporate tax rates in the US. With unskilled labor in cheap labor nations at 5% - 10% of US rates, and skilled and degreed workers available for 10% - 20% of US salary levels, it is impossible for the US generate enough jobs that remain here to provide reasonable opportunity for its citizens.
300 million Americans. 3 billion in cheap labor nations, with tens of millions of unemployed and underemployed.
What makes you think that Australia doesn't offshore?
We have driven our industry out of the country
EPA has been the biggest driving force.
Just make a list of how many industries EPA has made difficult or impossible.
Tax laws, health insurance laws, etc., close behind.
^
Glad you’ve elaborated on that point, in fact, now that we verfied Global Warming is a hoax, there should be massive roll back of EPA regulation
Obama probably loves offshoring and the export of US manufacturing jobs. Just another, actually the most 'efficient', means of international income redistribution. Fits right in with his cap and trade scheme of income redistribution.
I wrote about that on FR in a series of articles:
(Vanity) Another Look at Outsourcing
(Vanity) A Falling Tide Grounds All Boats
Cheers!
Two examples of just that:
I worked for a software company a few years ago that decided to outsource a new app. They got an estimate from one of our developers, huffed that it was going to take far too long and cost too much money to do it locally. So they outsourced it to a whole team in Pakastan. It took four times as long, four project managers quit, and when it was "done" they demo'ed it to our customer who said, "You're kidding, right?". Then they had the original developer rewrite it in the amount of time he first estimated. And naturally, declared the outsourcing a complete success and started outsourcing everything else.
I currently deal with two companies from which I buy software solutions. Company A outsources all their development to India, and a good portion of their support. Their software sucks. It is buggy, resource intensive, impossible to upgrade, and needs constant monitoring to keept it operational. To make matters worse, if it wasn't enough that their Indian developers are incompetent, they have a horrible attitude and are utterly convinced of their innate superiority. They never offer solutions, only excuses for the lousy state of their software. Any time I browbeat them into actually doing something about a problem, I can guarantee their "solution" will only make things worse.
Company B develops their software in the US. The difference in quality and support is shocking. I can virtually forget about company B's software from a support standpoint. It just works. When I do have a problem I can put in a call and get a response, usually a solution on the same day.
I didn't choose company A. Who would? I inherited them. Whose business will be growing? Who would you rather own stock in? Company A is ruthlessly bottom-line oriented. And a good portion of that bottom line comes from the customers they are ripping off.
remove taxes and slash regulation and companies will still off-shore
^
but not taxed and regulated until all companies prefer off-shore
Now, most people know what Accounting profit is. For instance, if the total cost of making a wrench is 5 bucks (btw ...the numbers are not accurate, just for the purposes of making a point), and you sell it for 8 bucks, you just made yourself an accounting profit of 3 Dollars. In a nutshell, accounting profit is total revenue minus total explicit cost. Makes sense so far.
However, we now have economic profit. Economic profit looks at both explicit AND implicit costs ....which means that OPPORTUNITY COSTS are now taken into consideration. A quick example of an opportunity cost is as follows:- imagine John dropped out of high school, and now works at Burger King making 7 bucks an hour. However, had he finished high school, he could have gotten a job transcribing medical data that paid him 12 bucks an hour. Thus, dropping out of school had a cost amounting to 5 Dollars per hour.
So, going back to our first example ...you have two companies. Spetz's Wrench firm, and Cat's Super-Wrench firm.
Both of them, while based in the US, have a total cost of making a wrench of 5 Dollars, and they both sell their wrenches for 8 bucks ...thus both have accounting profits of 3 Dollars.
Now, Spetz's Wrench Shop decides to move production to Indonesia, where the cost of production goes from 5 per wrench to 1 per wrench. Now, instead of making a profit of 3 dollars, I am now making a profit of 7 dollars (selling at 8, producing at 1 buck).
Now, let's have a look at Cat's Wrench Shop ...he decides to stay in the US. He keeps making wrenches at 5 bucks an hour, and selling them at 8. Thus, he is making a profit of 3 Dollars per hour! A profit ...an accounting profit.
It looks all good at first, until you look at Cat's Economic Profit ...had Cat gone to Indonesia, he would have made a profit of 7 rather than 3. Thus, while he has an accounting profit of 3, he has an economic LOSS of -4 Dollars (8-5-7).
Thus, even though he has an accounting profit, he has an economic loss.
Now, also look at it from another perspective ...the money that Spetz's Wrench Shop has made/saved, can now be used for better marketing and advertising, or by better enriching its owners, or even simply by going into some rainy day fund just in case some day the market for wrenches dips for a year or three. Furthermore, Spetz's shop is better positioned to compete with new entrants, wrench substitutes, or whatever (anything from a shift of tastes, re-tooling, to even an all out price war) as compared to Cat's shop, which would be living on borrowed time.
That is the main reason for offshoring. Sure, it can be masked under 'they are only going there because of the slave labor' and such talk, but the fact is that it boils down to the hard financial difference between accounting and economic profit.
And as long as the opportunity gains/costs are significant enough, companies WILL continue to offshore. The only way it would change is if some external factors came in to shift the implicit costs (e.g. say cost of freight becomes too high, or wage differential between, say, Indonesia and the US evens out, or say some MAJOR incentives are given for firms to stay onshore, or the heavy stupid clumsy hand of government). Also, there are some disincentives for offshoring (e.g. the fact that your customers may speak to some person with a weird accent ), but the fact of the matter is that most customers do not really care about that! Some will, and some of those will cancel the service, but most customers will not. Thus, the economic profit garnered far exceeds the handful of customers who say no mas.
Anyways, I am not here to advocate for offshoring ...however, that is the hard financial truth behind it. This is why, unless your company has a very STRONG domestic demand market (who are willing to pay EXTRA to cover Cat's Wrench Shop from its economic cost element ....say, instead of paying 8 bucks per Wrench paying 16 bucks per wrench) ...unless that happens, companies will offshore. Looking at FR, there are many who speak against offshoring, but are not willing to pay (much) extra to 100% American companies. For many people, a wrench is a wrench. Some bemoan the fact that there are no American companies left to give them that option ...the reason for that is that many went offshore, and those that did not simply died (could not compete) with those that did, and were not fortunate enough to find American consumers willing to pay (double ...at times more) much more.
One thing about our FReepers, as well as the silly DUmmies in DUmmieland, is this ...both sides of the aisle will always buy the cheapest good/service that satisfies their need. You can be certain that the cheapest good/service that satisfies your need was not made in the US of A (outside a very defined sub-set that bucks the trend).
That's the truth.
An important note: I did NOT even add some of the unique costs that can be found in the US ...such as some unique labor costs that can be both explicit and implicit. Some of these 'costs' (to take a simple one, say Unions ....or say, some rather restrictive regulation) simply make offshoring all the more attractive. I decided not to include these for the purpose of simplicity. Add them, and Spetz's Wrench Shop would kill Cat's Wrench Shop even faster.
Also, I did not include the amplifier effect that would arise if both Spetz's Wrench Shop and Cat's Wrench Shop were LISTED COMPANIES. If we are listed, then suddenly our quarterly performance becomes VERY VERY VERY KEY (I am a Fund Manager ...though for emerging/frontier markets, and based in Africa, and I can assure you that analysts can definitely kill a company if your quarterly numbers buck projections negatively). Suddenly, if we are both listed companies, my stock jumps up ...while your stock first stagnates, and then plummets ...leading to very bad analyst calls, and shareholders asking why the heck you as Managing Director are not cutting your cost base, and before you know it the Board of Directors calls you in for a very short and shocking discussion about your future in the company! That is another factor I did not include that also has a significant impact.
Do you understand the concept of national technical advantage. Example if we invented a drug that will make old people ten years younger and cure most cancers, you keep the technology to yourself so the whole world will come to your doorstep and be willing to pay a good price for it. From that good jobs will be created, government will get good tax revenues so they can create and maintain a strong military and the whole world will be beholden to our technical, economic and military prowess. If the secret is well kept, we can have generations of prosperity derived from this one discovery.
If we use your logic, we would teach the Chinese to manufacture it, we will share this knowledge with Chinese and Indian universities so we will have available low paying technically competent biotechs to manufacture it. Unfortunately as the Chinese and Indians learn of this process thru US tech transfers and sharing manufacturing techniques they will learn to manufacture it themselves. How convenient for the globalist and corporate America because they now cry that they cannot compete (a situation they created) unless they offshore the manufacturing and labor. All they wanted to do was manipulate the global, technological and financial system to benefit themselves. The people on Main Street are onto their game and they will not tolerate it anymore.
I know what the next argument will be, no one can keep a secret, well read about the Secret of Silk and how it kept China, Persia and India prosperous for centuries.
If America weren’t such a lawsuit happy place then I am sure that companies wouldn’t be moving overseas. Then of course with Zero in office there’s no guarantee that Zero won’t decide to conficate a company and then seize the assets and hand job over to his favored cronies.
He’s already overstepped boundaries by firing several executives from GM and there’s no guarantee that he won’t start taking over small businesses and squeezing the bank accounts of people who look at the regime the wrong way. I don’t think that any dynamic businesspeople will be interested in taking a huge risk, succeeding, and then having it simply taken away from them and then run into the ground through stupidity.
Anyone with a brain is going to start building their businesses outside of the US. To say the least about the taxes that are required to be paid. Too much red tape, uncertainty, and high risk of confiscation are the three red signals that any smart businessperson takes into consideration.
Maybe you have a problem with comprehension ...where did I say that we need to transfer technology, or that 'my logic' doesn't understand national technical advantage, or how you can foresee my 'next argument' on how no one can keep a secret? I understand that there are some issues (like offshoring) that make people both on the Right and Left shoot their cognitive wad, but at FR people tend to read and understand before making 'predictions' off cuff (and yes, I could probably dance circles around you when it comes to cogent comprehension of both 'national technical advantage' LOL as well as the secret of the Silk Worm).
To make it easier for you ...I AM NOT ADVOCATING OFF SHORING (something I put in that post, but apparently you were in a myopic state). I understand the issues at play, and that it affects people. People get hurt.
If you read my post (and think of what you are reading), I was showing WHY companies make that decision. I explained the rationale of accounting vs economic profit, and how it brings about that decision EVEN WHEN I DISCOUNT other issues like adverse Government regulation, unions, and even quarterly reports.
If you want to beat someone around the ears over off shoring, I suggest your local congress person. Your emotive post will get better traction that way.
Once more ...the chewed pre-digested version is as follows: I was not advocating off shoring (just for you ...once again ..I am NOT advocating offshoring. However, I know why it occurs). Off shoring happens. It happens due to many reasons, ranging from lower cost base to regulatory factors ....but all those reasons, from a financial perspective, boil down to the interplay between accounting and economic costs. most people arguing the issue, on both sides, do not look at the effects an economic loss can have on a firm.
Anyways, if you want to pick an argument over this, pick someone easier.
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