Another Look at Outsourcing (Vanity)

grey_whiskers | 8-14-2005 | grey_whiskers

[grey_whiskers]

Many articles have been written about the phenomenon of “outsourcing”—the practice of sending work needed within a company to be performed outside of the company. More recently, the word has become synonymous with “offshoring”—the practice of sending the work to be done by lower-paid workers overseas, often in third-world or emerging countries such as Mexico, China, and India.

These phenomena have been going on for some time—one of the first industries to be moved outside of the United States has been textiles. Indeed, while garment manufacturing was first sent to low-cost locales, there was some outcry over the growth of sweatshops—as Kathie Lee Gifford found out. Those who supported the process were quick to point out the dual benefit, of cheaper costs (passed on as lower prices to the consumer) together with greater opportunity for the impoverished in third-world countries. Although, to be honest, I haven't seen the price of $150 Nike sneakers dropping anytime recently.

Following the widespread offshoring of garment manufacturing, the trend continued. The (thankfully!) former head of Lucent and then of Hewlett-Packard, Carly Fiorina, was quoted as stating that no American had a right to a job just because they were American. And companies have put their money where their mouth is, as well. For example, 54% Dell computer’s employees are offshore. One widely-quoted statistic from consultancy McKinsey & Co. states that 3.3 million US jobs will be lost to offshoring by 2015. (*)

So clearly, there has been a great rush to send all kinds of work overseas. But WHY? The usual answer is “To be cost competitive. We could not survive as a company if we continued to pay exorbitant American salaries.” Is this really true? Consider Microsoft. One of its managers, Brian Valentine, was quoted in a trade magazine as saying “Think India! Two for the price of one!” But before its big dividend payout, Microsoft was sitting on some $50 billion (with a “B”, folks)--in Cash. And essentially no debt. Are you telling me Microsoft has to pinch pennies on salaries, because they can’t afford to compete otherwise? Let’s do the math. MBA types like to talk about comparing expected return on investment to the “risk-free” rate of return, US Treasuries. If Microsoft had just invested that money into US Treasuries, even when interest rates bottomed out at about 2%, they would have had $1 billion /year, CASH, with which to pay American programmers. And this would have been without touching the principal and without affecting cash flow from continuing operations.

I think that in fact, the non-answers above, while not true, still point to the truth: “Follow the Money”. The argument seems to go like this: if you, as a worker, want to make $80,000 a year or more, you are greedy. We should outsource your position to India to save money, so we can afford to pay our executives tens of millions a year. (Does anyone recall the retirement packages of Dick Grasso, Carly Fiorina, or Jack “Neutron” Welch?) And this is because executives are “indispensable”. Right. About as indispensable as a vampire bat is to a hemophiliac.

But on the other hand, there is one more way you can follow the money. Companies (and their stock) are looking towards future earnings. Remember, the US consumer isn’t getting any younger. And as workers get older, it costs more to retain them—from salaries, to health care costs, to risks of age-discrimination lawsuits. So companies want younger, cheaper workers. And what happens when the US workforce starts retiring en masse and can no longer afford the goods produced by US companies? Remember the two biggest destinations for outsourcing: China and India. What do these companies have in common? Cheap labor, and a large pool of relatively young buyers for American products. What else do they have in common? They are both primarily third world countries; on the whole, they cannot afford American products. So what’s an enterprising CEO to do? The answer is obvious: start a stampede of companies to relocate to China and India. This will do two things. First, it will directly lower all sorts of costs (no Social Security tax, no EPA, fewer lawyers…). Second, it will send all kinds of money overseas, to stimulate the economy of other countries, so that they can start buying goods when the US consumption tapers off.

(*)McKinsey’s motives in this, however, may not be as pure as the wind-driven snow, or even the silt-ridden Ganges. According to an article from The Times of India, McKinsey is being paid to generate jobs in India: “The Karnataka government would like to see more jobs created in these areas and has mandated consultancy firm McKinsey to formulate a strategy to generate one million jobs by 2008.” QED.

[central_va]

If tariffs on the scale you desire were wanted, we would have them. Americans don’t want them and we don’t have them.

It just proves the people don't run the USA. The wole system is corrupt. I want it to crash. The only way to save it is thru protectionism. COVID proved the USA is a paper tiger and In no way world power and could not sustain a military conflict for very long with China and/or Russia. WE NEED OUT INDUSTRIAL BASE BACK!!!!!!!!

[central_va]

We live in the world where we actively engage in competative[sic] trade.

LOL. What an idiot you really are. We run a $850B/year trade deficit you fool.

[central_va]

The USA proir to WWII as 96% self sufficient in EVERYTHING!!!

[Callan]

Barriers to entry in software are much lower than a physical factory. Different risks in some cases, but certainly both would have a job skills aspect that we would want to keep “in shore.”