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Amazon/Kindle Part 7 The End Of The Road For Outsourcing? (Dismantling America's innovation machine)
Forbes ^ | 09-09-2011 | Steve Denning

Posted on 09/10/2011 7:25:47 AM PDT by OldCountryBoy

...I’m late on the comments because I am helping a major US corporation once again ship a perfectly running, extremely profitable manufacturing operation overseas. By all means of evaluation, it makes no sense to ship it away. This operation meets all cost targets, highest yield requirements and etc.

It is moving because someone has a burr that says we can make it cheaper overseas.

Just wait until yields drop, requiring throughput to increase, and increased part costs due to the additional wasted parts that will be bought...

(Excerpt) Read more at forbes.com ...


TOPICS: Business/Economy
KEYWORDS: corporateearnings; evetiq; foxconn; outsourcing
I witness this often. "Outsourcing" is the first thing (after we developed process and product with a domestic manufacturer or in-house mfg) that the sourcing folks ask about. They seem not to appreciate the process development costs, and developed expertise, and are indignant with in-house/domestic manufacturing. The thinking is that in-house/domestic manufacturers should reveal the secret sauce to their competitor. Then we begin the whole process over again, with folks in a different time zone, that don't speak English. It is agonizing. To compound this pain, I have lost relations with a good local mfg folks, due to the outsourcing myth. The transitions are very painful. That pain and expense seems to never be a part of the outsourcing cost equation.
1 posted on 09/10/2011 7:25:51 AM PDT by OldCountryBoy
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To: OldCountryBoy

Not to mention that, if the country they outsource to just simply steals their product, they’re out of business entirely.


2 posted on 09/10/2011 7:32:37 AM PDT by Jonty30
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To: OldCountryBoy

either government over regulation and over taxation

or unions

kill american jobs.


3 posted on 09/10/2011 7:36:18 AM PDT by ken21 (ruling class dem + rino progressives -- destroying america for 150 years.)
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To: OldCountryBoy
Why is it that the left is so gung-ho over being pro-outsourcing? (Yes, it's the left.) Maybe because they do know what Alexander Hamilton said in his "Report on Manufactures" and have determined that it's the only really effective way to destroy the USA from within?
4 posted on 09/10/2011 7:36:52 AM PDT by Olog-hai
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To: Jonty30
Not to mention that, if the country they outsource to just simply steals their product, they’re out of business entirely.

Which can also be true of outsourcing within country as well, of course.
5 posted on 09/10/2011 7:39:00 AM PDT by Cheburashka (If life hands you lemons, government regulations will prevent you from making lemonade.)
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To: Jonty30
Not to mention that, if the country they outsource to just simply steals their product, they’re out of business entirely.

The thinking is to get profits up the next few quarters, pocket their stock options, and move on before the theft of trade secrets becomes obvious.

6 posted on 09/10/2011 7:41:01 AM PDT by PapaBear3625 (When you've only heard lies your entire life, the truth sounds insane.)
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To: OldCountryBoy

This is what I never understand about the people who tout the Bush tax cuts as a big economic stimulator. Unless my memory fails me big corporations used those cuts to pay to move their manufacturing base overseas. Anyone remember “transitioning to a service economy”? For some reason we don’t hear that phrase anymore.

As for the prosperity I would venture to guess Barney Frank had more to do with it than George Bush. Barney’s loosening of credit had homeowners across the land using their equity as a piggy bank and we saw where that ended up leading us. Our prosperity was built on credit cards, not tax cuts, and in the long run it’s been a disaster.

I’m not against tax cuts. I just don’t see how they helped or how the GOP can reasonably expect businesses to suddenly start manufacturing here again if they cut them more or make the present ones permanent. I see them just moving more away.


7 posted on 09/10/2011 7:48:04 AM PDT by Oshkalaboomboom
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To: Jonty30

A major problem with outsourcing to China is that you provide the product designs, assembly instructions, tooling requirements to them to build your product. They build it for a while and often hand off the whole production package to someone else to make for a lower price, since they aren’t paying you the royalties or profits, to the same customer list and distributors to whom they sold it previously on your behalf.
You get cheap production for a little while, and then you get a competitor who already has a business relationship with your customers.


8 posted on 09/10/2011 7:51:47 AM PDT by tbw2
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To: ken21
either government over regulation and over taxation
or unions
kill american jobs.

Taxes can be understood
but

The Economic Disaster we are going through requires
Going ALL IN on Efficiency of entrepreneurial efforts

Regulation profoundly stifles Efficiency
And Unions, in so far as they hogtie Productivity,
Are just as bad, and can be Worse

Low Economic Multiplier Employment should be discouraged
This includes the majority of Government Employment

Or you get...


9 posted on 09/10/2011 7:52:25 AM PDT by HangnJudge
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To: OldCountryBoy
I hope the factories are being shipped of Deng's version of Lenin's New Economic Policy (NEP).

Lenin welcomed the corporate "useful idiots." He badly needed them to build the economy lest there be another revolution-- against him this time. When things were going well be planned to ask the "useful idiots", "Got any rope for sale?"

But Lenin died and when Stalin took over he rid the U.S.S.R. of the scary free market which had quickly grown to about half of the total economy. It scared the hell out of the commie ideologues.

Red China ain't that stupid. Deng studied NEP. Their commie ideologues and families are most of the billionaires.

.. but nevertheless the NEP end game is to take everything the useful idiots have and kick 'em out.

That will happen if for no other reason than there are 800 million or so very, very, very poor and very, very, very restless Chinese who need the money -- more than the useful idiots need money -- else the Chi-coms face revolution. That scares the hell out of billionaire Chi-com commie ideologues.

And lots of luck to American corporations getting Congress to give them TARP money to compensate -- there will be revolution here if they try it.

10 posted on 09/10/2011 7:52:43 AM PDT by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: Jonty30
Fellowes shredders just figured this out a little too late.

D!psh!t [censored]s.

No cheers, unfortunately.

11 posted on 09/10/2011 7:57:34 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: tbw2
That is why innovation is dead now in America - there is no point to it.

When everything is made in China everything is copied by the Chinese.

12 posted on 09/10/2011 7:59:45 AM PDT by Last Dakotan
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To: OldCountryBoy
One reason it's particularly advantageous to move overseas is that you know what you're getting. The Chinese business leaders are cutthroat capitalists who often don't honor contracts, and only deal with people they need or perceive as strong.

The problem is, the U.S. government is becoming the same way, and often not even for the money. The EPA alone can run roughshod over a companies hopes and dreams, to say nothing of random, 'helpful' bureaucrats and politicians.

Bottom line, it's easier from a long term planning prospect to negotiate with, bribe, or threaten a fellow corporation in Communist China than it is to do so against the most powerful government in the world.

I wouldn't know what to expect, trying to deal with the U.S., other than they'd be happy to drive me bankrupt if they decide I'm not 'too big to fail' or otherwise part of their team. I'd know exactly what to expect in China, and how to deal with it. Because they *want* to do business, they just want to get the better end of the deal.

13 posted on 09/10/2011 8:02:42 AM PDT by Steel Wolf ("Few men desire liberty; most men wish only for a just master." - Gaius Sallustius Crispus)
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To: OldCountryBoy

I consulted at a Chicago-area firm which decided to outsource 600+ jobs to China. The study was performed some two years earlier, led by the CFO, and was shelved due to an unwillingness to take the risk. This attitude shifted when profits became more elusive (it is in the tech industry, which is known for its business cycles).

They shifted production and laid off almost all manufacturing staff. In the first six months, costs were roughly what were expected. However, new contracts were required with suppliers and such and by the seventh month, costs were already up 40% over what was expected. This only continued as resources and labor became more elusive.

My last understanding as I left my time with them was that they had regret over what they had done, as the benefits were not realized as expected. Now, to their credit, Illinois is union-crazy, so they were getting away from that beast, so kudos for that.

I wouldn’t outsource to China because I couldn’t trust that I had control of my intellectual property or even my equipment, once there. If I can’t touch it without flying half a world away and that is expected to be my primary facility, I wouldn’t do it.

I’d set up shop in Texas, Arizona, or Oklahoma, instead.


14 posted on 09/10/2011 8:04:23 AM PDT by ConservativeMind ("Humane" = "Don't pen up pets or eat meat, but allow infanticide, abortion, and euthanasia.")
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To: OldCountryBoy
A friend of mine makes a product that still requires allot of hands on in the process. Robots still can't make the product that would even be usable. He tells me that their company's Chinese “cheap” factory has a 70-90 percent failure rate on the end product. He makes the same thing here and said that if he had a .03% failure rate, he would be called on the carpet defending why he should still have his job. The product can't be fixed or recycled once it's been processed.
15 posted on 09/10/2011 8:06:53 AM PDT by Hillarys Gate Cult (Those who trade land for peace will end up with neither one.)
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Comment #16 Removed by Moderator

To: grey_whiskers

JUST ASKED THE MODS TO REMOVE MY LAST POST.


17 posted on 09/10/2011 8:08:39 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: Jonty30

I have seen my own designs come from the other side of the earth, with someone else’s name on them. Saw this as early as 1989. We dismantled counterfeit devices, in detective mode. It was clear the counterfeiters had not reversed our design. They were handed our design.

I believe high level management’s private motivations/greed was at play in some of these shady technology transfers.


18 posted on 09/10/2011 8:12:41 AM PDT by OldCountryBoy (You can't make this stuff up!)
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To: OldCountryBoy

Because the financiers, shareholders and accounants live from quarter to quarter. Profits at all costs is the name of the game. They run the corporations; not the workers, the engineers, the executives, or the consumers. They could care less where or who makes the product, as long as the product sells and makes them money with the largest margin possible. If in the world some country legalized slavery again, every corporation on the planet would beat a path to their doorstep. The closest thing they have to that is china, which is why they choose to do business there. Don’t believe me? Float the rumor that the PRC is putting a minimum wage law into effect, and watch them jump like rats off of sinking ship.


19 posted on 09/10/2011 8:13:16 AM PDT by factoryrat (We are the producers, the creators. Grow it, mine it, build it.)
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To: WilliamofCarmichael; Steel Wolf; ConservativeMind; Hillarys Gate Cult

To WilliamofCarmichael: This is on my required reading list. Is it too late?

To Steel Wolf, ConservativeMind, Hillarys Gate Cult: Your stories are ringing in my ears! I’m sure we could talk for hours, and I would become even more depressed.

Back to weekend work. An old roadster pickup is calling for attention. It is from a better time... Later.


20 posted on 09/10/2011 8:28:02 AM PDT by OldCountryBoy (You can't make this stuff up!)
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To: Steel Wolf

To your first point:

http://www.timnerenz.com/2011/09/jobzilla.html


21 posted on 09/10/2011 8:33:28 AM PDT by OldCountryBoy (You can't make this stuff up!)
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To: Oshkalaboomboom
Anyone remember “transitioning to a service economy”? For some reason we don’t hear that phrase anymore.

He!!, Other than hands on service that has been outsourced too!

My son does data/phone troubleshooting for one of the large providers.

Management actually had the ba!!s to have him train a guy in India to do the job.
Guess where that is going.

22 posted on 09/10/2011 9:02:02 AM PDT by Vinnie
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To: OldCountryBoy

There’s a groundswell building to buy American.

IMO a manufacturer could take advantage of that.

Problem is hardly anything is made in the USA anymore.
Certainly anything you are likely to need and buy.
That includes pharmaceuticals and foodstuffs..


23 posted on 09/10/2011 9:10:21 AM PDT by Vinnie
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To: OldCountryBoy
What you are up against is rather universal. There are people who "own the company" and what they are looking for is a bottom line that amounts to pennies of dividends on the outstanding shares AND increased market value of those shares.

Outsourcing has probably served their needs in the last couple of decades quite well.

On the other hand, you are an "insider" and understand what makes the whole company tick and you know there are going to be some losses which have a high probability of occurring in any given overseas venture.

Bad parts is one. I think by now everybody has noticed MOST ALL serious airliner rebuilds are done HERE, not THERE. If they are done THERE, those planes never come back into American or European service ~ and there's a real good reason for that.

But, back to the owners. Let's use this example ~ USPS! Everybody in the USA old enough to talk imagines he or she KNOWS how to fix any particular postal problem. Many speak of getting rid of the deadwood, or eliminating Saturday delivery, or simply "cutting USPS loose to compete".

Insiders don't talk that way. They see nearly 600,000 employees who don't steal. Consequently when the owners suggest something about the workforce being "deadwood", that talk just falls on deaf ears.

The insiders know something about postal cost propagation and the detail that has to go into how it can be managed. For instance, delivery service. It's one thing to say "eliminate Saturday" and its quite another to ADJUST all the residential routes in the country to do that. Remember, the mail will still get delivered, just that more of it will be delivered on any given day. So, what does it take to get 200,000+ carriers to deliver that mail? Will each lose a few stops to make up for the increased time at each stop due to more mail volume?

Remember, we are talking, in the aggregate, of Hundreds of Thousands of Tons of Mail ~ not just a handful of letters.

Insiders know that some routes will need to be shortened and some lengthened. Not only that, this will occur at a rate SEVERAL TIMES LARGER than the normal rate ~ and that will take up quite a bit of supervisory time having those folks out on the routes doing the proper evaluation.

Next question, how much OVERTIME will cutting back regular service on Saturday create?

No doubt outside observers, the "owner class" in this case, would never think of that one.

Let me give you an example from China. Every job in most of the industrial cities has TWO OR MORE PEOPLE ~ that's right. You have some people who work the morning and some the afternoon, but only 3 or 4 hours per day. Other jobs of greater complexity have people working 2 or 3 days in a row for longer hours, then not working for a week or so (they may adhere to that older 10 day work "week" instead of the Western 7 day work "week".)

Fiddling around with who works when and where can and will cause quality problems which will put the company right up against the older Chinese ethic that "if it looks good enough, sell it" ~ I'm not even sure "insiders" normally anticipate that one, but the way you combat it is downstream "total quality control" ~ meaning BE PREPARED TO PROVIDE COMPLETE REFUNDS AND/OR REPLACEMENTS FOR EVERYTHING ~ including the box!

I suppose you could infiltrate some Sigma 6 folks into the Chinese workplaces but what good would that do?

The "ownership class", in general, cannot be trusted to imagine the cost problems created with the absence of real quality control at a foreign site. That's not part of their 'bottom line' ~ and many of them probably think the 10 pound hunks of iron and plastic are perfectly good products.

24 posted on 09/10/2011 9:31:29 AM PDT by muawiyah
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To: Vinnie
About 97.5% of everything we buy is not made in China. Like to get that one out of the way quickly. We still have a vigorous and thriving industrial sector that is highly mechanized, automated, computerized, roboticized and beneficiary of exceedingly improved processes.

Just nobody works there anymore!

25 posted on 09/10/2011 9:33:38 AM PDT by muawiyah
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To: Oshkalaboomboom

I recently read that Americans pulled out $5.6T in home “equity” from 2000-2007. What struck me about that was when I noticed that it was $700B/yr. And we did it to ourselves. Eight years in a row. Good thing housing prices will always go up and we’ll never have to pay it back, or we’d be really hosed.


26 posted on 09/10/2011 9:34:41 AM PDT by Darth Reardon (No offense to drunken sailors)
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To: Vinnie

Is there a groundswell to buy American? I feel like that came and went in the 80’s. Now there is more of a sad realization that even a Hyundai is probably better built than what rolls out of Detroit.


27 posted on 09/10/2011 9:56:39 AM PDT by MrShoop
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To: Olog-hai; ken21; OldCountryBoy

Here is an interesting comment on that Forbes article:

“brokensky2 16 hours ago

The era of employment is ending. People forget that inventions, including the practice of employment, have an underlying purpose. The purpose of employment was to solve the problem of too few people for the necessary labors at hand. We now live in a world where automation, robotics and software outperform human beings.

The era of human work ended around 2006 when the cost benefit ratio of robots took a big jump forward. The economic catastrophe of 2008 pushed robotics forward faster. Foxconn, short-term profit focus and the downside of outsourcing will give automation, robotics and software another power boost.

The industrial age is surviving on pure, but ever diminishing, momentum.”

What do you all think?


28 posted on 09/10/2011 11:50:11 AM PDT by Cardhu
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To: Cardhu

new markets around the world need products, and do not have enough people or the skills to make them.


29 posted on 09/10/2011 11:57:16 AM PDT by ken21 (ruling class dem + rino progressives -- destroying america for 150 years.)
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To: OldCountryBoy
Actually there was an article posted the other day where someone suggested that Obama is using a version of NEP. Obama does not just steer toward the center.. he's using the useful idiots. Once the economy has recovered (in the standard, proven, oft-repeated over and over traditional way I might add) Obama will kick 'em and take most of what they own.

More likely given his status as an ideological and biological issue of 1960s Marxists rabble he will treat them like what happened to the Russian Nepmen.

The article left out what happened to the Russian Nepmen. Stalin put an end to NEP so you can guess what happened to the Nepmen.

30 posted on 09/10/2011 12:18:42 PM PDT by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: muawiyah

Some great observations there. Thanks.


31 posted on 09/10/2011 12:24:33 PM PDT by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: Darth Reardon
I recall reading comments by the likes of Fed Chairman Greenspan that home equity loans were keeping the economy going. This was the recession recovery that started in November 2001.

My favorite commentary about those days -- that apply over and over -- to account for our economic problems we need to

add in such things as income leakage which was defined by Morgan Stanley's Stephen Roach, a thought leader on Wall Street for over 30 years, basically as jobs leaving the country.

Just for the recovery from the 2001 recession Roach put the loss to our economy at 340 billion dollars as of late 2003.

That was seven, eight years ago.. then shit happened.

We have a clock showing our debt -- what's urgently needed is a clock showing loses to our economy because of the actions a-hole politicians, corporate execs, ideologues, and every bastard who's ever screwed America.

32 posted on 09/10/2011 12:38:01 PM PDT by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: Cheburashka

At least within a Western country governed by laws you have a good chance for recourse.


33 posted on 09/10/2011 1:59:26 PM PDT by Jonty30
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To: Jonty30
At least within a Western country governed by laws you have a good chance for recourse. your lawyers have a good chance of making money.

Fixed it.
34 posted on 09/10/2011 2:13:04 PM PDT by Cheburashka (If life hands you lemons, government regulations will prevent you from making lemonade.)
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To: MrShoop

If given a choice I’ll go for the superior product. But if equal quality, USA.
I’ll pay more for the superior USA product. Problem is choices are very hard to find.


35 posted on 09/10/2011 3:46:55 PM PDT by Vinnie
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To: Vinnie
There’s a groundswell building to buy American.

IMO a manufacturer could take advantage of that.

Problem is hardly anything is made in the USA anymore.

That is precisely why (significant) import tariffs would be very positive for American jobs, and America's economy.

Unlike the absurd arguments of the free traitors, tariffs would immediately begin creating American jobs and manufacturing.

What, are our trading "partners" going to stop buying our stuff?...

Our so called "partners" DO NOT BUY OUR STUFF NOW.

36 posted on 09/10/2011 3:57:58 PM PDT by Cringing Negativism Network ("Cut the Crap and Balance!" -- Governor Sarah Palin , Friday August 12 2011, Iowa State Fair)
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To: OldCountryBoy

We have sent out production tools and our production abilities overseas. Not many tool and die makers out there under the age of fifty.


37 posted on 09/10/2011 4:11:12 PM PDT by Chickensoup (In the 20th century 200 million people were killed by their own governments.)
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To: Cardhu

I read an article somewhere last week in which the author put forth the notion jobs are now “obsolete”. He further stated his belief that the people with jobs made enough money
to pay for everyone’s support.
I think this is where the libs hope this automation and increased production lead,to a socialist utopia where the a free to dedicate their time to fixing the ills of the world whilst someone else does the grunt work.


38 posted on 09/10/2011 7:50:20 PM PDT by WePledge (Ich werde fur immer ein Hollenhund werden. Semper Fidelis)
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To: WePledge

OOPS should have read “they are free to dedicate.....”


39 posted on 09/10/2011 7:51:46 PM PDT by WePledge (Ich werde fur immer ein Hollenhund werden. Semper Fidelis)
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