The Human Face of Outsourcing

Kudos to Fast Company (issue: April, 2004) for putting a human face on the complex and controversial issue of outsourcing.

And, jeers to Michael Mullarkey, CEO of Workstream, Inc., a Canadian-based tech company, for saying "I'm paying $65,000 Canadian for developers that were making $147,000 [in California], and they're smiling ear to ear. People are a dime a dozen." (Quoted in the same Fast Company article)

I highly doubt that anyone working for a CEO who views people as a commodity is truly "smiling ear to ear." Workstream's website bills it as a "full talent management solution" and "the business of people" and "targets the major stakeholders in building employment relationships." Hmmmm ... someone's not walking the talk.

Compare this leadership Neaderthal to Costco's CEO Jim Sinegal who refuses to ship his call center offshore because he doesn't think it would create the right image in the minds of his customers and employees.

As some economists have noted, offshoring stops making sense when everyone is doing it. Not only does the cost advantage go away, but so also do the customers who no longer have salaries and money to buy the products and services made by all the cheap labor.

In freshman economics, I learned the principle of ceteris paribus (defined as "With all other factors or things remaining the same.") However, the most important part of this principle is that it doesn't happen. All other things are never ever the same. You can't change one thing and hope that nothing else changes. All actions have reactions. And most of us are having the same corporate reaction these days: they (big corporations) just don't care about us as employees or as customers. Even Delta Airlines, once a paragon of service, is now rated #14!

The Fast Company article states that 1,000,000 Americans have had their jobs sent offshore. Think about the math. That probably turns into 5,000,000 close family members, 25,000,000 friends and relatives, and 100,000,000 friends, relatives, neighbors and working associates still sitting at their desks wondering when it's their turn. One contagious strategic decision is spreading a virus that affects one third of our population.

Are more cheap goods really worth this?

Comments

[Paulf]

The real problem is that the US dollar is overvalued.

If the dollar falls 50% relative to the rupee, the Indian programmer just got 100% more expensive. If the dollar falls 50% relative to the yaun, those Chinese imports now cost twice as much. If the dollar kept falling, at some point, Americans would cost as much or less than the Indians and Chinese.

Countries like China can play stupid currency games by buying dollars. This changes the situation, because now instead of a rising currency making their exports more expensive, an overheating economy and inflation make their exports more expensive. Either way, their exports get more expensive.

Why will the dollar fall? Supply and demand. The US is flooding the world with dollars with its 500-600 billion dollars a year trade deficit. More outsourcing will increase the trade deficit.

Some have argued that the US will export all of its jobs. The US cannot export all of its jobs to outsourcers. At that point, the US would be producing nothing and the value of the dollar would be worthless. At that point, the US companies could not afford the then infinitely expensive Indians and Chinese.

Outsourcing will eventually go away as an issue. Outsourcing and the trade deficit will lead to a falling dollar, which will make the Indians and Chinese a lot more expensive than they are now.

[Joyce Wycoff]

Coach Eric ... I definitely didn't imply that this was a simple subject or that off-shoring should be restricted. Peter Drucker himself has outlined the benefits of this process. But, we do need to remember that we're dealing with people not just costs.

Love your suggestion.

[Coach Eric]

It's not that simple. If the US economy was a closed system, you'd be right...but it's not. Not only can non-US companies sell the same goods on these shores, but US companies need the ability to sell their goods overseas. How do they compete - over the long haul - if they can't match or beat costs?

Further complicating this is the WalMart effect. We've all been brought up to worship on the altar of low prices. As long as that's true, I don't see that outsourcing is stoppable.

OK, let me note the obvious exception - Dell has shown that there are times where costs aren't paramount. Where customer service, coordination and other costs outweigh the labor cost advantages of outsourcing, outsourcing won't happen. But those are the exceptions.

I don't want to be a wet blanket, so let me offer a suggestion of what we could/should do in this country. We should somehow legislate a labor equivalent to the Plant Closing Act (I think that's the name) that would mandate retraining (or more likely, an outsourcing fee to be paid to the government which would fund retraining programs and COBRA-type benefits extensions) for any workers being replaced. That would allow companies to get the cost advantages they need to compete, while maintaining the national competitive advantages of our workforce.