This recent article in yahoo finance/business week goes to the extent of equating "Outsourcing" to Losing Jobs for American's http://finance.yahoo.com/career-work/article/107048/Where-Your-Job-Could-Be-Outsourced and some addtional comments by Administration regarding encouraging protectionism really got me concerned and thinking.
I do not get the connection between the statements, articles and the outcomes being discussed, so figured it is a topic that I wanted to research and take an a position on my blog
My First Stop : Definition of Outsourcing in wikipedia
"Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company.[1] The decision to outsource is often made in the interest of lowering cost or making better use of time and energy costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of land, labor, capital, (information) technology and resources[citation needed]. Outsourcing became part of the business lexicon during the 1980s. It is essentially a division of labour."
Analysis of definition clearly shows no mention of moving jobs to other countries just for moving jobs or because some one loves Bangalore, India or Buenos Aires, Argentina vs. creating the same function New York, US. It however is very clear that outsourcing is driven by business to
- redirect energies to core competencies
- make more efficient use of land, labor, capital, technology and resources
These drivers make perfect sense to me - not sure why all of a sudden there is so much negativity about outsourcing. The fact is - what is non-core to one business is core to some else's business. If every business is focussed on improving its core then we should get closer the ideal Macro Economic goals of "Profit Maximization".
Theoretically, this sounds good but then why is it that off late, outsourcing is getting more defined as moving jobs to countries India, China, Russia, Brazil, Poland from US or Europe, referred also as "offshoring"
My Take#
- We are failing to recognize the rate of change has accelerated dramatically. Which implies, As we have moved from farming to manufacturing to service to now knowledge based economy, the time it takes innovations to disperse across the globally connected economies is faster then ever before. This puts pressure on rate of innovation expected from the underlying economy to sustain growth and prosperity. if you still are unconvinced see this video - http://www.youtube.com/watch?v=cL9Wu2kWwSY
- Assuming Quality of life in US and other modern western economies is at least 3x better then third world countries. If that is true of Bangalore, India and New York, Businesses should expect value of at least 3x more for having the same job function in New York vs. having it performed in Bangalore, India. (Note - I am saying value not just labor cost ... ). If not businesses will be overpaying which is not good and not sustainable in the long run.
So what am i really saying ... we have some basic choices which we can make
- Choice 1: Unlike the past, where innovation led to jobs that led to jobs that lasted 20 years, 10 year or 5 years now thanks to technology they cannot lock-in the productivity gains for those long periods. So we have to innovate / change continuously that creates value. Implication -> Encourage entrepreneurship more than ever before and do not raise barriers
- Choice 2: We have start getting used to lower standards of living - (loss of jobs or reduction in salaries), reduce spending or sacrifice benefits we have become used to taking for granted so that business do not find value in moving jobs off-shore. Implication -> Lot smaller economy that will need to support the growing population.
- Choice 3: Raise barriers for business to be global using government controls or extend subsidies to businesses by borrowing. Implication -> This is not sustainable as business are like water, they will eventually find a better home or dry up (belly up) when the government cannot sustain the subsidies or controls.
So far – Businesses seem to be focused more on Choice 2 and Government on Choice 3 rather than collectively focusing Choice 1. This is a scary trend, we should figure out a way for businesses, citizens and government to focus on Choice 1. We know this can be done. To prove it, we need to look no further into history then leaders like Henry Ford, who increased wages (sharing profits) at the same time setting goals (innovation) to reduce the price of car so that all employees (increase sales) can afford a car - improving quality of life of everyone.
Thanks
Nagesh
The views represented in this blog are my personal views and are not a reflection of or opinions of any of the institutions I am associated with or have worked for.
