Outsourcing jobs overseas, McKinsey claim, is good for us . . .
Here's a fascinating snippet from Guardian Unlimited Business — "Global outsourcing on wane":
I'm all in favor of helping less-developed parts of the world increase employment and prosperity, but isn't there likely to be a way (or several ways) to do this without destroying employment elsewhere? Trading off jobs in the developed world for lower-salary jobs in the Third World seems like a short-term profit fix to me. What happens when people in the Third World start asking for civilized wages and working conditions?
Consultancy McKinsey has carried out a study showing every dollar's worth of business offshored from the US or UK creates $1.45-$1.47 of value. Of this, the UK or US derives $1.12-$1.14 while 33 cents worth goes to the recipient country. This is because outsourcing by the US or European firm lowers costs and raises profits, enabling it, in theory, to create more jobs in the home country. Consumers also benefit from lower prices.Note the weasel words "in theory." How many firms today use such extra profits to "create more jobs in the home country," I wonder? And how much of that profit goes instead into bigger salaries and more stock options for a few, plus greater returns for Wall Street?
I'm all in favor of helping less-developed parts of the world increase employment and prosperity, but isn't there likely to be a way (or several ways) to do this without destroying employment elsewhere? Trading off jobs in the developed world for lower-salary jobs in the Third World seems like a short-term profit fix to me. What happens when people in the Third World start asking for civilized wages and working conditions?
17 Comments:
It is clearly a short sight view.
More, it's hard to find the same quality abroad, at least because of different languages.
The rise of third world salaries has begun a couple of years ago, and well'see in the next two decades a continous decay of labour cost competitivity.
Good points, Sevenoaks. Thanks for making them.
Keep reading, my friend.
Recently I heard about a German study which claims that almost a third of all offshoring have eventually come back after 2-3 years.
Before the companies offshored they touted the plans with trumpets and all glory. But coming home they are silent, almost secretive about it...
After laying off a lot of employees because of the offshoring, they now start over again with lower motivation and loyalty than 2 years before.
Perhaps the following formula applies: reduced cost = reduced motivation = reduced loyalty?
I too have read reports that the outsourcing "bubble" is coming to an end. To be honest, I don't think it was ever anything but a short-term, quick fix for sagging corporate profits. As usual, those who got in on it first will reap the profit (and move on) while the rest will stagger into trying it later—just in time to find they have missed the boat and are faced with something that costs more than it saves.
Thanks for your comment, Anon. Keep reading.
It doesn't seem like there is anything instrinsically short term about offshoring. But the way corporations (and states) are going about it right now seems pretty short sighted.
If the stories of companies returning after failed outsourcing attempts are true and continue to happen, it will be solid evidence that the outsourcing was about short term profits, not long term benefit.
But I can't see how offshoring is inherently short sighted. How could it be done without benefiting the citizens of both countries? Some individual people and indsutries might suffer, but prohibiting offshoring would simply cause OTHER industries and people to suffer.
Pumping all your profits into better CEO pay does seem awfully short sited, though!
Offshoring, like most management and business techniques, is, I suspect, ethically neutral and neither long nor short-term in essence. How and why you use it is what matters.
I'm not much in favor of banning things (which is being dogmatic about them). What I do think should happen is that those in charge should be held to account for how and why they do what they do.
The cliche beloved of detective stories, cui bono? (who benefits?) is one we should often use in evaluating the actions of business leaders. If it seems that the benefits are genuine, and apply to both countries involved, outsourcing should be applauded. If, as sadly seems to be more usual, the benefits go almost entirely to top executives and institutional shareholders, I think it is time to cry "Foul!"
Certainly true. And crying foul is what you are doing!
Still, how would something benefit institutional shareholders without benefiting all shareholders? Giving value back to the shareholders is often an ethical and long term thing to do (though, certainly not always).
The institutional shareholders hold the vast majority of the shares. Yes, all shareholders benefit, but sometimes that is just an inconsequential by-product of helping the big City institutions.
Outsourcing and offshoring will continue as long as there tangible efficiencies, and clear environmental or cost advantages for the organizations involved.
It is unlikely that organizations currently using offshoring have the desire to do anything that may lower their profits. Business is business, and profits are the prize.
The huge cost advantages offered by offshoring 10 years ago have disappeared as everyone else has found the "secret".
Corporate players are now making decisions to continue operations overseas in order to serve the overseas markets vs. moving back home to better serve their traditional markets.
By using economic incentives (or penalties) and fiscal policy you might be able to redirect the profits generated by outsourcing.
Citizen awareness and criticism in the US during the 1960's and 1970's were responsible for changing institutional and corporate goals and forced the redistribution of profits (pollution controls and the environment, investment policies regarding South Africa, etc.).
It can happen again.
You are right, of course, Lee. My point is not that outsourcing is wrong, it is to question how and why it has been used (to provide long-term benefits to all concerned, or as a quick fix to boost short-term profits).
Let us hope that informed public opinion remains a potent force. It is often the ony way to keep abuses in check, since politicians seem to be easily seduced by attention (and cash) from big business.
Keep reading, my friend.
I'm very skeptical about any claims that say "for every dollar [some group] get, [more money] is returned to the rest of society". I live in a primarily agricultural area, so I hear a lot of like claims, usually mentioned in support of more government funding to farmers.
Taken at face value, if these claims are true, we could enjoy an immediate, guaranteed return on our investment simply by handing over cash to said groups. Well, why not hand over all we can? Then we could take the return and re-invest it into the areas that we took it away from in the first place. Or perhaps we could create a magic money machine by feeding the output back into the input.
Scarcasm aside, claims like these are meaningless without context. How much, where, when, and most importantly, how. They are just an attempt to boil down a complex situation to a simple number. (I know I've read about that somewhere, now where could that be ...)
Thanks for your comment, Allen. I wish more people were as ready to think and question what they are told as you are.
Certain promises have become "fail safe" justifications for politicians, business leaders, and anyone else trying to win support for something that isn't as good as they try to make it sound.
One is the promise of more jobs (which rarely materialise), another is a claim that statistics prove it is inevitable. The third is this one: it's is an "investment" guarnateed to produce a vague pay-back at some time in the future.
We should all be skeptics around such claims, i believe.
Keep reading, my friend.
I currently live in the Philippines but have lived overseas for most of my life, so I can see both sides of the story. Perhaps outsourcing is not necessarily about taking jobs away from first-world countries, but rather moving less desireable jobs to countries where people don't mind doing them as much because frankly, the majority of people in third-world countries don't have as much of a choice if they want to survive.
Also has anyone noticed that many (not all) of the "menial" jobs in the U.S. are taken on by immigrants and minority groups?
I'm currently living in the Philippines (where many jobs are outsourced) but I have lived overseas most of my life, so I can see both sides of the story.
Perhaps outsourcing is not necessarily about taking jobs away from people, but rather moving less desireable jobs to other countries where people are more willing to do them. Frankly, the majority of people in third-world countries don't have much of a choice if they want to survive.
Also, has anyone noticed that many of the "menial" jobs in the U.S. are taken on by immmigrants and minority groups?
You make a fair point, Usourcernz, but I think today's outsourcing often goes rather further than simply moving "uncongenial" jobs overseas.
What I am concerned with are cases where the moving of professional jobs happens purely because there are people elsewhere in the world who will (temporarily) do them for less money.
There are already reports in the press of skill shortages in India, coupled with rising salaries and a tendency for the best qualified and most highly skilled people to leave to work in the USA or Europe. In countries like India, the educational system cannot cope with the new demands, and so the period of superabundance of skilled people is very short. Soon, greedy corporations move on elsewhere in search of the lowest wage costs.
I do not see how such tactics benefit anyone in the longer term, though the short term profits are very easy to see.
Good point about the rising salaries in India, Carmine. Have you noticed that Vietnam is becoming more of a player? The restarting of relations between the US and Vietnam several years ago was no accident. The jobs that are in India will soon be getting shipped to 'Nam.
You are right, Mike. And after Vietnam, the jobs will go whever else is cheapest . . . until there is nowhere left. And then what?
Keep reading, my friend.
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