The American Dilemma and How We Can Fix It

ON OUTSOURCING

When we hear the word outsourcing (and the rhetoric over that is sure to increase as the Presidential campaign heats up), most of us tend to think that it means taking American jobs and shipping them overseas.  That is one, but not the only aspect of this business practice.  This post will attempt to explain both the process and the reasons that companies outsource certain internal procedures.

If you were the Managing Partner of a successful CPA firm and had guided your partnership’s growth over the years, one of the aspects of your business which you would have to manage was records destruction.  Destroying records containing sensitive client information, Name, Address, SSN, DOB, income might easily have been accomplished as a firm with a small practice with a simple paper shredder.  But because of the volume of client documents what was once a simple task that took one of your employees a few hours now has grown to a monumental job.

Solution:  Outsource this to a firm that is bonded, specializes in the destruction of sensitive records and has the most sophisticated equipment to make sure that they accomplish their job in a secure manner.  You have just outsourced this aspect of your business – although in this case you have done so with an American company.  No loss of American jobs here – merely a transfer of who is paying the individuals performing the task.

The reason companies do this is that it makes for a more efficient operation.  Someone using the most advanced equipment and whose sole job is to destroy records, as in the case above, is going to provide a better product and do so in less time.  I doubt the critics of outsourcing as a practice have a problem with the example I have given.

Nor are they likely to have a problem with another aspect of outsourcing – engaging temporary personnel to work on a specific project – rather than hire a full-time employee.

I think most of us would agree that it is more efficient to hire a person from a temporary agency for a project which is expected to last only a few weeks or a few months, rather than hire a person to work full time until the project is completed and then lay that person off.  Again, we have another example of how outsourcing can be an effective, if not the only, logical strategy in certain business situations.

The rhetoric surrounding outsourcing does not concern itself with either of the two examples I have cited.  It specifically refers to taking jobs which formerly were done by Americans and shipping those to other countries.  There is no doubt that much of that has occurred.  The question is, if this is a “bad” thing, who is at the root cause of it and who should shoulder the blame?

There is one party to whom I would point:  The American consumer.

The American consumer’s spending comprises two-thirds of our Gross Domestic Product.  You and I collectively are the single largest driving force behind our economy – or it’s greatest nemesis.  We want more, we buy more, we spend more – or we still want but we cannot afford to buy and as a result we spend less.  When we spend less, the economy suffers.  And our economy is suffering.

It would be untruthful not to admit that many products which were once made in the United States are now manufactured abroad.  The American dominance in the automobile and steel industry have long since waned from their days of glory.  And the reason – the American consumer.

Absorbed with our desire to buy we naturally want what we want at the lowest price.  And the lowest price is a direct function of the lowest material and labor cost.  A car which can be assembled in Germany or Japan for one half the cost in terms of labor will be sold in the showroom at a lower price than a comparable American product.  Look in your garage and check out the make of the vehicle that you are driving.  Does it have “Made in America” stamped on it?

The largest tech company, Apple, Inc. does not have a single product in its line which is manufactured in the United States.  The glass on your iPhone and the engine on the iPhone and iPad are made in the U. S.  – and are then shipped to China and other Asian countries where these units are assembled – together with all the rest of the parts that are manufactured in those countries.

Why does Apple pursue this manufacturing strategy?  CEO, Tim Cook responded to that question by saying, “Cost and facilities.”

If an iPad sells quickly at $499 the question is would one that was manufactured in the U.S.A. sell as well at $999?  Would the lines at the Apple store be as long and would the company move as much product if they decided to bring the manufacturing process home?  Probably not.  And so each of us who purchases their products provides positive reinforcement for Apple’s strategy of outsourcing.

I do not mean to sound as though I am picking on Apple.  Countless other examples could be cited ranging from appliances to food products.  I now find it nearly impossible to buy dog treats that don’t have “Made in China” stamped somewhere surreptitiously on the packaging.  And if I purchase those products, I am contributing to the wave of outsourcing in which we find ourselves.  And if you buy them, so are you.

There are many who will argue that outsourcing is anti-American, a disgrace and a shameful practice.  Perhaps their assessment is correct.  But at the heart of the practice is our insatiable desire to acquire more and more, the latest and greatest – and to pay the lowest price for it.

That’s something of which we should all be mindful the next time we pull out our credit card to make a purchase for a product that doesn’t say, “Made in America.”  That is, if you can find one.

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Comments on: "ON OUTSOURCING" (9)

  1. Good explanation of the several faces of outsourcing. The word itself does seem to conjure up negative images. And, I suppose, for those whose jobs HAVE been outsourced, even to American companies, the experience of being outsourced can be traumatic.

    A couple of additional thoughts:

    “The American dominance in the automobile and steel industry have long since waned from their days of glory. And the reason – the American consumer.”

    But let’s not forget the arrogance of the American automakers, and the unsurpassed quality that imports brought to our shores. If an American industry cannot produce high quality products at a reasonable price, it deserves to feel the pain.

    “There are many who will argue that outsourcing is anti-American, a disgrace and a shameful practice. Perhaps their assessment is correct. But at the heart of the practice is our insatiable desire to acquire more and more, the latest and greatest – and to pay the lowest price for it.”

    But what is truly anti-American is what American companies and unions have done to our competitiveness in the world – dreaming, I suppose, that the effect of our high labor costs and short-term strategic thinking would never seriously be challenged from developing countries. Talk about poor planning . . . .

    ON THE OTHER HAND, it is both comforting and amazing that the U.S. is still the world’s leader in manufacturing output. With all the negative talk about outsourcing, it should still be a source of some pride.

    ALSO, there is a small, but growing, trend among small-ish and larger companies to increase their manufacturing presence in the U.S. As labor costs rise in the developing nations, more and more companies are re-doing the math, and starting to factor in the time and costs associated with twelve-hour differences in time zones, etc. It will be interesting to see how this plays out.

    • Your points are well-taken and I did think to include the questions of quality – but I thought it would serve to confuse rather than illucidate. I also thought to include a second co-conspirator in this process – that being the Federal Government which has so many regulations that cost companies more money and makes the decision to produce products overseas easier for them. In fact I only deleted the government because I think I will spend an entire post (another one) on it.

      There is another element to this discussion which I also omitted. That is the question of morality.

      In the United States we spend Trillions on “Social Programs.” Our workers have certain “safety nets” such as 99 weeks of unemployment compensation. Laborers in other countries have few if any of these as I pointed out in a recent post. Could shipping a job overseas to benefit a worker with lower wages, poorer working conditions and no access to what might be life-saving government programs, be less or more moral than keeping that job at home?

      I know that we all like simple answers to complex matters. But there are many questions involved in this whole issue – not only at an economic but on a moral level as well.

  2. There is always a downside to an integrated world economic system which is what we really have. A bad decision by one country or major bank has international effect. The problem is found in the concept of trade. If you want to sell your goods to other countries you have to be prepared to buy their products in return. Taking it to the social level we all want to buy the best product at the cheapest price and thereby hangs the problem. After wanting the cheapest product society then complains because it comes from abroad and they feel jobs are lost. Some countries have learned to deal with the situation by concentrating on innovation and high level scientific products which have a world wide market regardless of their high costs. Those who do not learn to adapt are passed by. The real danger of world trade is that each nation begins to rely on developing countries for their manufactured products. That could be a ticket to being assimilated by those who have the manufacturing capacity should present allies become enemies.

    • As I see it these are the stages of development of a global economy:

      1) Countries which are technologically advanced look for places to manufacture their products where there is a cheap workforce.

      2) It dawns on the political leaders in these countries that this is a way that they can take a very large economic leap forward. (By and large they keep this information and a great deal of the profits to themselves without sharing with the people actually making the goods).

      3) It dawns on the people making the goods that they are the responsible parties for this prosperity and decide that rather than being merely workers, they want to be beneficiaries of their labor.

      4) As the workers in these countries gain greater financial reward for their effort, the differential between them and their co-workers in more developed countries begins to level out – ultimately to the point that there is no benefit in not producing goods in the home country.

      5) We resurrect our space program and find a planet of aliens whose passion is working for nothing, bring them to earth and our global economy rises to new heights of prosperity.

  3. All good points here, from everybody. To copy Congress I’m only going to revise and extend a bit.

    An interesting point in the automobile business is that yes the big 3 nearly committed suicide by arrogance but they had help. Some of the best cars in the world, the BMW Z car is an example, are made in America: designed in California and built in Georgia (?) someplace in the south, anyway, without the UAW, which is at least as responsible an GM, Chrysler et al.

    My experience is that the American consumer will no longer pay for quality, not even in major purchases like houses, unless it is cosmetic like granite countertops, upgraded systems which may have twice the life, run more efficiently, are more flexible, or whatnot are very difficult to sell to the consumer. The model seems to be: “Buy cheap. throw it away, and buy another” so that we waste a lot of resources. This militates against American made products which tend to be higher quality, and really hurts service professionals. Tried to get a TV fixed lately? We buy throwaway crap, and complain that it is made in China.

    And, yes some manufacturers are starting to return, the cost of production+ shipping+ lousy quality control is starting to make the US competive again.

    This is a hugely complex problem which is highly suseptible to the law of unintended consequenses, in general free (or optimally fair) trade works better than anything else.

    Juwannadoright, I like your five point plan but am afraid number 5 is going to have pretty high start up costs.

    In truth, I think this is an area where government(s) need to stay out of the way. They’re far too slow and clumsy for this dance. So are a lot of companies. And that leads to corruption.

  4. I figured that we could pay for Point 5 through the abolition of Obamacare – and have funds left over.

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