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.