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Stop Knocking Outsourcing

Am I the only one who is getting sick to death of all the outsourcing-bashing going on in today's local and national political campaigns?

First of all, I wish someone would explain to the American public that “outsourcing” and “offshoring” are not the same thing. Maybe it is just semantics, but it bugs me!

Now to the meat of the issue. America is not just a democracy, but an industrialized society. We have gotten to the place we are today — whether or not it is actually a “good” place is up for debate — in large part due to the industrial and technological advances made by business pioneers like Henry Ford, J.P. Morgan, John D. Rockefeller, etc. These individuals built businesses and industries to provide products and services that promoted growth, convenience, luxury, and wealth. And they succeeded, perhaps even beyond their own expectations, because they traded value for value. A desired product or service in return for a fair, and profitable, compensation.

But somewhere along the line, things changed. Consumers began to demand more value for less, while workers and unions demanded greater compensation for the same or even fewer man hours of labor. After squeezing as much efficiency as possible out of their processes and suppliers and paring profits to a barely sustainable level, manufacturers were left with little choice but to seek alternative means of supporting their bottom line. This was not — and is not — a matter of greed, but simple economics. A business cannot survive if it is not profitable.

For decades now, American consumers have been more than happy to look the other way and ignore where products were made just as long as they got what they wanted — cheaply. I remember as a kid, there was just about no electronics product that wasn't “Made in Taiwan.” Today, it's “Made in China,” often for US-based businesses. Is it really so different? Why, now, is this being treated as some form of economic treason?

People lament the lost manufacturing jobs. Yes, the unemployment rate in the US is at tragic levels. But, that is not the fault of those who sent manufacturing offshore. What is their option? Maintain their manufacturing in the US and pay wages four to five times higher than in low-cost regions, pay exorbitant fuel and tax rates, and maintain huge legal teams to navigate the mire of regulations imposed by the government? Where do people expect that money to come from? There are only two options: off the bottom line or from the consumer's pocket in the form of higher prices.

If manufacturers carry the loss internally, they fail to live up to their fiduciary responsibilities to shareholders, fall behind in innovation because they do not have the resources to invest in R&D, and eventually go out of business. If they pass it along to the consumer, their sales plummet, profits decline, and they eventually go out of business. Which one of these scenarios serves the US economy or its workers? No wages, no tax revenue, and no product.

Instead of playing the role of victim and blaming those businesses that have “followed the money” offshore for the decline in US manufacturing dominance, perhaps it's time for the US worker and government to step up and admit the role they have played in forcing manufacturers to abandon their homeland.

Labor unions, once the defenders of the blue-collar worker, have grown so big, powerful, and demanding that they put a stranglehold on manufacturing management. The government's corporate tax structure, lopsided import/export policies, and inaction in the face of currency manipulation by our economic competitors have further disenfranchised the nation's largest manufacturing enterprises.

We reap what we sow; if you take away a business's ability to make money, you remove the incentive to innovate and produce. I can't say exactly what can be done to bring manufacturing back to the US, but I do believe that if you make it profitable, they will come.

38 comments on “Stop Knocking Outsourcing

  1. SP
    October 23, 2012

    Its practically impossible for developed countries like USA to stop outsourcing. The amount of business revenue associated if the manufacturing is outsourced to low wages countries like Asian regions is huge and no one in business can deny that. And also the labor laws in these countries are not very strict so its another plus point for businesses. So the heading of the article is quite apt that stop knocing outsourcing. I guess its just a polictical scenario.

  2. Barbara Jorgensen
    October 23, 2012

    Diane–I hope everyone who reads this forwards it to a US voter. The difference between outsourcing and offshoring is not well understood outside our industry. You can actually outsource and never leave the US. Offshoring has been the main job-killer, with outsourcing a contributing factor.  There is also a difference between creating jobs and creatng wealth. A VC investment that takes hold does create jobs (Staples, as an example) and waelth. A failed venture costs jobs but creates wealth for those that strip the company bare. 

  3. kilamna
    October 23, 2012

    Outsourcing public roles to private entities is a problem. Outsourcing to chase lower costs is also potentially a problem.

    The fundamental problem in the US (and perhaps less so in many other OECD countries) is the quarterly perspective on performance.

    When you outsource you lose flexibility since commitments are based on contracts with specific terms of service etc.  What would work is that 'management' and 'workers' recognize that they are in-it together. That management doesnt look for ways to transfer most of the rewards of performance to themselves and deny to the workers. That management compensation is several thousand times that of the floor workers. That money shufflers (private equity) get the preponderance of reward.  

    But then, who am I kidding. People in power (and wealth) will continue to try to garner ever more. That greed cannot be legislated away, or 'niceness' be required for citizenship. That cultures do not change except after a major national or even global trauma. 

    Coming back to ground level: when outsourcing one needs to be sure that the lower costs are not just teaser rates, and that one factors in the 'cost' of loss of flexibility and control. 

     

  4. W4SDR
    October 23, 2012

    I am very impressed with your article, Diane.
    To help the naysayers understand your points, I'll direct them to a place they'll find to be very uncomfortable:

    http://capitalismmagazine.com/2002/08/franciscos-money-speech/

    “To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss-the recognition that they are not beasts of burden, born to carry the weight of your misery-that you must offer them values, not wounds-that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade-with reason, not force, as their final arbiter-it is the best product that wins, the best performance, the man of best judgment and highest ability-and the degree of a man's productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?”

    Yet we hope that they realize the happy existence they have while typing away on a smartphone was brought forth by people who did not follow the juvenile theories of “greed” they profess.

    Until and of the populace understands that human dignity is not a product of gov't force, restriction of trade, or taxing the rich, they will continue to periodically enslave themselves.

     

  5. Diane Trommer
    October 23, 2012

    thanks for your comments. Just curious though, it seems like you equate the motivation to build on one's wealth with greed. Why is it that if a CEO seeks to grow his wealth he is greedy, but it is OK for a shop worker to aspire to higher wages? Why do you vilify the executive for his success? It seems to me that without his ambition the shop worker may not have a job in the first place.

  6. Diane Trommer
    October 23, 2012

    Thanks for your input. I just re-read Atlas Shrugged for the umpteenth time. LOVE that book. Rand was an absolute genius.

  7. kilamna
    October 23, 2012

    Motivation to building wealth in an equitable way is fine and good. But building while pushing down on those below you is greed; just like consensual relationships are fine, but relationships with subordinates are not. I am not bothered by the CEO making more as long as when things go south they take the fall as hard as the workers do. They play by the rules of the game, so they are not doing anything illegal, but perhaps lacking in 'ethics', and marginally 'immoral'.

    The management set their own rules, the shop worker has to live by the rules set by the management. I know firsthand of a few cases where management established the incentive plan, made the decisions to maximize their own rewards, and 2 years later the comapny was so far behind the technology curve that it essentially was bankrupt. Now you tell me if any floor worker could have done that.

    The management compensation multiple is the clearest indicator of greed. 

    I have been around a while and know, from inside, that when things are going well the 'management' takes full credit, but when things go poorly there are any number of excuses, but never their own fault.  Just like the claim that 'I built it all on my own', when in fact a lot of the credit for entrepreneur success rests on the infrastructure that they start with and depend on. Would they really have 'succeeded' if the great schools were not supported by the 'taxpayers'.

  8. kilamna
    October 23, 2012

    As long as the rules are neither influenced nor set by those playing the game, I have no problem with the thinking. Our problem is that the system is 'rigged'.

  9. kilamna
    October 23, 2012

    To be intellectually honest, as all 'debaters' [not politicians,-)] must, please also review some counter arguments to the genius of Rand.  

    One start: noblesoul.com/orc/critics/index.html

  10. Ariella
    October 23, 2012

    @Azmatmalik “Coming back to ground level: when outsourcing one needs to be sure that the lower costs are not just teaser rates, and that one factors in the 'cost' of loss of flexibility and control.” Excellent point!

  11. Ariella
    October 23, 2012

    Ayn Rand believed that selfishness was a postivie force. I don't think she saw it as synonymous with greed, though. 

  12. kilamna
    October 23, 2012

    Of course she wouldn't think of selfishness as greed. in fact I think selfishness is fine, the limiting consideration is 'decency'. And that is often thought a weakness. I am selfish when I do 'good', as I enjoy the feeling that comes from helping others. But THAT is not 'greed'. 

  13. _hm
    October 23, 2012

    I concur with Author. But another aspect of this is very poor quality. I prefer to get good quality product and pay more for Made in USA products.

     

  14. SP
    October 23, 2012

    @Barbara, completely agree with your comments. There is a vast difference between offshoring and outsourcing. Many times political parties just make use of people's ignorance or limitations.

  15. Susan Fourtané
    October 24, 2012

    Ariella, 

    But Ayn Rand's argument on Selfishness is quite controversial. She believed that Selfishness is synonym with self-esteem. I tend to think that keeping a balance in everything is always the right answer. I have my doubts that Selfishness can be considered a Virtue, as she put it. 

    -Susan 

  16. claus
    October 24, 2012

    It looks like that you forgot to follow the money. First chech the wealth distribution before arguing that profits are at a “barely sustainable level”. Apple has more than $117 billion in cache. You could easily pay a US worker instead of supporting the biggest legal slave factory. For the moment the problem is just greed.

  17. Ariella
    October 24, 2012

    @Susan I wouldn't consider it self-esteem so much as a devotion to self-actualization and all it entails. Her protagonists are more concerned with realizing their visions in design, industry, and business than in amassing a fortune. They don't make money by brokering and investing but by creating and producing. Their satisfaction came from seeing what they did put to use — and the money was really secondary, though she stressed that profit is essential for selfishness — and thereby the economy –to flourish and was vehemently opposed to communism.  Of course, one doesn't have to agree with all her values, but Aristotle supposedly said, “It is the mark of an educated mind to be able to entertain a thought without accepting it.”

  18. chipmonk
    October 24, 2012

    It is pathetic to see you semi-literate people oscillate between the two extremes of Marx and Rand – both foreign Agitators and nothing in between ! 

    If you want to understand their firebrand extremism / AgitProp, you need to first read up on their lives and motivations. Ayn Rand was a Russian Jew emigre and practiced a pretty licentious lifestyle after moving to NYC including snaring acolytes like Alan Greenspan. All our 401 (k)s have suffered from Greenspan's laissez faire tolerance of “irrational exuberance” by Wall St. shysters. Ayn Rand is at least partly responsible FOR IT.

    It is a sign of America's corn-fed provincialism and the naivete of our first-generation college grads from State U.s / Community Colleges that they fall for Jewish AgitProp in Academia while missing the core of American values that made us great through the 1960s.

    That is using hard work and application of science to convert our ( ill – begotten ) natural abundance into the mass production of rugged products and then distribute them at very low markup. These are very German virtues ( who made the Mid-West the industrial power house it used to be ), which is why Germany ( and not the Brits ), keep doing so well in Manufactiuring against any comers.

    Since WW II, using real or contrived claims of persecution a trading / speculative community have taken over and gradually taken control of distribution as well as Academia / Media. Having surreptitiously carried out these coups they have turned off the productive capacity of America in order to conslidate their hold on the economy and next create artificial shortage and drive up prices.

    Outsourcing is just a part of that scheme.

    It is not an accident that it is Heinrich Kissinger who has been the most active Agent of Communist China and have advocated for outsourcing to China at least since the 1980s. His minions have spread through Wall St. and influenced Corporate boardrooms by luring them with the bonanza from China.

    To their early converts, that bonanza never came and once great Electronics Co.s like Motorola lost their shirt in China ( technology pirated, wafer fabs hijacked ) and were destroyed.

    We need to understand that Outsourcing to China is fundamentally different from same to Japan, Taiwan etc. because China is huge and nuclear armed. It has pretensions of restoring its past importance by pirating US technology and Wall St. is co-operating with them. They are investing in China in preference to the US because of China's lower labor cost, transferring US technology to make the Chinese more capable even though it damages US competitiveness.

    To the average US consumer outsourcing saves at most 10 % over US manufacture because the Distributors in US & Wall St  keep most of the 30 to 40 % cost reduction due to cheaper Chinese labor. Then they invest a part of that loot to buy politicians to prevent any halt to our suicidal Outsourcing to China and spread lies through the media including “Free lance Writers”.

    For the last 15 years China has run a trade surplus of $ 350 billion per year over us. But the real loss when you factor in the damage done to US economy as a result of outsourcing to China ( loss of Taxes, unemployment benefit, having to pay 2 or 3x more for commodities like oil, grain and beef due to higher consumption by the Chinese who we have made rich by outsourcing !, higher Defense budget to block Chinese delusions of grandeur,.. ).

    “Free Market” is a slogan that does not work if it becomes one – sided and makes the whole system unstable.

    Even England, the birthplace of Adam Smith, became anti Free-market when its pitfalls became obvious. A suggestion for those who are “historically challenged” –  read up on what the Brits did in the 18 th century when their trade deficit with China shot up because they were importing far too much Tea.

     

  19. FLYINGSCOT
    October 25, 2012

    We as consumers have chased the cheapest products for ages now and as such companies are forced to produce offshore.  Maybe there is a happy place where consumers think locally more and are willing to pay a little extra to mainatain a better local commnuity.  Now when that protectionism becomes problematic is anyone's guess.   Are there any role model countries out there?

  20. Susan Fourtané
    October 25, 2012

    Ariella, 

    Selfishness as a manifestation of self-esteem was the recurrent topic in her talks and interviews. Of course her thinking had a great deal of influence in her characters and stories. However, this is a topic I am personally trying to figure out within ethical philosophy, and what it is to consider as a value. I might just do as Aristotle said. 🙂

    -Susan 

  21. Eldredge
    October 25, 2012

    @ hm –  I agree, and have stated so in the past. It is often difficult to find products made in US however.

  22. Diane Trommer
    October 25, 2012

    This is very true. Despite my understanding of the reasoning for offshoring, I still make a concerted effort to support “Made in America” products. I am currently in the market for a new car and ironically enough the cars with the highest domestic content are the Toyota Camry and Honda Accord (according to Cars.com). Go figure!

  23. Diane Trommer
    October 25, 2012

    Just curious..have you actually ever read Atlas Shrugged or the Fountainhead? And by the way, one of the benefits of being a “freelance writer” is that I am not beholden to a specific corporate philosophy or agenda. My views – like them or not – are my own!

  24. Eldredge
    October 25, 2012

    @Diane – I knew that the Camry and Accord had significant content, but didn't know they were the highest. While information for auto content is pretty readily available, it can be difficult for other products to determine actual US content.

  25. _hm
    October 25, 2012

    Yes, I did purchased Toyota Camry – Made in USA. Even clothes and food, I look for Made in USA.

     

  26. bolaji ojo
    October 26, 2012

    The subject of outsourcing/insourcing has numerous shades to it and capturing all of them in one single article is impossible. What one region loses in the outsourcing race is gain for another. If not for national boundaries, we wouldn't care who gets to manufacture what as long as the system is fair and optimal.

    Is it?

  27. bolaji ojo
    October 26, 2012

    I have had the pleasure of visiting such a country. In Switzerland, economies are local and purchases too for many of the citizens who live in small and often isolated parts of the country. A family I know would rather eat strawberries once a year there than purchase imported strawberries. They support their local farmers, butchers, bakeries and plumbers. Prices are high for these products and services but many gladly pay the extra cost because the current and next generation of workers depend on the patronage.

    It doesn't always work out, though. Often, pricing for foreign (read China) products are so far below local prices that it just doesn't make sense to buy “local.” The younger generation, too, don't have the same allegiance and devotion to local manufacturers seen in thei parents and grandparents. It's not a viable model.

  28. Ashu001
    October 26, 2012

    Bolaji,

    I understand and really appreciate that aspect of Being American and Buying American products[Or extending it to French or any other nationality…].

    But then that comes down to a personal choice;One can't force that on anyone else.

    If a consumer chooses to do something like this (of his/her own volition)that's well and Good but if Government's try to force this on Consumers it will backfire and in spectacular fashion-Check what happened with the French Industry Minister when he suggested the same Nonsense…

    http://www.testosteronepit.com/home/2012/10/24/shooting-from-the-hip-and-hitting-consumers-protectionism-in.html

    The thing is we live in very interesting times;I can see what a Friend Halfway around the world is using and enjoying today in Real-time and If Like it;I want it too(no matter where the product is made).

    Regards

    Ashish.

     

  29. Ashu001
    October 26, 2012

    Bolaji,

    I am assuming you are referring to the Mercantilist nature of some economies like Germany or China today.

    Well then,let me explain how things work in a Downturn.

    Its those Mercantilist economies which get hit the hardest,simply because they have shown ZERO effort to develop their Domestic Economies.

    Its not a sustainable formula that will work for everybody in the Long-run.

    Regards

    Ashish.

  30. bolaji ojo
    October 26, 2012

    Ashish, I attended a conference recently on manufacturing and how Germany can keep its role in the world manufacturing chain. During the conference I asked a presenter why governments shouldn't get involved in influencing where manufacturing is done in the world and he got concerned that I was advocating for “controlled economy.”

    That was the last thing on my mind but we often naively believe we can leave everything to the “free” economic system. It isn't always that free as we all know. My concern has always been that there's a social price for every government action or inaction. If we don't “encourage” local manufacturing and local industrial growth, we hollow out our society and leave people to the mercies of entrepreneurs.

  31. bolaji ojo
    October 26, 2012

    I don't agree outsourcing is being unfairly knocked. I think companies move plants based on what they believe is best for investors. That's absolutely their right. Governments also have a duty to do what's best for their citizens, otherwise why have a government.

  32. Ashu001
    October 26, 2012

    Bolaji,

    Honestly I don't know know whether to Agree or Disagree with your Statement here[Part of me was to do both!!!].

    I prefer looking at it from the Perspective of the Consumer.

    Let the Consumer decide whats best for them and take the appropriate course of action.

    I am not sure if you are familiar with the NIMBY phenomenon-Not in My Backyard.

    This phenomenon is used to justify opposition to New Nuclear Power Plants,Refineries,Major Manufacturing Plants,etc in The US(and Increasingly Globally also).

    What are you Gonna do,if the Consumer/Residents of a Country refuse to permit such and such plant to go up there?

    You are left with no choice but to take it overseas!!!

    Regards

    Ashish.

     

  33. Ashu001
    October 26, 2012

    Bolaji,

    You actually believe Governments have the best Interests of Citizens at hand(In this debate of For or Against Outsourcing)???

    In my opinion,Most Governments(Globally) have already sold out to the Highest bidder .

    We are living in Crony Capitalist Infested Times.

    Regards

    Ashish.

     

  34. bolaji ojo
    October 26, 2012

    You suggest consumers fight with their wallets? That road ends right back in outsourceland!

  35. Ashu001
    October 27, 2012

    Bolaji,

    Not always.

    And even if it does;so what?

    Is'nt that what Capitalism and Free-markets are all about?

    Achieving the Best Service at the lowest Costs.

    Regards

    Ashish.

  36. chipmonk
    October 28, 2012

    Ashish :

    What is your definition of Mercantilist ? Contrary to your claims neither Germany nor China are Mercantilist as they make sure that a very large portion of their GDP is based on Manufacturing and not pure trade ( exchange of goods ).. 

  37. chipmonk
    October 28, 2012

    Bolaji :

    Glad to hear that you found out about good old CH and their attitudes. I spent a few years there living and working at a famous Lab there. The Swiss are very conscious of their smallness, and ALL citizens ( men ) have to do compulsory military service.

    Since the fall of the USSR, we in the US has been fat, dumb and happy while Wall St. has gone on a Global rampage ( the so called Globalization ).

    People here have not yet realized that China is simply too big even for the US and hungry. Unlike the Swiss, here in the US we are not yet insecure about China even though they have been eating our Lunch ( manufacturing, technology, investments, you name it ).

    Partly its because the Wall St. financed Media keeps people confused about the threat. Its also because companies like Apple are doing too much of a good thing – by bringing out every 6 months Pacifiers and Mind altering drugs ( for thats what Smartphones and the Net have become ) Made in China.

    Most people are distracted by Toys and Gizmos till it would be too late.

  38. Anna Young
    October 29, 2012

    Ashish, “Best service at the lowest cost”? That's what the global economy has been reduced to. Yet we ignore the question of the social implications of our pursuit of the most profit for whoever can get it at the expense of everybody else. Where will it end and how long before our society begins to count the cost?

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