Can someone explain to me why outsourcing is a good idea?

Discussion in 'Politics, Religion, Social Issues' started by emw, Nov 11, 2005.

  1. emw macrumors G4

    emw

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    #1
    Alright, this may sound like a naive question, but as someone who has suddenly be thrust into the role of determining how to outsource things, I find myself questioning why this is such a good idea. I'm speaking specifically of "sending" American work offshore to places like China or Mexico or India or wherever.

    Sure, the executives and stockholders like it because profits go up, bonuses go up for them, etc., but doesn't it in the end pretty much guarantee that things will get worse for the average American? Pricing and profitability pressures are driving corporate America to do this, but by doing it they effectively reduce the ability of the average consumer to subsequently buy their product, meaning they have to further reduce prices. So they need to offshore more work, meaning even fewer people have jobs and can't afford to buy their products, and so on.

    I guess at some point, you've got a lot of people managing the transition of work, and hey, hopefully India will one day start outsourcing to the US because we will then be the low-wage choice du jour. But really, how does this possibly help us?

    I've heard the rhetoric that outsourcing actually helps to create jobs by creating higher-skilled positions here, but I don't see it and to be honest I don't believe it.

    I suppose it's possibly inevitable since our educational system doesn't appear to be creating the type of highly skilled personnel we need to have in bulk. Hell, a few weeks ago I bought some sandwiches at a shop down by my parents house. They were $6 each. I had a buy 2 get 2 free coupon. She billed me for $28 and when I said that seem pretty high, she said she did it right and that it was just "tax and stuff" that made it so expensive.

    So anyway, any insight would be appreciated.
     
  2. wordmunger macrumors 603

    wordmunger

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    #2
    Everyone loves outsourcing until their own job is outsourced. We love our Made-in-China Macs, our Made-in-Sri-Lanka clothes, our Made-in-Mexico cars. We love stuff! The cheaper the better.

    What's different about today's outsourcing is that white collar jobs are being outsourced. America needs to learn what it can produce better and more efficiently than anyone else. Right now, I can think of a few things: education, biotech, computer systems and software design, entertainment. We probably need to come up with a LOT more, or soon America's going to look more and more like a third-world country.
     
  3. emw thread starter macrumors G4

    emw

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    #3
    My fear exactly. The people who make the decisions aren't worried about their future since they've wrapped up "parachutes" worth millions. The rest of us don't have that luxury.
     
  4. wordmunger macrumors 603

    wordmunger

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    #4
    Man, just take a look at the ads for this forum page! It's all outsourcing! Get your golden parachutes ready America, this is going to be a bumpy ride!
     
  5. miloblithe macrumors 68020

    miloblithe

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    #5
    The benefit of outsourcing is that the US gets the product but doesn't have to do the labor. In the broader sense, it's just trade. If people in another country can do the work better, or cheaper, in the long-run it benefits us because we get to enjoy that product while moving on to do other things that we can still do better than anyone else. We end up more productive because our labor is focused on things that we're still best at, while we outsource jobs that are less desirable.

    I think people are freaking out because they are surprised by "high-tech" jobs going overseas, but I think this is misleading. The jobs that went overseas before were once considered high-tech but are now not really considered to be so, like textile manufacture.

    Of course, this is all fine and good overall over the course of decades or centuries. In the short-run, this is great for capitalists and terrible for labor, who simply lose their jobs and have nothing to replace them with. While on a society level those jobs will be replaced by better ones (or at least other ones), the individual people who lost those jobs will undoubtedly be worse off.
     
  6. CanadaRAM macrumors G5

    CanadaRAM

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    #6
    Companies have no mandate to look after the well-being of their community, whether socially, economically or environmentally. Companies respond to
    1) legal requirements (mostly, that is. And the response might be to move elsewhere where they are allowed to {pollute, pay less than $1 an hour, pay no tax}) and
    2) they respond to perceived threats to profitability (often late, and often the understanding of the threat is incomplete {Detroit and small cars, fisheries companies and declining stocks, polluting industries and community backlash}).
     
  7. miloblithe macrumors 68020

    miloblithe

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    #7
    I think this is a somewhat outdated view of corporations. Most are recognizing that they do have certain kinds of social responsibility, and that shareholders are not their only stakeholders.
     
  8. wordmunger macrumors 603

    wordmunger

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    #8
    Only to the extent that it affects their bottom line. Companies tend to develop an interest in "community" only when they've nearly sapped the community of its life-force, and they see that if they don't "give something back," they'll be slapped with higher taxes or more regulation. Wal-Mart is a perfect example of this. No interest in the greater community until the greater community threatened to take its business elsewhere.
     
  9. plinden macrumors 68040

    plinden

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    #9
    Up to a couple of years ago, the QA for our software was done here, onsite. We had close to one QA person per two software engineers. If there was a problem, I could walk out my office and down the hall and see what the QA tester was seeing. We had a good release cycle going, a dot release every three months, and our customer satisfaction rating were rising.

    Then the company "restructured" fired all but a couple of the QA managers and outsourced QA to India. So what happened to the turnover time for critical bugs? Whereas we could fix one in less than a day since we would know about it immediately, the process was now more like:
    • QA finds and files a critical bug early in their day and can't continue testing because of it
    • We start work 14 hours later and see the bug filed.
    • We can't reproduce it and ask for more data
    • 10 hours later they respond
    • 14 hours later we tell them they've misconfigured the server
    • 10 hours later they fix the configuration, retire the bug report and continue testing.
    • 2 hours later they file another critical bug and stop testing.

    Now, the Indian QA engineers were good (eventually with some training) but there were much fewer of them (1 per 10 engineers) and it took six months for them to be proficient enough to find anything but the most obvious bugs. Also, with the rising Indian IT economy, after a few months on the job, they were able to find higher paying jobs elsewhere, so the company had constantly retrain staff. Our software releases had to be rescheduled to once every six months to allow for adequate QA.

    So we fired the QA company and moved our QA to the Ukraine. Unfortunately, the lack of English-speaking engineers, as well as the low quality of workers, meant this didn't work out as well as senior management expected, so they quickly fired that company and outsourced to Vietnam.

    That's where our QA is done now. It's better than the Ukrainian company, and cheaper than India, but I've personally found more bugs than the whole QA team put together. But now, for some reason not explained to us, senior management has decided not to renew the contract, and not budgeted for us to look for QA elsewhere so after the new year, our software will not be QA'ed at all.

    This of course helped our bottom line and held the share price up a bit, in the short term, but our customer satisfaction ratings are dropping and we are losing market share.

    Of course, it could be argued that this is more to do with incompetent management, but I wouldn't be surprised to find this happening wherever outsourcing is tried.
     
  10. wordmunger macrumors 603

    wordmunger

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    #10
    I've read an argument that outsourcing is not effective most of the time, and the main reason it's used is as bargaining leverage with domestic employees. But if companies didn't actually outsource some of the time, then they'd have no real leverage.

    Sounds kind of kooky to me, but I'd definitely say that there are many cases in which outsourcing is not a good idea for the company.
     
  11. Sun Baked macrumors G5

    Sun Baked

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    #11
    That story sounds normal, like they are following in the footsteps of chainsaw Al Dunlop -- cut costs and boost stock price, at any price. :(

    There are some critical functions you need to keep in the same office, if you cannot see them and control them every day, they hurt your business and make it harder to compete.
     
  12. jefhatfield Retired

    jefhatfield

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    #12
    we all know the economic forces are much more complex than this thread is addressing, but to keep things in the spirit of quick and easy communication, he he, here i go (and i ain't no economist...that was the subject i least understood in school, but what i did understand made me realize why it was a
    "soft" science ;) )

    let's say we are headed down in a big way and china, india, mexico, south korea and others are on the rise

    and let's say the trend towards outsourcing is increasingly white collar

    then maybe we should put our funding into schools for our K-12 especially, and focus more on math and science, and make that a long term investment but not expect to see any quarterly returns right away...i think our colleges are still ok but it needs to be fed with science and math major freshmen

    basically, re-educate our youth to be math and science leaders again

    right now, for a cure/better treatment to cancer, i look to countries that allow stem cell research like south korea...for good programmers, i look to india where the youth are more into analytical pasttimes like chess as opposed to shopping, paris hilton, and britney spears...for scientists, i look to countries that put more of their investment into science education for their youth

    when an american kid studies computer science, making the latest computer video game or being some artistic multimedia genius are goals i seem to see students in colleges talking about...what happened to being good at making custom spreadsheet apps for corporate business?, because that's what the american employer will want from a computer scientist out of college...where is the training in our computer science programs to make them good programmers? before multimedia, games, and graphics, programming was the bulk of a computer scientist's education...it's that way in the third world and that's why companies like microsoft, oracle, and ibm have so many east asian and indian programmers supposedly taking our white collar jobs away

    go back to the three R's and focus on the arithmetic before it's too late
     
  13. XNine macrumors 68040

    XNine

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    #13
    Outsourcing (or hiring illegal immigrants, cheaper workers, etc.) is a vicious cycle that ends in America losing. I'm not some right or leftwing patriot here, just a simple observer, and affected party of the "cheap labor-force" addiction of today's US corporations.

    Example: Carpenter has worked for 20 years, get 60 k a year for his work. Doesn't cut corners, does very good work, provides food for his family.

    Boss thinks: "hey let's hire some illegals and fire this guy. I can pay 5 people the same amount, and produce more products in less time."

    So, carpenter gets fired, goes to look for a new job. But to no avail, since every other builder out there is hiring illegal immigrants, or sending the work somewhere else.

    Builder does produces much more in less time, but then the cabinets are crooked, start falling apart, crown molding isn't worked right, and now has to spend money on fixing these items. Eventually, builder goes out of business because no one wants to buy his homes from this shotty work.

    old carpenter cannot afford to buy new products because he has no job.

    So, now the big corporations are saying "damn, we're not making a profit anymore, let's fire this sector and send the work over to india or china or singapore." So, then all fo their former employees from that sector cannout afford these products. Thus, they don't buy.

    So Big Corporation meets again and says "This still isn't enough, let's fire thsi other sector." They do, and the same thing happens. No one is purchasing anything anymore and the stock market goes to hell because, well, there's little to no movement on products on anymore."

    Answer, out-sourcing, or going to the cheapest bidder is probably, most likely, the downfall for the US economy.

    Take Avaya for example. Shipped its phone manufacturing to Mexico. Cheaper work. It's customer service complaints of broken phones SKYROCKETED.

    **** outsourcing. **** those who do it too. When our economy crashes because some bigwigs couldn't live without their 6 million a year, I'm going to point and laugh, and move to Japan where Yakuza will protect my gaijin ass.
     
  14. ChrisBrightwell macrumors 68020

    ChrisBrightwell

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    #14
    It basically boils down to a short-sighted focus on the bottom line while disregarding the complications introduced for lower and middle management.
     
  15. maya macrumors 68040

    maya

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    #15
    You do realize that the ad's that are placed in the google ad bar is based on keywords that is placed in the threads and posts. ;) :)

    "If you start a thread in regards to iPod's, the google ad bars will place all ads that have some mention of iPod's in them." Same way Gmail and Google in the whole works. "Targeted Advertising." ;)

    Few good thing my job is still safe. :D
     
  16. jefhatfield Retired

    jefhatfield

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    #16
    but as we outsource more and those third world countries get richer, they improve their education and training and the bad quality becomes less and less and they get close to matching our best in textiles, auto making, and engineering

    and the computer age along with robotics makes it possible to train a third world workforce cheaply, efficiently, and put out good quality products in a relatively short period of time

    when the third world makes products and doles out services as the same quality as the usa, then we will really be in trouble

    we might have to resort to some stiff tariffs and some protectionist measures to slow down our corporations and their thirst for cheap third world labor...japan has successfully done that to some degree and perhaps we should look at their model
     
  17. XNine macrumors 68040

    XNine

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    #17
    I compeltely agree. I used to do High-end Audio/Video work for a low-voltage company. After a work-related accident and being out of work for four months, I come back to see (btw, this isn't meant to sound, or be racist) a bunch of mexicans, and some of my fellow partners are gone. Come to find out, they were paying these guys 6-8 bucks an hour, instead of the 16-24 bucks an hour the other guys, who were CEDIA certified, etc. And guess what? 8 months after doing this, the company went out of business.

    America needs to wise up less we meet Rome's fate.
     
  18. miloblithe macrumors 68020

    miloblithe

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    #18
    Ultimately, protectionism just makes everybody poorer. And a strong argument for NOT looking to Japan as a model for the US economy is that the US has had much higher growth rates than Japan for the past 15 years, and while people here complain about the US national debt creaping over 60% of US GDP, Japan's has exceeded 130% of Japan's GDP.

    Eventually, the downfall of the US (in terms of relative position to the rest of the world), is inevitable. We're living beyond our means and Americans are not so amazing as to deserve (or be able to horde) 20% of the world's income (much less the 50% that we used to).
     
  19. tristan macrumors 6502a

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    #19
    Company ABC makes medical devices. Company ABC pays Indian offshore outsourcer Indosoft $500k to build them the controller software, figuring out that it would cost $1m to do it onshore. Then they pay Chinacom, in China, $100 a unit to manufacture the device, which would cost them $200 to do it at home. They've saved money, right?

    WRONG. China now has their hardware design. India now has their software design. One phone call between those two companies, and ABC has lost its its global market. They've handed their R&D to people who will be more than happy to steal it. Do you think all those software developers in India have legal copies of Windows?

    Here's the biggest issue with offshore outsourcing. We don't manufacture many hard goods anymore, and our "soft" goods are routinely stolen by our trading partners (movies, music, software, other intellectual property). So what do we actually have that we can trade? I don't think we should trade anything but the cheapest products with anyone that doesn't respect our IP.
     
  20. Don't panic macrumors 603

    Don't panic

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    #20
    one of the problems, however, is that a lot of (most?) people are not willing to pay a bonus for a premium (real or perceived) in quality/origin of item.
    and they are not ready to support measures that by all means would be anti-capitalistic
     
  21. emw thread starter macrumors G4

    emw

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    #21
    I had to hop on a plane shortly after starting this thread, so I'm just now getting to read everyone's responses. I appreciate the notes, and most of them solidify what I've been thinking.

    Chris - your note specifically hit home because earlier today I found myself trying to explain to someone how qualified the people were who were, essentially, going to take the jobs of his US counterparts. It struck me that it was like your wife coming to you and telling you that you're doing a good job, but that you don't make enough money, so she's going to go find a new guy who can provide her with more of what she wants. But there's a catch - you need to "train" her new beau so that he can understand her various idiosyncrasies.

    Talk about uncomfortable. :(
     
  22. Don't panic macrumors 603

    Don't panic

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    #22
    but in principle, as their lifestyle raises to our standards (or more likely, we meet halfway), so will their expectations in terms of salary, benefits, work-hours and so on. and the cost of producing items/services will finally equalize, therefore eventually eliminating the advantage of outsourcing
     
  23. jefhatfield Retired

    jefhatfield

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    #23
    sure but by then, america will be in 2nd place to somebody in asia

    we have already played second fiddle to japan during the 1980s and it was very uncomfortable, and now we are facing having to be the world's second economy behind either china or india in the next generation sometime

    eventually, we will be so far out of 1st place that we will be a fallen "rome", so to speak

    when china and india have a fraction of our technology and/or education, their billion person strong economies will be too hard for the less than 300 million americans to keep up with
     
  24. miloblithe macrumors 68020

    miloblithe

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    #24
    So what?

    Do we stop being Americans because most Chinese or Indian people are no longer living in abject poverty? Do we say America has failed because the average Chinese person has 1/4 the wealth that the average American has?

    And in what possible way did the US play second fiddle to Japan in the 1980s? Japan never had a larger economy, greater per capita income, more military power, cultural influence, political influence... And that's very instructive. The idea that China and India will at some point surpass the US in GDP is based only on some measure of the last few years of economic growth, which assuredly won't remain constant for the required 30-40 years projected for China to catch up. Japan had that kind of growth in the 60s, 70s, and 80s, but has virtually no growth now. The Soviet Union had spectacular growth from the 40s to the 60s. China and India may well be able to sustain their growth, but it is hardly guaranteed.
     
  25. jefhatfield Retired

    jefhatfield

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    #25
    the massive or immediate downfall of america may not be the end result at all but we will be a victim of our own actions, or short term greed

    what many see as an obvious mistake in our current outsourcing still seems to be beyond anyone's control and we have nobody to blame but ourselves...what really made america great was our large middle class but the main symptom of the greed of corporations (much of it through outsourcing to increase the bottom line) can put us into a caste system and a shrinking middle class

    so it's not just in terms of america losing its place as a world leader, but the turning back of decades of progress in the usa since fdr

    i don't only blame bush and the republicans for this since it's obviously been a bipartisan effort over many years
     

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