Outsourcing has it taken the hit?

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Permalink Reply by Pratik Thakore on November 10, 2008 at 1:00pm

Although you are right to a certain extent, it is tough to stop private companies from outsourcing. In these recessive markets - companies have to cut costs to make more money and to add to the bottom line. To do that, they would still outsource their non-core activities.

Also - the common belief is that outsourcing cuts jobs. This is not true. Outsourcing enables companies to focus their talent on growing business and sales and spend the money they save by outsourcing their non-core functions. Growth in sales in turn fuels a growth in jobs. If companies understand this better, they would do better :)

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Permalink Reply by Michael Lamb on November 10, 2008 at 1:07pm

Are you talking about American Corporations outsourcing to other countries? If so, I'm hoping that Obama's election will begin to start creating a framework of policies and legislation to bring these jobs back to America. Of course it is beneficial to any company to reduce their costs by outsourcing, but what is the overall impact on their brand? America has slipped into a recession and now everyone is looking for who is to blame.

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Permalink Reply by Joshua Thomas on November 10, 2008 at 1:39pm

Whew! Way to to infuse two tough topics into one discussion — outsourcing and politics! Personally, I tend to have a rather radical "fence-rider" position when it comes to both outsourcing and politics. Rather than ramble on about these topics, I figured I take a direct approach to your questions:

Knowing the trend is he likely to push for local employment and reduce outsourcing...
Easier said than done. Employment opportunities aren't just a macro-political topic which can be initiated with the push of a button. Yes, in an idealistic sense, Obama may have campaigned increased local employment opportunities. But if anything ever comes to fruition from those campaign statements, more than likely it will be geared towards larger industry niches which could potentially improve employment opportunities for non-skilled labor.

What do you think should affect the economics of outsourcing?
Well, economics : ) ! Regardless of whatever national programs may (or may not) be developed and come to fruition, the decision of outsourcing will always be left to the businesses exploring outsourcing opportunities. If their research shows a significant cost savings without detrimental workflow adjustments, loss of time or quality, then naturally "economics" will further promote their choice of outsourcing — or vic versa. It all comes down to the bottom line regardless of national programs, personal opinions and subjective preferences.

What measures would be taken to keep outsourcing going on?
I guess that depends on the various outsourcing viewpoints ... again, separate from the political front : ) Insofar as outsourcing fits into our workflow, we will continue to implement it. If it comes to a point where outsourcing is no longer an economical solution for us, then I can only assume there are far greater national issues to attend to!

Which companies would be affected the most if outsourcing stops?
Those involved with manufactured goods ... hands-down.

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Permalink Reply by Jim Hill on November 10, 2008 at 4:01pm

I have posted some thoughts here before about outsourcing, and clearly in this economic climate, the concept to many is highly charged with emotional, personal, and political thoughts. Not many in the USA are luke warm about outsourcing, espe`cially if your brother, husband, or best friend loses his or her job. Much of the focus on outsourcing has historically been in the manufacturing, general customer service area (call centers), and especially with IT back office and technical development areas such as software development. There are so many financial advantages for businesses to outsource as well as "insource": the process of hiring someone overseas to work in the USA on the 12B1 visas which are very popular in all fields even such areas as nursing where many hospitals in rural areas have difficulty finding quality staff. My profession, and yours, is publishing, and outsourcing in this area has been a very high growth market for a number of years due to the significant cost differential in all areas.

My own thoughts about the trend are that the tax incentives will have to be larger than what I have seen with the proposed tax credit of $2,000 per employee who is hired here in the USA, and not outsourced. I am not a tax expert but would think that the incentive not to outsource is going to have to be a lot more than this to make it work since outsourcing often has a 50% cost differential, and in some areas even more.

One of the huge advantages to outsourcing is the very low corporate tax rate structures in other countries where a USA company can have another office as we know, and that the USA has one of the highest, if not the highest, corporate tax rate structures in the world.

The huge issue with outsourcing is that many Asian economies are growing faster than ours and these economies are producing more and more college educated people who can and will work for salaries that are just not possible in the USA because of our cost of living. Not much is likely to change that in my opinion since we all in this country want to maintain our middle class life style. As a comparison with Mexico, it is hard for many of us to understand why Hispanics, legal or illegal, come to the USA and do manual work for $6 an hour, but when you are making $1.50 an hour doing the same work in Mexico, $6 seems like a gold mine by comparison. The same concept is true with production and much editorial work in India and the Philippines and elsewhere. Until the dynamics of that economic situation change, and not sure how, outsourcing is going to continue to be a major economic issue for the USA.

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Permalink Reply by Shweta S on November 11, 2008 at 1:38am

Hi,

Outsourcing as an industry will never take a hit according to me. It might take a hit in a particular industry, but as a whole, outsourcing is a process that is here to stay.

There are quite a few reasons for this. Firstly, it is the lack of skilled labor in developed countries (in this case, the United States). As someone who has been there for the past 10 years, I know that United States faces a shortage of labor in major industries like healthcare, education, IT, manufacturing.. etc. The healthcare and education industries mainly face a shortage of skilled staff like nurses, teachers, special educators, physical therapists etc. IT industry has been largely outsourced to cut costs (visa, housing, airfares etc).

If the economy were to focus on developing labor for healthcare and education where "insourcing" is a must, then industries like manufacturing, finance and IT can still remain outsourced, thereby balancing the economy.

Otherwise, it is tough to stop big private companies to look at other avenues to cut costs. Average Min wage rates in the USA are currently between $6.50-$7.50 an hour for most US states (for unskilled labor)

A small to medium sized outsourcing company charges roughly the same rate for skilled labor. This point is always food for thought and has been much debated in the US.

The comparison is there for all to see, what we really have to wait and watch is how President Obama will find a workable solution to this problem.

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Permalink Reply by Kimberly Toms on November 11, 2008 at 6:10pm

Using just the term "outsourcing" as a standalone is slightly vague for your point, as my organization outsources for approximately 85% of our work (and will continue to do so), but the outsourced projects are fulfilled by US providers. We are repeatedly approached for outsourcing to other countries, but after living and working in most states in the US, including Alaska, five provinces of Canada and Europe (for five years), I have developed a "patriotism" when it comes to organizational growth and hope that we will see less outsourcing to other countries, as our citizens are struggling enough in this economy and job market.

I equate it to this: I am from New Orleans (born there, family heritage since 1685). I watched my little city's destruction and the debacle that was "rescue." Meanwhile, many of my friends and even my former spouse are overseas serving in the military and providing food, clothing, shelter, and supplies to other countries...hand to hand and hand to mouth. Our focus on our own city destroyed - politically speaking - was less organized, less reactive, less fruitful than our rescue efforts to other groups. It broke my heart.

Compare that political reaction to continued mass outsourcing of jobs overseas, and I truly believe that we, as organizational leaders and citizens are not fulfilling our indoctrinated obligation to support the country that supports us. Many opportunities are borne of being an American citizen, including our right to education and the freedom to build empires of business. In respect of that, I really think we should give back to our own communities as much as we have shown we are willing, ready, and able to swoop off to other countries to provide for them.

That said, I greatly respect the human resources available in other countries.

Perhaps a percentage limitation on the quantity of positions per project or organization that can be outsourced beyond our borders should be considered. I would be more encouraged by bringing individuals from overseas to work for our organization and fuel our economy from US soil, than to send jobs to fully benefit the receiving land and jeopardize the dinner tables of American families.

I don't believe that the argument that "Also - the common belief is that outsourcing cuts jobs. This is not true..." holds water for the short or long-term. I would love to see some stats on that, both now and 20 years from now. I don't believe that your statement will hold water. I hear those words often from the outsourcees, but have yet to believe it.

I'm proud of every bit of outreach that we provide as a global economy, to other countries and peoples. However, New Orleans was a clear example and a clear parallel to what we do to ourselves, when we fail to believe that "it could happen to us." Right now, in the Silicon Valley (a fairly healthy economy by current US standards), I could name several jobless, former business leaders who would be very happy to just have a job in a call center.

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Permalink Reply by Tenisha Anderson on November 13, 2008 at 9:32pm

I'm straddling the fence on this. I understand where Obama is coming from with regards to keeping jobs in America and building the American economy through "American made products and services". However, with overhead costs costing so much and the temptation of receiving comparable to "maybe" better quality service via outsourcing, it's hard not to outsource services. I believe in order for outsourcing to have a positive effect on the economy of America there needs to be a "happy medium", a balance. To guarantee outsourcing in the long run companies must demand two things from their subsidiary in the host country. Quality and safety. this means no lead based toys from Mattel coming out of China, highly tained AT&T call centers employee from India, so information doesnt get lost in translation.

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Permalink Reply by Jim Hill on November 14, 2008 at 11:39am

Kimberly and Tenisha make very valid points here from a personal and professional perspective. It is interesting for me to see the often lack of separation from the personal view from the professional view, and I run across this often in my own outsourcing work with publishers. First of all, being in the industry, people often confuse the term "outsourcing" with "freelancing." Usually, "outsourcing" means "offshoring." Honestly, on a personal basis, I think the issue of "insourcing" is more of a threat to our economy in the USA than "outsourcing." The international work visa process is certainly complex, but I see if often in my industry and others (especially nursing) where domestic-based publishing outsourcing companies hire people from India and the Philippines for 1/10 the salary that an American citizen would make. I have seen that many times especially with more technical positions, especially XML analysts who are generally in short supply in the USA, and make high salaries, as high as $100,000 in Dallas which is very good relative to our cost of living. This situation is even more common in the IT industry, and has been for quite some time. Although many of us may not realize it, this "insourcing" is very common in the nursing field where there is generally a shortage of qualified nurses, especially in rural areas. One of the reasons why nursing education is so popular, especially in such countries as the Philippines. Another area is primary school teachers, especially in science and math. When I travel to the Philippines, the Sunday paper there is loaded with both nursing and primary school teaching positions in technical areas for US hospitals and schools. Again, and many of us see the economic issue, but the flattening of the world economies and the impact on the USA is likely to only accelerate, especially in an economy like the current one. In the general publishing field, one of the issues that I think will drive outsourcing more than anything is the generla decline in print products: newspapers, books, journals, and magazines. Electronic content is more easily developed collaboratively regardless of the geography than print. I do not see many people comment on that trend, but believe that technical trend is a turning point factor with outsourcing.

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