- Written by Duncan
Outsourcing is all the rage these days, and for some it may seem like a no brainer. You pay someone in India or China a fraction of what it would cost you to do the work here in North America. You keep more of the profits for your company, right? If times are tough, you need a new way to generate more cash flow, and you can't seem to depend on customers actually buying your products or services any more.
Most businesses start with some cool product or service, built and delivered by local employees. The company grows to the point where they butt heads against the competition, and pricing becomes an issue. The argument then is that you have to cut costs to remain competitive in the market.
One of the rules I have known for a long time, is those who live by price, die by price. If you make price your differentiation, then someone will eventually undercut you. If you teach your customers that price is the most important factor, you are setting yourself up for a fall. You are better to focus on something like quality, good service and innovation to keep you ahead of your competition. You need to continually re-invent your company and what it offers, in order to keep up.
This does not in my opinion include outsourcing. In one company I was at, they had a big push for COGS (Cost Of Goods Sold) reduction. Assuming your business has a product that sells, then you have to work to make it cheaper, so that you can sell it for less, or more likely have more profits. It sounds good, your business exists to make a profit. If you fail to make a profit, then everybody loses (customers, vendors, employees, owners, etc.)
There are limits to cost cutting. For example, safety should trump cost cutting. Would you want an airplane to be made with defective cheap parts to save money at the risk of harming passengers?
From an economic view, if everyone tries to cut costs and save more, demand for goods and services from fired workers will fall, which in turn will hurt corporate revenues and, thus, profits. The economy will continue to spiral out of control, feeding on itself until there are not enough workers and salaries left to generate sales and profits.
Often when a company becomes successful, it gets bought out by a bigger company, with a remote head office. It might as well be run by reptilian aliens, out to plunder and destroy, by the way they act. They look at the numbers only, and before you know it, they are moving product lines and outsourcing everything until the original company is history. Years later, you see former employees wandering around town wondering what happened. It is like a planet after the borg have been through the system, stripped of anything of value. Many people's lives are affected in the process. It is so sad.
Back to the economic view. When you have a company employing staff in one area, it makes an economic contribution to that area. As you outsource the work overseas, that economic contribution goes with it. If enough companies outsource, a large amount of money moves, leaving huge voids in their wake. It is like when they divert the course of a river, leaving the old course high and dry. Many people who were previously employed are now claiming unemployment. Their training and experience had prepared them for one kind of work, and that work is no longer available. To find new work, they are forced to re-train at expense to both themselves and the government.
Money earned in one area gets (mostly) spent in that area. People buy homes and cars and big screen TVs and so forth. When the jobs are gone, that spending is gone, or severely cut back. Supporting businesses fail like dominoes. Just like when a mining town loses the mine, the whole town dies.
So what can be done? If the jobs are already gone, they are not coming back. Hope lies in new start up businesses. We need government and financial sector support for new ventures, perhaps with some strings to restrict new businesses from pulling up stakes once they are underway.
From an individual level, people have to differentiate on something more than price. There will always be countries with a cheaper work force, and it would be foolish to try to undercut them. You have to be able to deliver something that is hard to outsource, such as special skills, team spirit, and quality work. You need to continually re-invent yourself and find new ways to add value to your job. This is not to say that companies will not pull the rug out from under you in the future, but you will be more employable, and should find another job sooner. If you are complacent, expecting a job for life without continually improving yourself you are in what martial arts describe as a 'position ready to be defeated'.