ON BENEFITS OF OUTSOURCING

UNFAIR AND UNBALANCED...

In an earlier post, "For Better or for Worse", I made the point that the issue of "outsourcing" has been handled simple-mindedly and almost propagandized by some news organizations in the US (search for "Lou Dobbs", "CNN" or their "Exporting America" theme on this page).  The post pointed out an emerging trend of US executives being hired by overseas firms. 

This post extends on that theme.  The following is an illustrative article  on how  outsourcing  can potentially be a two-way street.  Titled "Bangalore, Georgia", the author outlines how outsourcing (aka off shoring) is resulting in Indian firms setting up shop in and around Atlanta, Georgia.  Which is ironic, given that it's right in CNN's back-yard. 

I'm not picking on CNN, but merely pointing out that their editorialising on THIS issue under the guise of "news" is wearing thin, at least in the eyes of this observer.  One has only to look at their regularly updated "perp" list of US companies that are "guilty" of exporting jobs overseas to get a sense of how extraordinary this is amongst major media outlets.  They actually  introduce the list with journalistic solemnity with the line:

Here is a list of companies we've confirmed are "Exporting America."

It'd be funny if it weren't so sad in terms of the lack of fair and balanced perspective a news organization is supposed to have, seemingly lacking the solid line that is needed between news and editorial functions. The issue of offshoring/outsourcing is an immensely complicated one, and has been covered with more balance by most media organizations.  For an insightful, different and refreshingly new look at the same issue, I would recommend Andy Kessler's op-ed piece in the Wall Street Journal from a few months ago.  It has something for both supporters and opponents of this issue, but does a good job outlining both, along with his distinctive view on the subject.

My issue isn't with CNN's right to editorialise on this or any subject...that is sancrosanct...it's the issue of editorialising in the guise of news.  If the above mentioned list is "news", then we should have seen a parallel list that publishes the names of overseas companies creating jobs and making investments IN America. 

Also, I haven't calculated it, but the CNN list seems to represent a healthy chunk of corporate America, not to mention a meaningful percentage of our stock markets.  It may be easier to do a list of "innocent" companies...it'd be a lot shorter.

p.s. the quotes in this piece are merely my points of emphasis, and not any attempt "quote" CNN or its personnel.  The only exception is the line quoted above from their web site. 

Comments

[Sunil Chhaya]

I'd call Mr. Dobbs 'Shallow Lou' since he's more interested in telling stories rather than telling news, but that's left to whoever his editorial staff happens to be. His stance on this subject tells me that it's a matter of time before which he goes back to live in the same cave his predecessors lived hundreds of thousands of years ago, since his views on the economics sound like caveman economics. Protectionism is basically populism, and the hope with this point of view, arguably, is that it will help ratings. I don't know if that has really worked or not. One thing is for sure, which is that the show has lost its intellectual appeal.

Many thoughts come to mind vis-a-vis 'outsourcing'. What began as labor arbitrage has long since become leveraging the human and intellectual capital from all around the world. India just happens to be at the leading edge of it. It's unstoppable, so, smart companies have just 'gotten with the program'.

Is this really a new phenomenon? Not if you asked Joe Schumpeter, who propounded the concept of Creative Destruction back in the early 20th century. That is a more likely explanation of events.

I think that the basic fallacy with Lou Dobbs' argument about 'outsourcing being evil' is an implicit assumption that the 'size of the world economic output pie is fixed'. We know this not to be the case. There may be temporary illusions about this, and I will get to this in a second.

Is outsourcing really wrong? Basic macroeconomics tells us that ever since the US converted itself from farming to steel to maufacturing to information technology age, it has successfully redeployed the capital resources more and more efficiently. One need only look at the graph of GDP of the US over the last 130 years to grasp the amount of wealth that has been created through the redeployment of capital, human and intellectual assets.

Every age was based on the preceding infrastructural capabilities that came either from the industrial revolution and efficient harnessing of energy through machinery, multiplying the farming throughput, to automobiles, roads and railway infrastructure which created a positive feedback cycle to create and sustain the steel and energy industries in this country. This was followed by the intellectual and technological infrastructure during and after second World War that had a huge impact on creating and nurturing the technology industry in this country. Every time a new technology era began, it was somewhat at the expense of previous.

What inevitably resulted during these transition was a redeployment of human capital and a temporal inefficiency created because of the skills upgrade that was required (horse buggy manufacturers had to upgrade to making auto bodies, while horse whip manufacturers went out of business, for example).

Same thing is happening right now as the US economy struggles to find what that new infrastructural investment ought to be [in my mind, it's clearly investing in networking and IT infrastructure as well as upgrading the educational system]. This is where the problem happens to be right now. Due to continual 'false sense of security' among the US educational system, this has not happened. Another very interesting thing about knowledge is that imparting it and obtaining it does not require capital assets in view of the increasingly connected world. One need only look at Google search to realize the significance of this phenomenon. This has made the 'ideas based competition' a very level playing field. In fact, there is increasing evidence that more and more disruptive innovation is coming out of developing economies, following 'necessity is the mother of invention' principle, and the wealth being created by these innovations among the developing economies is also making them more capable to do the investment in the fundamental infrastructure upgrades. The bottom line is that this is an immutable trend.

Another interesting phenomenon that is happening is the emergence of the Asian 'Old Boys' Club'!! In the past, those with power controlled access to it, and power in those days lay in the hands of who controlled tangible assets and capital. That has now shifted to intellectual power, where increasingly the Asians outshine any single community in this country.

My bottom line predictions are, Dobbs will continue to become more and more inconsequential, the Indian tech firms will continue to climb up the food chain to grab more and more complex and technologically challenging projects, and US will continue to remain one of the largest consumer of all of the world's goods and services, meaning that US will eventually figure out new ways to apply their immense intellectual, technological and capital resources to find new and innovative ways to improve the quality of life for her people. This time around, the wealth created will get more widely distributed, which, hopefully, will result in improved quality of life and reduced strife all around the world. Who knows, that may even eventually cure the threat of terrorism! As someone put it, the guy (or girl) who has to take an afternoon off from work is not likely to blow him/herself up!!

If one really wants to get psyched up about this, I encourage them to read Tom Peters' 'Re-Imagine: Business Excellence in a Disruptive Age'.

[Michael Parekh]

"This time around, the wealth created will get more widely distributed, which, hopefully, will result in improved quality of life and reduced strife all around the world."

well said...amen.

[Sunil Chhaya]

Here's a report from TechNet, called Innovation Policy Agenda, that supports some of my assertions. TechNet, a non-profit group, comprises of 150 of the top CEOs, Venture Capitalists and techno-preneurs, and they ought to know better. Here it is - http://463.blogs.com/the_463/files/technet_2005_innovation_policy_agenda.pdf