Dan Hartford
"Hiring Manager at 7 Companies"
I am an OEC Staff member with over 30 years in Business Information Technology Management. I started as a programmer in the mid 1970’s and quickly accelerated into management positions where I have excelled for the past 25 years. In these management positions I have weathered many cycles of upsizing, downsizing, and capsizing along with insourcing, outsourcing and wrongsourcing in management as well as employee roles. My experience spans a broad spectrum of industries including Pharmaceutical/Biotech (Syntex, Roche), Commercial SW (Adobe), High Tech (Siemens Microelectronics, Infineon, KLA-Tencor, Avanex) and Applications Management (Accenture). I am a Certified Project Manager and have won several company based individual and team awards for his management and project work. During my years as a first and second line manager, I have honed my interpersonal and people management skills and am known for staff motivation, counseling, and coaching skills. I am an amateur photographer and have a Bachelor of Science degree in Computer Science from Worcester Polytechnic Institute in Worcester, MA and a Certificate of Project Management from the University of California, Santa Cruz. You can check out my photos at www.danhartfordphoto.com
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Outsourcing
June 10, 2011 by Dan Hartford
We can’t change the economy until we start getting jobs back into this country. We can’t get jobs back in this country till the economics of outsourcing radically change.
Our jobs are now overseas
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A friend of mine, working for a major IT consulting company, told me a few days ago that on his project they have 89 consultants in addition to himself. 87 of those consultants are Indian and Chinese even though the project is not in India or China. In addition, many of the Asia based consultants are physically working at the project site in the US but are paid on India/China pay scales.Now, don’t get me wrong, I have nothing against people in 2nd and 3rd world countries having well paid jobs and earning a decent living, but we can’t go on this way. What company in it’s right mind can justify paying a US employee literally 3 to 4 times what they would pay someone offshore to do the same job? Especially if they can even have those people at their site in the US.
Economics of off-shoring
In the old days, goods and services produced in one country tended to be consumed in that same country. Let’s say a worker in the US made a product that sold for $60 in the US and he earned, say, $20 an hour. Let’s also say that the cost of living in this persons location was such that his wages covered 90% of his living expenses (mortgage, food, utilities, medical care, etc) leaving 10% for entertainment and travel. At the same time, a worker in China may have earned the equivalent of $5 an hour to make an equivalent product that sold there for $15. In each case the product sold for the equivalent of 3 hours labor. With the cost of living in the offshore location, this person’s wages also covered 90% of his living expenses leaving 10% for entertainment and travel. So, everything was pretty even.
Now, fast forward to the current time. The US company is now a global company which sells their products world wide. In the US they have the same product that still sells for $60 and in China it sells for $15, just as before. So, this company has to decide whether to manufacture it in the USA at $20/hr or in China for $5/hr. If you were running that company what would you do? The unanimous decision from corporate America seems to be, manufacture overseas and sell worldwide. That’s why we have waved goodbye to hundreds of thousands of US jobs.
There are three major factors at play here. One is the standard of living is not uniform world wide, second the cost of living is not uniform world wide, and third we live in a global economy where place of manufacture and place of consumption are no longer constrained by distance.
The ultimate outcome of mass offshoring
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As more and more jobs go to countries like India, China, and Thailand their workforce will become more and more educated, productive, and demanding. As these sorts of jobs become more common in those regions the standard of living will go up and workers will demand (and get) higher wages commensurate with their added value. We’re already seeing this to some extent in India. As the knowledge and skill level of Indian workers has increased with better education, those workers are no longer content to get paid substantially less than their counterparts in Europe and the US, so they demand more. To counter this, many companies are now dropping India in favor of China, Thailand, or Malaysia among others where this phenomenon has yet to happen. At some point, though, the corporations will run out of poor countries to go to at which time the cost incentive to offshore will start to abate. My fear is that by the time this happens, the US will be one of those countries.Balance the outsoure - offShore equation
The only way to solve this problem, and bring manufacturing and middle tier jobs back to the US is to artificially counteract the economic advantage of moving jobs offshore. I’m not smart enough to have a plan for this, but for one thing, we need to stop giving companies tax breaks to move jobs overseas. More than that will be needed and I’m sure those 3rd world countries will not be happy about it. But then again, I’m not very happy waving goodbye to hundreds of thousands of what had been good US jobs. I just hope someone figures this out before China starts sending their $5.00/hr jobs over here because the people in China are getting $25.00/hr.
What’s done to worker for the good of the company does not seem to extend upstairs
As a closing thought, here’s something to think about. Have you ever noticed when companies outsource labor to 3rd world countries, they rarely move their own, executive, jobs overseas? I wonder why? Those countries have qualified executives who can be had for much less salary and bonuses so why wouldn’t they outsource those jobs as well? I guess saving the company money only goes so far.
Any of you have any ideas on how to solve this problem?
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