When is outsourcing OK?

Just to clarify, is this question specifically about outsourcing business to other countries?

@Pied_Pfeffer Yes but feel free to apply this question as you see fit.

This is from my graduate Economics class I took. The cost of goods bought US citizens by overseas manufacturer ( outsourced items ) will tend to be LOWER ( clothes, cars etc. ).
The trade-off is the jobs that went overseas.
The hourly rate in the USA is so much higher than the outsource countries that it would impact the cost of living ( much higher costs ).
The outsourced business is now in the third and fourth iteration, each time the manufacturing had to be moved because there is a increase in the income and hourly rates have increased. ( Taiwan ==> China ==> Thailand ).

It is not a question that can be answered YES or NO.

That depends on where your priorities lie.
If it is just costs and short term profits then you should outsource to slave labour countries whereever you can.
Also reduce pay as much as you can, cancel any benefits and increase working hours, and do not bother making the workplace safe, that just costs money. If you can not outsource, try looking into replacing workers by robots and other automation options.
It also helps to save money by lowering the quality of the products and used raw materials.
That is basically what most of big businesses all want to do (and the lobby for it), as they are driven by quarterly profits to please the shareholders and the stock exchange and are led by penny pinching accountants.
That is also why I think colonial cars are so bad. The corporations are all run by accountants. Compare that to German car companies. Run by engineers, people who care about the product, and it shows.
Of course, in the long term, you shoot yourself in the foot, as outsourcing will inevitably reduce the purchasing power of your home market, leading to lower revenues and in perfect devil spiral fashion to more incentive to outsource.

If you want long term stability, you keep jobs domestic, as this will preserve the purchasing power of your home market in the long run. Boost sales by making your products more desirable, by increasing quality, innovation, and exporting to other countries.
Your costs will be higher of course, but because the purchasing power in your home market is not decreased and because the quality of your product makes the customers willing to pay higher prices for it, does not make it that much of a problem.
There is a reason why Germany is the second largest export nation in the world.
The term “Made in Germany” means something.
What do you think of when you read “Made in China”?

Of course, there is the other form of outsourcing, which is strictly local and on the immediate business level.
For example not having your own IT department, and outsourcing that task (maintaining your internal network, computers and website) to a specialist company.
Or, if you are a small company, outsourcing your accounting.
That makes it possible for you to concentrate on your core processes.

As for the colonial olympic uniforms, I would be more disturbed by their design if I were you.
It is disturbingly militaristic.

I dunno if it’s a fair comparison to match the Olympic Uniform issue vs Russia ferrying our astronauts to space. The cost of maintaining our shuttles (which were already well past their expiration) or adventing a new means in time to avoid the Soyuz ride hitching method, would have been monumental. Whereas the cost of making these uniforms in the US, while likely more expensive, would’ve been very easily accomplished.

All that said, still talking about outsourcing… Outsourcing is fine, I mean at a certain point it simply becomes more economical to make things overseas or in other countries. Where I have a problem with outsourcing, is when those reasons for going overseas are being able to pay/treat your workers like scum, and to abuse the environment because of lax regulations.

I would prefer never outsourcing, but that is probably impractical.

@tedd of course there is no “fair” economic comparison of the two…I was pointing to the patriotic element that seemed to erupt over the Olymipc uniforms and there the two become very similar at least IMO. But from the economics component there is a huge cost diffference of course between a $545.00 blazer and a multi-million dollar space shuttle. Again in both cases we are saving money by outsourcing these things and again IMO are done just to do that…saving money. I can only imagine Ralph Lauren put the manufacturing of his design out for bid and made a decision based on a commitment to his customer (the USOC) to do the job as economically as possible especially since this is a private entity with zero Government support.

Back to NASA…the Government didn’t see the “value” in supporting a US driven space program and pulled funding for it and at the same time gave pink slips to hundreds of NASA employees and probably thousands of private contractor employees whose jobs depended on the space shuttle program. So we have no choice but to outsource and at the same time this allows private US companies to participate in ways they could not with a soley funded Government program in place. Perhaps a good thing here.

At the same time we have to ask ourselves what is wrong with outsourcing especially when so much is already taking place. I mean no one seems to object to a huge percent of a Ford Automobile parts being made overseas and assembled here and still gets to say the cars are American made.

Same with many of out durable goods and electronics we have such an appetite for. As long as it saves us money in our wallets it’s OK but the second it involves a uniform for US athletes it’s not?? When is this debate valid and when does it cross the line as being hypocritical??

I would like to see if you could expand on your comment about inferring that outsourcing some how is a reflection of or results in US workers being treated like scum.

It is ok in three cases:
1) When short term profit is your primary goal.
2) When you are willing to lose the entire product line.
3) When the environmental impact of making the product causes production in your home country to be cost prohibitive.
When was the last time you saw a Compact Fluorescent Bulb (with mercury) made it the US or Germany. Um…. Never – except in the laboratory. They’re all made in china.

It seems like this outsourcing idea was OK…in the past. Help some other poorer countries raise their economic conditions by pumping into it some US capital. Turns out Uncle Sam has shot himself in the foot in that one. When products like, like…well, practically everything from shoes to toothpick (!) are now being made somewhere else, what other things should be kept made in the US without causing too much unemployment here-?

@LuckyGuy Not to nit pic but if your #1 point was justification for outsourcing than we would not have behemoths like WalMart becoming successful long-term and dominant as they have.

I also think you have made an excellent point on the mercury part of fluorescent lighting. Regulations here have made it all but impossible to employ mercury in any fashion in the US.

For me, I manufacture adhesives here in the US, with US employees and 100% US suppliers. BUT I do know not all the chemicals I buy are or US origin. It is simply easier and cheaper for my suppliers to secure certain chemicals overseas at a fraction of the domestic cost. I also have a choice of buying my main raw ingredient from US suppliers half who will sell me domestic resins and the other half of my US suppliers can supply foreign sources often a great discount to domestic prices.

I know when I buy a material from a US supplier and it is coming from overseas, but my customers don’t and most certainly neither do my China customers.

I think the bottom line to this debate is it is only fair when you are benefiting and saving money from however and wherever the money is being spent. Plus this discussion is not as simple as invoking a Buy American mindset. We depend on trade and now more so than ever. Plus there are these very complicated and detailed trade agreements and trade embargoes that also directly affect and influence all our day to day imports and exports.

I have a supplier in India who has never been able to be competitive but he soon will as a 20% trade embargo is about to be lifted and with that removed India who still enjoys a relatively regulatory free marketplace and cheaper labor than even China will now be very competitive in the market place and you can guess who is none to happy about this… DOW and my China suppliers. They are crying foul but we need access to India’s exploding economy for our own export opportunities and this is the one way things like this happen. It is a necessary (albeit in many’s eyes) “evil”.

@Cruiser I think your explanation only proves my point that it isn’t a fair comparison. Saving money may have been the goal in both cases, but the scenarios are not really the same.

With regards to NASA and US funding research for space travel. If you think we pulled out of that game all together, you’re a fool. Why not ask the Air Force and their clandestine work in space travel, including that “mini-shuttle” that they’ve been launching for a few years now.

And finally, I fear I must have poorly stated my comment as you clearly misinterpreted it. In no way does outsourcing directly effect how workers in the US are treated. My comment was that I disapprove of companies outsourcing, if one of the reasons is they can treat the workers in the foreign country they’re moving too like crap (IE poor work conditions, pay, no benefits, etc, etc).

I understand the economical reasons for outsourcing. But I can’t get behind them when they end up abusing the work force in the new place, on top of ending jobs in the old place… all so a few at the top can make a few extra bucks.

@tedd I think we will see this discussion play out in the Presidential Race arena as I am sure the Dems will push Romeny on his role in this at Bain. Will people get to see that whatever jobs were outsourced, that perhaps this was at the time the only viable solution? If they/he did not outsource the jobs this already dieing company was guaranteed to fail and shut it’s doors. So….do you outsource some jobs to save many or do you stay the course of domestic labor and risk losing all the jobs??

The bottom line IMO as it stands now is you are damned if you do and damned if you don’t. There is in my mind only one real reason to outsource and that is because you have to. the reasons are many to do this, whether foreign competition with lower wages is forcing you to do this…or an Olympic committee doing so because the lowest bidder happened to provide cheaper labor to win the bid…or a broke country that simply cannot afford the luxury of an antiquated space program.

Perhaps I should have asked when is it NOT OK to outsource! :-)

As a small business owner, I outsource when there is no reasonable alternative. I am about to place a job for renaming 6,500 images each showing a product in a ecommerce store’s database. I have all these images on a Zip drive with long, computer gibberish names. The image names make no sense. They don’t relate in any discernible way to any of the variables in the database. To rename them to match the IDs of the products, I need somebody to visit the website where they currently reside and look at all 6,500 pages, then look at page after page of thumbnails and find the right image for a given product and rename it. If I could even find someone in the US willing to do this, it would cost me all the gold in Fort Knox (if there is any left) to pay them. In India, I can find someone who will look at it as a great opportunity to break into image processing and do it for something my client can actually afford to pay.

As a matter of principle, though, I don’t outsource what can be kept here. I look at it like shooting yourself in the foot with a slow moving, but inerrant accurate bullet. Yeah, you get a short term boost in profit, but you are playing Pay Me Now, or Pay Me Later. Nobody ever wins at that game for long.

@Cruiser, Romney has to first take responsibility for the outsourcing that took place on his watch. He can’t go around saying that he bears no responsibility for it when he owned 100% of the company’s shares. Did you see the comment by his aid about retroactive retirement? That is surely one for the books. Once he owns up to it, he can defend the outsourcing if he so wishes and let the public decide if they agree.

When crippling taxes, choking labor unions and stifling regulations make operations in the US impossible.

@Cruiser Ehh… Bain is in the business of taking over failing companies, specifically for the purpose of downsizing them or selling them off as parts. It’s literally their business model. It was not their plan to try and turn any of these companies around, they knew from the outset they were planning on shutting the doors or laying off large portions of the staff. It was far easier and more profitable for them to just do that, rather than even attempt to turn the companies around.

It’s easy to argue that this was coming anyways. Bain simply took advantage of a coming, in many cases unavoidable, company failure and turned a profit from it. It’s also easy to argue that maybe this is a job someone has to do in the country. When you upgrade to a more modern economy, there’s not really a spot for as many factory labor jobs anymore. And you could even argue that Romney did an amazing job as CEO of that company.

But the fact of the matter remains, the companies job was to get rid of other jobs.

@Crashsequence2012 That is the stupidest, most partisan, most propagandist thing I’ve heard in a few weeks. Labor unions are incredibly weak in today’s day and age. Just look at the Superpacs if you don’t believe me, only 2 labor unions even rank in the top 10, and the best is ranked 7th (this is in money spent on elections)... whilst the top 5 are all super-conservative and bankrolled by big business tycoons.

Regulations in the US have been stripped out en-masse over the past 20–30 years. Frankly we don’t go far enough in many arenas. And our taxes are among the lowest in the world when you take into account all the things you can deduct. GE paid nothing in taxes last year, despite being one of the biggest most profitable companies on the planet (let alone in the US).

The reason companies shift operations overseas, is that they can treat the workers there like dirt, and pay them 1/10th of what they have to pay workers here… whilst polluting the bejesus out of the area.

Just judging by the tone of your comment and how very low your leurve count is, I don’t expect you to last very long here.

@LostInParadise I can’t disagree on answering to the question you posited. If jobs were outsourced, I would think and like to believe it was because there was no other way to save the company.

Fixing failing companies was and is what Bain does. The key here is failing as failing to the point of needing to be bailed out by companies like Bain very much like our auto industry needed. If you don’t make the hard choices with outside help…guess what?? You fail and go out of business….or get bought out by a foreign company much like happened to Chrysler even after our Government threw billions of dollars at it. That is another discussion.

Clearly at Bain it is really not Romeny’s fault as he was only doing what needed to be done to save a company that was poorly managed and clearly on it’s very last legs ready to fail again much like the auto industry. Do we now blame Obama that Chrysler was sold to a foreign company after he made the decision to throw away billions of dollars at a failing automaker??

But where does it end? Whose fault is it really?

Perhaps a real-world example will help clarify the matter. Walmart is a huge supporter of outsourcing. They buy very little that is made in the USA. They employ lots of people, and some cities are so hungry and perhaps oblivious to anything but right-wing propaganda funded by folks like the Waltons (worth 80 billion dollars thanks to Walmart founder Sam Walton’s success) that they offer a Walmart tax incentives and loan guarantees to build a store in their town. But what is the effect on employment in that town. Studies show that for every minimum-wage or temp. job a Walmart creates in a new location, 1.5 good paying jobs are lost. The town’s mom-and-pop stores go out of business first. Then the small, local businesses that supplied goods and services to the local stores bite the dust. And as profit centers shift, Walmart is quick to shutter stores that under-perform, leaving the area they moved into further devastated.

Germany is a social democracy where unions are strong, engineers and not accountants own and manage manufacturing companies, and boards of directors routinely include union stewards from the factory floor as board members. Upward mobility in Germany far outshines that currently seen in the USA, and while America is the world’s largest debtor nation, Germany is the world’s number one lender nation. It would seem to me they are doing something correctly while we are constantly shooting ourselves in the foot and insisting that it’s both necessary and good feeling.

Right-wingers constantly repeat the lie that liberals don’t get how business works, but no matter how often you say something, if it doesn’t jibe with observed facts, it remains a lie.

Some companies may have went out of business in they wern’t able to outsource due to foreign competition. Sometimes certain regulations in some countries may compound the need to outsource as well. Our buying habits determine alot as well, and inflation isn’t quite helping the matter either. I’m still sure that greed is a major factor as well, and this is clearly seen with companies who choose the short term quick profit route over the long term profit route, which would create more jobs.

@Paradox25 I don’t think “greed” plays as big a role as you may want to give it credit for. I own my business and in the business world they just don’t hand out lavish profits just because you are in business. If they did EVERYONE would own a business. Truth is profits are harder than ever to come by thanks to increased overhead cost (ie. labor and benefits expenses and that little dirty word…taxes) But even for my little company what keeps that evil word greed and the oodles of money that goes with greedy greed is called competition. If there is money to be made in the business world more than one company will be after that dollar and in some businesses the competition is fierce. So whatever profits a company makes, IMO they earned it. They earned it by being as smart or smarter than their competition. They earned it by making the right and sound business decisions. They earned it by making the tough decisions especially in a down economy where simply surviving another day, week, month or year in any way possible is almost all that owner thinks about. So if outsourcing was an option for that business….you can believe it was not because there were a lot of other choices and if there were…again the competition would be right there making that choice too.

This is how the real world works.

@ETpro How will your client respond when they find copies of all their images all over the internet? What will that do to for your credibility?
There is a virtual certainly that the 6400 images will be copied and sent to friends of the person you “entrusted” with the data. Your client – and you – will have no recourse.
Start looking for violations about one month after you shipped the data.

Yeah, I think it’s best to find some poor guy in your local town and have him sift through the pics in an offline version of the site on a non-networked PC in your office, or cellar/dungeon, and pay him per volume.
lock out usb and optical drives via group policies if you are paranoid.

Well, my first thought was that Outsourcing would be okay when your the only employee and you can’t get everything done, but don’t need an employee full-time. For example, you might outsource your financial record keeping to a part-time accounts service provider or you might outsource a packaging requirement.

When it’s not okay is when the company is large enough to manage all the employees it needs, but chooses not to because they don’t know how to manage costs and they think that outsourcing will be the savior they are looking for to rescue their business.

But, everyone before me covered the pros and cons of outsourcing, so mine is only the most simplistic.

@Cruiser “stupidest”?

@Crashsequence2012 Not sure what you mean by “that”??

@LuckyGuy What would you recommend? Should the client try to sell $10,000 items without providing any idea of what they look like. How about product descriptions, pricing, etc. Anything posted on the Internet is easy to download. That’s the whole idea of putting things on the Internet. And right click scripts are so lame it’s laughable. On the upside, Google is just as handy at finding the thieves as it is at finding things to steal.

@ETpro Any chance of having the outsourcers work on only low resolution or thumbnail versions and then you do the upgrading / merge to high res?
I know a photographer who sells his photos on his website. He only shows lower resolution on the site. Paying customers get the full up version in all its breathtaking detail.

There was a tax accounting company in the area that started to outsource tax preparation for their clients. Once word got that they were sending their customer’s tax information overseas the blowback was so bad they had to stop. They lost many customers for that violation of privacy.

It’s important to distinguish outsourcing to a local contractor from outsourcing overseas, the effects on the economy are very different. Contracting things like accounting, as @ragingloli points out, can be a good way to keep your company’s staff focused on core strengths. Especially for cyclic business contracting can be a good way to get the job done.

Outsourcing overseas exploits asymmetric trade and tax policies and obviously sends jobs elsewhere. The incentives are all wrong for a sustainable economy. Any single company, in isolation, will consider the practice a brilliant way to lower costs, and bring their product to market at a lower price. If ALL companies do it there is no market left as local people have no jobs, no income, no money to spend.

As far as the U.S. Olympic uniforms are concerned, keep in mind that the U.S. Olympic committee is not a government agency. Of course we already hear the same nitwits who would blame President Obama if their cat got run over by a car are blaming him for uniform oursourcing too. Gotta admire the energy and enthusiasm of these cretins, but too bad it can’t be channelled into something intelligent and constructive.

We obviously need tariffs, and rescinding foolish global trades pacts like the WTO and NAFTA to level the playing field for domestic workers.

@LuckyGuy In the case of a Yahoo! Store, neither of those apply.

@dabbler I routinely outsource programming in languages I am not proficient in, and always to local firms. Amen to leveling the playing field.

Concerned about the need for so much foreign outsourcing?

Abolish minimum wage laws now.

@Crashsequence2012
So you want to work for these wages?

Good luck. I hope you find a good bridge to live under.

@ragingloli So (in part) you’re saying that there are wages that are somehow worse than no wage at all?

It’s rather irksome to know that probably at least one of those china jobs could be mine.

While we’re on the subject. I would just LOVE to have a few minutes across the table from the non US citizen who is holding the position I could hold were he or she not here.

What I am saying is that wages that are low enough to compete with China are too low to even pay the rent for your 1-room flat from it, let alone food, electricity, water, heating, clothes, sanitary products, etc.
It just is not going to work.

You’d be expected to be more productive than your foreign counterpart. And statistically you probably would be. It’s hard to say you can be the same multiple of more productive as the multiple of your typical U.S. wages.

If we had tariffs on overseas goods, and value-added-taxes on information work done over wires, the job situation in the U.S. would surge in the hiring direction. Some would say companies would leave the U.S. market, but most won’t because we’re still a huge market. There’s a lot of money to be made, just somewhat less.

Some people just simply cannot get it through their heads that not all jobs are designed for the middle class or better…

@Crashsequence2012 You have a great plan to ensure that all working class people everywhere live in perpetual wage slavery. Back to the dark ages and serfdom. I hope you are paid well by your handlers—or even better you are one of the Landed Gentry that actually profit from such greed.

There is no plan.

Finding some way to make everyone equally rich is as impossible as it is counter productive.

You’re smart enough to know that if everyone were equally “wealthy” no one would be.

You’re a business owner? right? Put your money where your mouth is:

Pay everyone across the board what you pay your employee that has the greatest responsibility, evaluates and takes the greatest risks and makes the most money for you.

Making everybody equally rich is not the point. Making sure everyone has enough is the point.

Some of the reason more and more people don’t have enough is because a very very few people have many orders of magnitudes more than enough. Folks like that are typically not satisfied with having that much so bumping them down to many-1 orders of magnitude more than enough through taxation is no punishment at all. They’ll be no more or less greedy and sociopathic as before. The only difference is there will be less other people starving or dying for lack of health care.

@dabbler Are you volunteering for the charge of determining what is “enough”?

Yes.
Enough food. Not malnourished.
Enough clothing. Not dressed in tatters.
Enough health care. Not sick for lack of preventative ministrations. Not contagious.
Safely housed. Not homeless. Access to sanitation facilities, bathing facilities, and a bed.
Educated to one’s capacity and desire. Not stupid for lack of access to competent schools.
Freedom and opportunity. Not stiffled by resources being controlled by faceless corporate entities.

Those aren’t upper limits, they’re proposed as minimums.
I don’t suggest any upper limit, but that folks aspiring to hyper-wealth support their own activities by paying taxes commensurate to the amount they benefit from the society around them—which is far more than most of the hyper-wealthy do currently in the U.S..

TIL there are no malnourished wealthy.

But seriously, wouldn’t it be easier to move somewhere more compatible with your conscience?

Easier than what? Proposing a definition for ‘enough’ ?
Does there appear to be something about the U.S. that is inherently incompatible with my conscience?

And we were quite a way toward that before neo-cons starting with Reagan started to disassemble social structures that helped millions of citizens live better lives.
There is historically quite a bit of American values that resonate with that list.

Neo Con…

Have a good day sir.

@Crashsequence2012 Right-wing 101. When you can’t argue a point, erect your own straw man then skewer him. He’s defenseless by design.

I never said anything about making everyone equally rich. Speak for yourself, not me. If you’d care to know what I do believe about wage fairness, it’s this.

Outsourcing makes sense when it creates a win-win situation. Sometimes that’s the case and sometimes it isn’t. Sometimes outsourcing is confused with offshoring. That’s two different things. Sometimes both is applied and sometimes it isn’t. As long as fuel doesn’t include a price tag for overusing our atmosphere huge container ships will take stuff back and forth. The situation is different for services that just need broadband connections. I think it’s a great idea to offshore (and perhaps outsource) all data centers to areas closer to the Artic circle. This will safe a lot of electricity. Huge potential.

Outsourcing will really cut your budget and of course it makes a profit within a few months/years depending on your business. And if I’m going to outsource a job I would prefer “Staff.com” since they only hire full time workers for you. I have tried Odesk, Elance and VWorker but Staff.com is the best site I could recommend.

Outsource high technology jobs. Teach some third-world country with far lower wages (not just for workers, but for managers and CEOs as well) to do what you do. What could possibly go wrong? Unlike the schmucks that push outsourcing so they can cut wages and pay themselves far more; those off-shore companies that learn how to clean the US company’s clock would NEVER think of just doing it themselves. Right? I mean, they wouldn’t dare, right? Yeah, I know it keeps happening, but what can you learn from that? You’d have to live in the reality based Universe to care about crap like that.