I actually read almost the whole thing, excellent revelations. Here are some things none of you mentioned. Right before this outsourcing of the latest "tech" jobs took place, tech/IT jobs were in a humongous bubble. Look in all seriousness, the wages and benefits being paid just because you knew a little bit of computers were absurd. Corporates, mom&pop, dotcom shops could not find enough IT "professionals" to fill their space because of the internet craze. Server maintenance, website maintenance, graphic design, NT professionals were always in demand, but it was not real demand. Companies were stocking up on workers in a crazy, while productivity was so innefficient. Everyone basically got carried away, thinking these great times will last forevers. Just like traders making sick money in 99, wasting it all thinking trading will always be that profitable. Then the reality hits, and cost cutting to at least reasonable levels begin. Don't look at outsourcing as outsourcing, look at it as cost cutting to reasonable levels. Why try to offer the same jobs at a reasonable rates and deal with a labor force that still expects the absurd wages of the bubble? Easier to just outsource. Another point These outsourcing decisions are not made with rational concern for the actual firm. They are made by top executives looking to protect their jobs and keep their bonuses. I'll give an example. I worked at UBS Warburg doing presentations for IB. Our head of the department was this female who got her job god knows how. She was a perfect example why men did not want women to be in positions of power (no insult to the females of ET, there are quite a few female executives who do an excellent job, just not this bitch). One of the most idiotic techniques done by her was to fire a certain amount of staff by the end of the month and then rehire new ones at the beginning of the next month to manipulate the #s to show savings on labor costs. Too bad rehiring and training is very expensive in actual dollar cost and quality of work cost. Yet she has been able to do this for 2 years and still doing this, while getting a nice bonus for these "savings" she is bringing to the company. The fact that noone above her nor the accounting department can even bother to think about this idiotic scam of a technique just shows how concerned these executives are about the efficient operation of their company. We are talking about UBS Warburg, a major global bank, not some chop shop operation. Unbelievable. I'm using the presentations department of Investment banks just because I'm very familiar with them and because for NYC, presentations used to employ about 5000 jobs at their peak. Since then, 70-80% have been outsourced to India. These jobs are actually quite reflective of the tech bubble jobs produced and quite related to many IT jobs being outsourced with craze. Now for some banks, this outsourcing made sense because the presentations operators and bankers had pretty much zero contact with each other. But for most banks, the real interaction with an English speaking person that could relate to you at least at a minimal cultural level had irreplaceable value. So basically this is what the real outcomes are of this outsourcing for this particular department. All inclusive costs for a computer operator in presentations in NYC comes down to about 60 bucks an hour. Thats considering office space, computers, minimal benefits, etc. Outsourcing to India makes it about 20 bucks an hour. Sounds great if you are some dickhead on top who has no real clue what really goes on in your bank since you have never even bothered to visit NYC where the particular top US producing Investment bank is located. But hey, you're the boss so who cares about rational informed decisions, it's all about your salary and bonus. However, to the actual bankers, associates and even Managing Directors who actually use the presentations 24/7/365, dealing with some Indian shmuck that can barely speak English when you have an intensive job really starts to affect these costs. Instead of using up an hour at 60 bucks each, you end up using 4 hours at 20 bucks each. Now throw in the risks of communication abroad, systems going down, email going down (no other contact at the moment), corruption, electricity power failure (India has high electricity failure risk) and these costs of outsourcing actually go up. Then there is the overall quality effects since communication by email cannot even come close to replace real interaction when it comes to making 100-200 page books for clients. Look it's basically this. You want to use Kmart/Walmart quality or you want Macy's/JcPenneys/Saks. You're building a house for someone and to impress them and get a nice bonus you use cheap ass materials for a crappy foundation, make the buyer feel like they saved, everyone seems happy and then the house falls apart in 2 years. But who cares when you are only looking at the very short term, like your job and your bonus at the end of the year. Party this wave of outsourcing is due to overblown labor costs and party due to decisions by upper executives/CEOs based on keeping their salaries and bonuses. There is already a huge problem with the corporate governance in this country. Some shmuck is getting paid millions of dollars to write mission statements and do dinners while firing 1000s of workers that actually bust their ass and are the backbone of the company. Not efficient, self corrupting and actually somewhat reminiscent of the situations that brought down some of the biggest empires of human history (Roman empire is a great example). Most of these outsourced jobs have brought a detrimental effect to the quality of the product/service. Who has had the pleasure of dealing with some heavy accent customer service rep from India? I have. If this is a reflection of the "efficiency" and "benefits" of outsourcing, man these companies going nuts with outsourcing are just asking for a lower quality reputation. Yes some jobs make complete sense to outsource. Generic code writing, number crunching, repetitious BS work that used to overpaid are great candidates for outsourcing. But a lot of these jobs are not that. And this outsourcing craze will come back and bite these companies in the ass.
Can't really blame corporations for outsourcing. Look beyond the salary and look at the taxes a company must pay on top of that salary. Depending on the state another 10% in BS taxes, medi,fica futa, local unemployment not to mention health ins. When these factors are dealt with ie reduced or eliminated, and employment laws are changed then things will change. Start by eliminating lawyers. PC=BS.
Outsourcing results in lower costs to the company, .... which in turn can lower the prices of their products, ..... which in turn allows consumers to spend less money, .... which increases savings, ... which lowers interest rates, ... which makes loans more affordable to consumers and corporates alike, for purchases such as capex and homes, .... which in turn will create more jobs both domestically and abroad. Net net, over time, outsourcing of jobs is positive. Shorter term, there are negatives due to the lost jobs, and the dislocation effects of such.
See if you even bothered to read my post you would not that "lower costs" is not necessarily the truth. It's almost an illusion of cost savings.
There may be individual cases where outsourcing does not lower the costs. When speaking of economics however, we are focusing on macro and hence aggregate outcomes, rather than micro and company specific results. In aggregate, I think the chain of outcomes I wrote about is broadly accurate. -- M
Interesting article in NY Times about outsoursing. It does make some good points, however I still think it is too early to tell what eventual effect it will have on the US economy. Rather long article if you have ADD (attention deficit disorder), but worth the read ! ------------------------------------------------------------------------- What Goes Around . . . By THOMAS L. FRIEDMAN NY Times Published: February 26, 2004 BANGALORE, India I've been in India for only a few days and I am already thinking about reincarnation. In my next life, I want to be a demagogue. Yes, I want to be able to huff and puff about complex issues - like outsourcing of jobs to India - without any reference to reality. Unfortunately, in this life, I'm stuck in the body of a reporter. So when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance - answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks - I was prepared to denounce the whole thing. "How can it be good for America to have all these Indians doing our white-collar jobs?" I asked 24/7's founder, S. Nagarajan. Well, he answered patiently, "look around this office." All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans. Consider one of the newest products to be outsourced to India: animation. Yes, a lot of your Saturday morning cartoons are drawn by Indian animators like JadooWorks, founded three years ago here in Bangalore. India, though, did not take these basic animation jobs from Americans. For 20 years they had been outsourced by U.S. movie companies, first to Japan and then to the Philippines, Korea, Hong Kong and Taiwan. The sophisticated, and more lucrative, preproduction, finishing and marketing of the animated films, though, always remained in America. Indian animation companies took the business away from the other Asians by proving to be more adept at both the hand-drawing of characters and the digital painting of each frame by computer - at a lower price. Indian artists had two advantages, explained Ashish Kulkarni, C.O.O. of JadooWorks. "They spoke English, so they could take instruction from the American directors easily, and they were comfortable doing coloring digitally." India has an abundance of traditional artists, who were able to make the transition easily to computerized digital painting. Most of these artists are the children of Hindu temple sculptors and painters. Explained Mr. Kulkarni: "We train them to transform their traditional skills to animation in a digital format." But to keep up their traditional Indian painting skills, JadooWorks has a room set aside - because the two skills reinforce each other. In short, thanks to globalization, a whole new generation of Indian traditional artists can keep up their craft rather than drive taxis to earn a living. But here's where the story really gets interesting. JadooWorks has decided to produce its own animated epic about the childhood of Krishna. To write the script, though, it wanted the best storyteller it could find and outsourced the project to an Emmy Award-winning U.S. animation writer, Jeffrey Scott - for an Indian epic! "We are also doing all the voices with American actors in Los Angeles," says Mr. Kulkarni. And the music is being written in London. JadooWorks also creates computer games for the global market but outsources all the design concepts to U.S. and British game designers. All the computers and animation software at JadooWorks have also been imported from America (H.P. and I.B.M.) or Canada, and half the staff walk around in American-branded clothing. "It's unfair that you want all your products marketed globally," argues Mr. Kulkarni, "but you don't want any jobs to go." He's right. Which is why we must design the right public policies to keep America competitive in an increasingly networked world, where every company - Indian or American - will seek to assemble the best skills from around the globe. And we must cushion those Americans hurt by the outsourcing of their jobs. But let's not be stupid and just start throwing up protectionist walls, in reaction to what seems to be happening on the surface. Because beneath the surface, what's going around is also coming around. Even an Indian cartoon company isn't just taking American jobs, it's also making them.
I think we should start outsourcing politician's and CEO's. I'm sure we can find someone to be President of the USA in India for only $6.50 an hour. I bet there would be good CEO's over there too. What the he-ll once we're at it why not? I bet we can setup a congress and senate over there for penny's on the dollar.
Hi MRWSM, Talking about Presidents in this context. I thought back about George Washington's Farewell Address. He had some good points in it. Unfortunately, he has been succeeded by what you could refer to as many "wise guys" not heeding his words. The US though can still call itself lucky to have had one George Washington writing them a final address. Most other countries are less fortunate and had to do without it. Be good, nononsense
mmm, you left out one line at the bottom: domestic jobs will be immediately outsourced - go back to 1st line "Outsourcing results in lower costs..." Continue the cycle until american salaries and wages are comparable to those in India, China and Russia