Myths and truths of Off shoring

Myths of Off-sourcing
By Paul A. Herbig

Foreign Direct Investment is the expensing of funds towards building facilities or making investments in a country different from one’s own. American foreign investment consists of American firms making investments in another country. But not all investment is the same. If the investment is oriented towards establishing a foothold in a country, for purposes of creating goods or services to be marketed in that country, as has been the vast majority of investments overseas, then it is a vital part of globalization, of expanding markets, of creating foreign trade. However, if the investment is for the sheer purpose of avoiding higher priced labor in the homeland and all the goods or services are meant to be shipped right back to the homeland and no marketing building operations in the foreign country are expected, this I call offshoring. And it is this particular brand of foreign direct investment that has, and rightfully so, many concerned.

Offshoring is certainly not a new phenomenon. For decades, numerous manufacturing industries have been creating facilities in other countries for labor cutting reasons: mostly Mexico as a result of Maquiladoras and NAFTA treaties. Since most of the manufacturing was in basic industries and was of the labor intensive assembly type, little concern was given to the losses (which although in the tens of thousands were quickly absorbed by the booming US economy). But today we see in offshoring a far more frightful behavior. Not just labor intensive jobs but highly skilled manufacturing, service jobs, and highly educated information technology and professional jobs have been offshored and continue to be in increasingly immense numbers (hundreds of thousands if not millions).

Starting decades ago with low-skilled manufacturing jobs in basic industries, followed by textiles, cars, semiconductors, and now, services, the nimbleness of the world's economy has allowed us to reduce costs by moving production to wherever it's least expensive. The benefits to our economy--in increased productivity, lower prices, and greater demand for American products--are touted by corporate America as the only way to remain competitive. 40% of the Fortune 500 expected to have done so by the end of this year, according to the research firm Gartner Inc. The savings are dramatic: Companies can cut 20% to 70% of their labor costs by moving jobs to low-wage nations.

"It's happening much faster [than in manufacturing]," says Cynthia Kroll, senior regional economist at UC Berkeley's Haas School of Business. "There are fewer capital investments required in outsourcing a services job." Kroll cowrote a recent study that pegged the current number of jobs vulnerable in some way to offshoring at a stunning 14 million or 10% of the work force

In IT alone, Gartner estimates that another 500,000 positions in the U.S. may leave by the end of this year (2004); in one scenario, as many as 25% of all IT professional jobs could go overseas by 2008. If just 40% of those people never find another job in their field, that could be more than 1 million whose careers are altered forever..In essence, no job is safe nor permanent. If it can be routinized or computerized and does not require live person to person contact, it is vulnerable. The true numbers are not 10% but perhaps double or triple that.

Offshoring is not just an American phenomenon: Tata Consulting Services (TCS), Indian-based with an Edinburgh office, recently forecast 40% growth in offshoring jobs from Britain next year, with most of them going to India. About half of the jobs leaving Britain will be well above call centre level. And for all of Europe: 730,000 estimated number of financial services job that will migrate from Western Europe through 2008, and 100,000 telecom jobs as well. These jobs are going to principlly India but also eastern Europe and china. One estimate is that the volume of European deals could match that of America. These are not all basic labor jobs but also includes good jobs such as research, management.

Careerplanner.com. and others have come up with a list of jobs and their relative vulnerability.

Extreme Risk | Accountant | Industrial Engineer | Production Control Specialist | Quality Assurance Engineer | Call-Center Operator | Help-Desk Specialist | Telemarketer

High or Moderate Risk | Automotive Engineer | Computer Systems Analyst | Database Administrator | Software Developer | Customer-Service Representative | CAD Technician | Paralegal/Legal Assistant | Medical Transcriptionist | Copy Editor/Journalist | Film Editor | Insurance Agent | Lab Technician | Human Resources Specialist

Low Risk | Airplane Mechanic | Artist | Carpenter | Civil Engineer | Headhunter | Interior Designer.

Corporate executives are climbing on the offshoring bandwagon at an alarming rate, anxious to get at that cost savings and improve the bottom line without worrying about customers or marketing. Yet, offshoring must be entered into carefully but not all that is said is true. Quite a few of the reasons given are myths. In this chapter, we intend to explore those myths and provide the truths.



1. Indian (Chinese, fill-in-the-blank) workers are better educated, more productive, and provide better quality than American workers

Truth: the only advantage they have is that they are cheaper. Studies have indicated that they produce many times less quality but no overhead (especially pensions and health costs) (some estimates are Indian workers are 15% as productive as the average US worker). Given their wage rates of one-quarter to one-sixth that of an American worker and given that they do not burden their employers with silly frills like health care and pension costs, even at 15% they can provide a cost savings.




2. America will continue to “Move up the curve” . . . as it did from Agriculture to Manufacturing, from Manufacturing to Services, from Services to Information, from Information to (Next level?) . . . And we should forget about the lower levels that are being offshored and continue to seek higher valued jobs at the next level of the curve.

Truth:
To move from Agriculture to Manufacturing required no new skills (muscles and a strong back) and almost all could make the transition. To move to services required additional skills (basically people skills) but average intelligence could still do the job acceptably so most could easily make the transition. The third migration to information technology has been the hardest, requiring advanced math skills, good analytical skills, and advanced mental ability and that limited those who could make the transition thus leaving considerable workers behind (In an August 2003 report entitled "Offshoring: Is It a Win-Win Game?" McKinsey Global Institute concludes with great specificity that every dollar of offshoring results in 58 cents of savings to the American economy. But even that report acknowledges that 31% of workers who lost their jobs in earlier waves were never fully reemployed, with 80% taking pay cuts).
This next migration will be the hardest yet with superior mental and analytical skills required, thus severely limiting those who can make the cut. For the modern migrations, the higher the level, the more education and smarts required, and therefore the fewer the people that can move there. Which leaves us with the issue of human capital: What about the rest who cannot make the transition? Are they just throwaways, the victim of capitalism unbound, victims of creative destruction, to be left to survive as best they can? (As one victim said it best: "We've had throwaway clothes, throwaway cars, and now we have throwaway people.”) What are our obligations to them? Education and retraining? And if they are unable to do so then what? Should we have a permanent class of workers on the dole? What social ramifications exist if we were to totally ignore them? If their numbers grow too high could this lead to social unrest? Enough of these wannabes and will it disrupt the consumer spending needed to maintain our economy?
The second aspect of moving up the curve is the pyramid effect. Business Week in its March1 article on India and outsourcing information technology jobs to India provide the Software Pyramid. At the bottom and most susceptible to offshoring are basic programming positions, of which over a million exist in the U.S. The next levels up are business analysts and project manages, of which only 100,000 of each exist. These are regarded as relatively safe havens for programmers to migrate upwards. These positions require additional skills and training that many of the programmers may not have nor can acquire. What are those unable to make the cut suppose to do? Work at Wal-Mart? Become a nurse’s aide? Let us assume that half of these can make the cut to the two higher ranking job classes. (a liberal projection). However, how many do we need for each category? Certainly not 500,000. At most double those are needed. The inevitable effect of flooding those positions with new entrants is to drive down the salaries for all. It is, therefore, not realistic to move up the pyramid since not all can master the skills necessary, not sufficient positions exist, and by doing so one will be creating overcapacity which will just make life difficult for all concerned.
And finally, the official solution is to “move up the value chain”, training to do higher end functions while Indians do the grunt work. What few seem to have noticed is that Indians are already heading up the same chain. Why won’t they in the future be able to do the analysts and project managers work for much less? Why shouldn’t those categories go offshore as well? What functions are safe? What therefore, should workers retrain for that will be around long enough for them to recoup their investment in retraining? Part of the inertia seen now is the fear of the unknown, fear of investing in another occupation only to see it too go away. Can anyone really blame them?
Carly Fiorina, chief executive for Hewlett-Packard Co. Her famous quote: "There is no job that is America's God-given right any more. We have to compete for jobs." Has put her in the hall of shame. Having millions in salary, stock options, bonuses, golden parachutes, she does not have to worry about changing positions, unlike the millions of middle and lower class workers she appears to want to see out of work. I can only wonder what her attitude would be like if her board decided to replace her with an Indian CEO who would work for 1/10th as much, require her to train her replacement, and terminate her with little notice and few benefits.



3. Only “Low paying, low skill jobs” are being offshored . . .

Truth: IBM, radiologists, White-collar jobs, professionals, highly educated positions are increasingly being offshored A recent Wall Street Journal article describes the occupations that are currently being offshored: medical transcriptionists, architects and drafters, analysts—legal and investment research, accountants and tax professionals, technical writers, insurance claims processors, desktop publishing, animators, claims processing for insurance and medical industries, customer-service, telemarketing, ticketing and reservations. All these positions are relatively well-paying and contribute significantly to middle-class aspirations.
For doctors, they are well established in providing specialised secretarial services. They are looking to provide specialised accountancy and legal services, and not just for big multinationals but also for small partnerships who can use only a handful of niche offshore workers. One senior government figure was heard musing that Indians could soon be producing British newspapers.
India is now eyeing a massive sector of Western economies, which basically includes anyone who works on-screen. That starts with the back office, dealing with data entry, account reconciliation and transaction reporting. It is now continuing through travel and expenses departments, order processing and even human resources, then into professional services and some of the top-earning jobs. If a process is digitized or routinized, it can be done in India, and more cheaply. Pay rates can be one-tenth of those in the U.S. or Britain, and once other costs are factored in, overall savings tend to come out between 40-60%. For India, that next wave will be a much bigger bonanza than call centres. An American consultancy reckons that the value of offshored business processing will rise from last year’s $1.3 billion to $24bn in 2007, meaning growth at 79% per year.
Is it safe to assume that there is a skill level or point in the food chain at which jobs can no longer be outsourced? "No one's immune .” Intel Chief Executive Craig Barrett said the United States "now has to compete for every job going forward. That has not been on the table before. It had been assumed we had a lock on white-collar jobs and high-tech jobs. That is no longer the case."
Very few jobs are sancrosanct.



4. **Globalization is good for all countries “Rising Tide Raises all ships” Theory of economics . . .
Truth:
When the international barriers that separate the American economy from the third world`s economy disappear, the labor markets almost merge. An overwhelming amount of the demand for college-education-requiring high-value-added middle class labor originates in the United States. However, China and India have populations of about 2.3 billion relatively impoverished people combined, and millions of them have received college training, and hundreds of millions more could receive if it an economic driver made getting that education and training feasible. A merger of the two labor markets means that the demand for college-educated will remain almost the same, but the supply of college-educated and technologically-trained labor will increase dramatically. Basic economic principles tell us that when the supply increases relative to demand, the supply curve shifts out, lowering the price point where the supply of labor curve intersects with the demand of labor curve. In this case, because the increase in the supply of college-educated labor is so dramatic relative to the demand for college-educated labor, American wages must fall. This means that the American standard of living and quality of life will also decrease dramatically, averaging out with the poverty of the third world.
Downward mobility and bringing Americans down to their level. Yes we will keep jobs here if you will accept the pay of Indians (A January 2004 study by Foote Partners shows that IT compensation has fallen for four straight quarters in the areas most vulnerable to outsourcing, dropping an average of 7.6% in 2003 alone) What we are seeing is labor arbitrage with global wage rates being reduced to the lowest common denominator. This is true not just in blue-collar assembly work but in services and technology as well. If Americans must accept the pay of Indians or Chinese in order to secure jobs in America, at half to one-quarter or less of what they have been making, how can it be good for Americans to go from a middle class existence to one below the poverty line?



5. “Competition is forcing us to go off-shore” (They Made me do it school of thought) . . .

Truth: “Competition is forcing us to go off-shore” (What I call the ‘They Made me do it’ school of thought). That is since everybody else is going.offshore I have to too!

For American/Japanese/European based multinationals to make that statement reminds me of the “Keeping up with the Jones” brand of suburb building that we so often see in more exclusive neighborhoods (or for that matter anywhere, although the degree of expense might not be the same the rationale is). You find this phenomena where one neighbor builds a new swimming pool and all the others must do likewise ; to save face, to keep up with his neighbors, to be the same as all the other houses on the block. The rationale is the same for executive compensation: “I am only getting 3 million a year and my golfing buddy CEO of XYZ is getting 4 plus options. How can I hold my head up high, let alone play a decent game of golf being so underpaid. I know he is laughing at me. For my good morale and for the good of the company, I need to be paid the same as he. Our company is at least as good as his!!” (Don’t all you underpaid, underemployed, or unemployed workers out there feel sorry for the poor man. Anyone want to start a collection to help his self-esteem be regained?)
The problem with that line of thought is that it is pure bunk. No one has to do it and by saying everyone else is doing it, so must we, is giving away your own personal conduct of behavior in favor of the mob and following blindly the mob. What is curious is the lack of investigation on whether or not it is a good thing, what the future repercussions could be, or what it might cost you in the long run, just the reasoning if they are doing it, it must be good and so must I. (If it sounds like your young child trying to justify why he/she ought to go to a party, be with their friends, do wild stunts, or jump off a climb, it is because it is the same line of thinking with about the same amount of thought behind the lemming thinking.) The only good part about such justification is that it removes you from being held accountable and if no good comes from the decision, it is not your fault and can be blamed on the mob (likewise executive fads come and go).
So the question remains: is it really necessary in the first place? Who gains from offshoring? An examination of the facts indicate that prices are not fluctuating very much so where are the competitive effects if you are not being forced to meet another’s lower cost when all competitors are not lowering costs and in fact are actually raising them? If cost savings from lower labor costs are not being passed through to the employees, nor to lower cost of goods sold, then where are these cost savings going? It is obvious: to higher profits of the firms. These higher profits are being transferred to add to the wealth of the executives of the firm and to the investors in the form of higher stock prices. How can they justify competitive reasons for doing so when the only competitive aspect is to see whose stock is higher?

Remember, all is in the mind of the beholder. For an executive or a board to say we must follow the competition because they are making us do it can be interpreted: We don’t want them to make higher profits than we are so we must too offshore and cut our costs by laying off loyal employees. Never mind the effects on thousands of workers, on whole communities, on the American economy, just so long as my excessive executive compensation is paid, my overwhelming bonus is delivered, and my stock portfolio is padded, I am happy. If I am happy, so goes the CEO, so should be the world. (Of course if CEOs could also be offshored, perhaps he would not be so anxious to do so)

To all you CEO' thinking of engaging in offshore outsourcing just because your competitors are doing it consider this:In the spirit of true competitiveness here is a golden opportunity to kick the %#@&!! out of your competitors as follows:

1. Advertise the fact that they are displacing American workers and you are not.

2. Advertise the fact that they are exposing their customer's personal information overseas and you are not.

3. Advertise the fact that they are exposing their customers to the risk of international conflicts and you are not.

4. Advertise to recruit their ex-employees who were displaced by outsourcing. Just imagine all of the inside information and dirty laundry regarding your competitors' business practices that would fall right into your hands if you hire the right people!





6. Consumers only care about cost and could care less where it is produced
Corollary:. .Offshoring provides lower cost goods. .

Truth: "There is hardly anything in the world that some men cannot make a little worse and sell a little cheaper."
- John Ruskin

The last few years has seen an America obsessed with cost: ever driven to achieve lower and lower costs with nothing low enough. Walmart’s obsession with cost and being the lowest imaginable has caused not a few of their suppliers to go bankrupt: what they lost per unit they tried to make up in volume. It has forced most of its suppliers to locate overseas contributing to the offshoring debacle and the immense trade deficit. It is not the only corporation so inclined: The Automotive industry has challenged it suppliers to cut costs to meet Chinese levels or beware the consequences. Of course, America’s consumers are not short of blame: in their effort to find the cheapest items, to cut pennies off items, they have made Walmart the largest corporation in the world and in the process destroyed the business infrastructure of a thousand small towns. But what the heck, we saved a few pennies didn’t we?
Which makes me wonder (Yes I do question life and its perplexities a lot). Is there more to life than cost? Is life supposed to be all about finding the cheapest item always, no matter what the eventual cost? Let us presume it is. If true, we would all be driving Yugos, living in mobile homes, wearing hand-me-down clothes until they turned to rags, eating spam and mac ‘n cheese every day, using old crates for furniture, drinking boone’s farm, and rolling your own. Let’s take a roll call of readers: how many fall into this category? I’m still searching. Just what I suspected: none.
If there is more to life than the cost of an item then what are they? Why buy a Chevy, A Ford, a Chrysler rather than a Yugo? Perhaps it deals with reputation, quality, reliability, service, support (not to mention safety!). We are willing to pay additional for these items. Why then do we buy SUVs or MiniVans? Perhaps it is because we need to ferry more than 2 people at a time (in the case of some soccer moms or dads an entire team). Then it is worth paying more for to have the features and capabilities we seek. The boss is in the market for another vehicle and she will only consider minivans. Why? Because in one she sits up high and feels more in control than in a street hugging vehicle. Is she willing to pay more for that function: of course.
Let’s take the analogy one step further. Why would anyone want to purchase a BMW, Porsche, or Mercedes Benz when they can get the same transportation capabilities for a lot less? Because they want more, the prestige, the status, the eye-turning vehicle, than just a mere engine and four wheels. And then, if given the choice, would you buy from your reliable dealer Jim, a trusted family friend for over 20 years, with whom you have purchased three vehicles and have had them serviced without problems for that entire length of time, or from Friendly Al, the shady new dealer just down the street who offers you the same car for $100 less. I do not know about you but I would choose Jim every time. Why? There is a lot less risk with a known tried entity than with an unknown. Does that mean I am willing to pay more for dealing with Jim. Yes. I know he will be there tomorrow if I need him; I have no such confidence with Friendly Al.
Is there more to life than mere cost? Yes. Than why are we as consumers, as industrial customers, so penny-wise and pound foolish? Why stop doing business with an American firm whom you have dealt with for fifty flawless years to buy from a new Chinese firm just to save a few pennies? Is it worth ignoring Old Joe, the bicycle shop owner, whom you have purchased three bikes from and have had serviced and repaired without failure, just to save $5 or $10 at an unnamed big box Discount store and as a consequence see Old Joe go out of business? Who then will fix your bikes? Not the big box store for sure.
Isn’t it about time we view the future and examine the consequences before running to save a few pennies? There is a lot more than just cost in life and we ought to consider those factors before our next purchase.



7. Better Education, more skills are the answer for American Workers. . . ?

We are shooting ourselves in the foot. The Information Technology (IT) industry in the U.S. has begun an inevitable death spiral. Offshoring and high unemployment in the field has caused wages to drop dramatically. They will continue until an equilibrium with overseas counterparts has been reached (probably in low 40s). The best and brightest of our youth will see this tumble and correctly calculate the industry holds no future for them and they will go elsewhere (The number of Computer Science majors have fallen annually over the last 3 years and will continue to drop). One day the multinationals will look around and comment with delayed justification, “See. We can’t find enough good IT workers. Not enough American students are entering this field so we have no choice but to bring in foreign workers and offshore these jobs.”. And so the vicious circle has claimed yet another American industry.
"The problem is not a lack of highly educated workers," said Scott Kirwin, founder of the Information Technology Professionals Association of America."The problem is a lack of highly educated workers willing to work for the minimum wage or lower in the U.S. Costs are driving outsourcing, not the quality of American schools."



8. The looming American labor shortage (when baby boomers retire) is a cause of off-shoring and will mute its effect . . .

“There are three types of lies in this world: lies, damned lies, and statistics.” Mark Twain

Truth: No such imminent shortage exists

As a marketing instructor, I continually preach to my students one of the keys to success is to catch a trend early and ride its shirttails to riches. Some of the easiest trends to spot come from an analysis of demographics. It is easy to determine how many college students there will be 10 years from now, just count the 8-12 year olds and voila you have an excellent picture of what to expect. Along the same vein, though, demographics are statistics and, as Mark Twain so eloquently phrased it, sometimes you can twist the facts to read what you want them to. Beware!

My sermon this week is on the myth of the upcoming labor shortage Recently, the U.S. Bureau of Labor Statistics estimates a shortfall of about 10 million workers within the next seven years. “Between 2000 and 2010, the number of Americans between the ages of 55 and 64 will jump 47.2 percent, while those aged 25 to 34 will increase only 2.8 percent. The number of workers aged 35 to 45 will actually drop 13.7 percent.”
The study suggests employers may well face difficult challenges in recruiting and hiring people in the future..

The demographic that is causing this panic is the retirement of the baby boomers. The Baby Boomers, those born between 1946 and 1960 have been known as the pig in the python for their tidal wave effect on the social fabric of this nation ever since their births. The Baby Bust, Generation X as sometimes referred to, were born from 1963 to 1977 and consist of only 60% of the numbers the Boomers had. By 2010, it is estimated there will be 74 Million boomers compared to only 47 Million Busters. Herein lies the worry, those first boomers will reach retirement age in 2011 with the rest to follow for the next two decades. With such huge numbers of boomers retiring and considerably fewer busters, to many Chicken Littles, it is a crisis in the making.

Fallacies with this argument are many. 1) this assumption is predicated on the unrealistic expectation that the boomers will quit work at age 65. Unlike their parents and grandparents, many boomers will continue to work past 65, even though they may change the kind of work they do. The Retirement Confidence Survey released by the Employee Benefit Research Institute in April found workers expect to stay on the job longer to make up for any savings shortfall with 54% expecting to wait until at least age 65 to retire and 68% expecting to work for pay in some capacity after they retire. As the age to receive full retirement benefits edges upwards towards 70, many boomers will continue to work even after 65. With offshoring downsizing and downward mobility hitting particularly hard the professional class, many boomers will have minimal retirement savings and must continue to work just to survive. Retire at 65. I wish.

2) Not only will the general population continue to grow, so will the labor force The Bureau of Labor Statistics estimates that the labor force will rise from 153 million in 2000 to 159 million in 2010. The assertion that the labor force will be smaller in the years ahead is wrong since the baby-bust cohort will be followed by an even larger generation, the Baby Boomlet, Generation Y, the children of the Boomers, who are now in their teens and 20s.

3) The U.S. economy today is eight times bigger than it was at the end of World War II, but the workforce is only twice as big. Put another way, employees are roughly four times as productive today as they were in the late 1940s. If there had been no improvement in productivity, the economy would need four times as many workers as it now has in order to sustain the current level of gross domestic product. Continued productivity will limit the need for new workers (current productivity numbers of 3-4 percent mean a doubling every 20-25 years: that is, by 2030 it is likely we could have an economy twice as large as today manned by the same number of workers!).

4) Immigration, foreign workers in the U.S., and offshoring of U.S. jobs to other countries will impact both the work force and the number of jobs available.

The moral of the story is not to believe everything you hear or see unless you have had the chance to check the sources. Sometimes numbers do lie. Get in early on trends just make certain they are true trends!







9. Americans make too much (are overpaid).and we should learn to live with much less. .

i.e.,computer programming is generally calculated to cost $80 per hour. In India, that figure drops to $22 per hour, and in China it falls to $15 an hour.

Truth:
If you count health care benefits and pensions. If you include tougher labor laws, environmental standards, which workers in other countries do not have, perhaps not overpaid after all Would you want to sacrifice all those gains we have made in those fields so you can go back to paying workers below minimum just to compete with foreign workers? I think not.



10. Indians and Chinese need the jobs.

Truth: Approximately 150 million jobs exist in US. There are 2.5 Billion East Asians, mostly Indians and Chinese. Therefore, the number of jobs required for East Asians are upwards of 1.5 Billion. You could transfer all the American jobs to East Asia and still provide only 10% of needed jobs. I am all in favor of being charitable towards the poor Indians and Chinese but not at the price of sacrificing my own welfare or the future of my children.



11. India and China are where it is going to be at for the 21st century.

Truth: Only as long as cheap labor is available. As wage levels increase in those countries, multinationals will be looking at the next cheaper area. Already, jobs that just five years ago went to Ireland are now done in India; as wages rise there, new, cheaper sources of well-trained workers are springing up in such places as the Philippines and, of course, China



12. Foreign Direct Investment in the US is immense and any reaction to offshoring would hinder investments here let alone additional investment.

Truth: I have been writing often about the offshoring of US jobs to lower wage countries (right now that is India or China but come next year it may be an even lower wage country—sort of like the country of the month club—sic!!). I have received many notes from those who want to point out the immense number of “insourced” jobs that exist—that is, those companies which are foreign owned who have placed plants or facilities in the United States and hired American citizens as workers They point to these insourced companies and indicate that is exactly what American companies are doing when they offsource and that we can’t forget all the insourced companies.

I am very cognizant of foreign direct investment in the United States. (on the order of hundreds of billions of dollars) I am thankful of it and appreciative of the work it provides to American workers. But comparing the performance of these companies to US companies offshoring is not the same: it is an apples to oranges comparison.

Foreign companies when they come to the US (for example Toyota, Honda or Nissan to name just a few highly visible companies), set up shop here with the main objective of serving the U.S. marketplace, of providing goods to US consumers, or providing products to companies located in the United States which then produce goods for the American consumer. This is a very basic principle of trade: moving to where your markets are. It has been the predominant aspect of Foreign Direct Investment forever. U.S. Manufacturers build plants in Europe to serve the European Marketplace. Right now there are considerable foreign investment being pursued in China with the main objective being providing goods for the red hot Chinese marketplace. I have no problems with this nor should anyone else.

Where then is my gripe? When American firms move facilities to other countries for the expressed purpose of utilizing the lower wages in that country but whose final intent or destination for those goods are the good old U.S.A. This is offshoring. Call centers are an excellent example. Their major purpose is to service the American marketplace. When they are moved, lock, stock, and barrel, to India, they are oriented not to serve the Indian marketplace but to continue to serve the American market. The same goes for Information Technology jobs, other manufacturing and service jobs which are primarily uprooted from the US and moved to another country for the sole purpose of taking advantage of lower wages and not to serve the local market. This offshoring is merely a sham on American workers.

Which brings to mind another interesting thought. The U.S. has a $500 billion trade deficit, increasing yearly. During the late 70s, we were losing auto industry share to Japanese companies. What we did then was to twist their arms and indicate forcefully that if they wanted to sell automobiles here, they need to build them here. And it worked. Today millions of cars per year are built in the U.S. by foreign auto manufacturers.

Why can’t we take a similar tact for other goods? If they want to sell it here, they must make it here? We did it before and it worked to save an entire industry. As a country with the highest standard of living in the world and the most lucrative consumer market that exists, why shouldn’t the government twist arms with other counties over other industries to build product here. If they want to sell it in the US they must produce so much of the product (or so much a percentage of the good must be American content) or else?

We are losing entire industries in a space of a few years. We must act and act now to reverse the flow. Sell it here. Build it here. That’s my motto..



13. American firms have only best American interests at hear.

Truth: Right. And you believe in Santa Claus and the Tooth Fairy too!
Newsnote: In March 2004, German Chancellor Gerhard Schroder called multinationals that transfer jobs to lower cost countries “unpatriotic.”

The Fortune 1000 and their service counterparts (Banks, Brokerages, insurance, Transportation) can no longer be considered American companies but, instead, multinational entities. This is not mere synaptics. American companies have loyalty and commitment to the United States and the communities they reside in. Not so for multinational concerns, which most all the larger corporations have become. Their entire mission is to be globally competitive (in itself not an altogether evil concept but as taken to the extreme as it has been, it has considerable negative consequences to the local communities and nation as a whole). Multinational corporations, in general, could care less where a product is manufactured nor where it is developed as long as it is available on a global basis for a competitive price. Any cost savings do not necessarily go into lower product costs nor higher innovation nor additional research and development as economists would have you believe but rather into higher profits which translates into higher bonuses and salaries for the executives and higher stock prices for the privileged few owners of the stocks. The German Chancellor is right but patriotism for most multinationals serves no purpose at a stockholder’s meeting, during a board meeting, or to the marketplace.

Just examine our own local communities. What entities belong to the Chamber of Commerce? Which ones regularly donate goods for charities or raffles or school functions? Local small businesses. The larger chains, the big boxes, the corporate owned fast food franchises, have no stakes in the community save to pluck as much cash out as possible to ship it to their headquarters, wherever that may be. What commitment do these firms (mostly divisions or branches of the Fortune 1000) have to our communities? None. And that is the way they want it to be.

A Paradox analogous to the tragedy of the commons is inevitable here. The multinationals covet the American marketplace, the hundreds of millions of (right now) well-off consumers. Yet they wish to eventually serve that market from afar with minimum or no high-priced American labor. They are counting on all the other companies to stay in America providing high wage jobs to provide income to spend on their own goods made overseas and services provided offshore. What is going to happen when most if not all companies decide to exploit labor arbitrage and seek the lowest possible costs. What companies will be left producing in the US to provide those high paying jobs to allow the other companies to continue to supply their foreign made goods to the American consumer? (the answer: as few as possible unless we the people do something and fast). What will happen when a critical mass of companies have gone overseas is analogical a volcanic crater when all the lava has been expelled: a catastrophic collapse of the economy, the currency, the social climate. A rapid descent into a second or even third world economy could well result.

And what of the major multinational corporations? With the North American market gone, very little reason exists for any headquarter or development function to remain here. It would probably be better served in a country that is ascending, not one that has descended to the depths. Multinationals are only interested in marketing to affluent markets but producing products at the lowest possible prices. What causes affluence? The availability (or inevitable lack) of high paying jobs which, by definition, the multinationals will seek to move elsewhere to the lowest possible cost source, and in so doing will destroy the very affluence they feed off. Unlike a parasite, though, once their host has been consumed, they will not necessarily die with it but move on to the next market, the next lowest cost producing country, ever seeking that absolute bottom: where workers will pay them for the privilege of working for the corporation.

Corporate Loyalty. Dream on. That concept died years ago





What are the Unabated Consequences: of offshoring that are not being told?
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1. The eventual rise of a*Two class system: the haves and the have nots and the loss of the middle class
America’ Middle Class has traditionally been composed of higher paying manufacturing (blue Collar) workers, white collar (service) workers, and professionals. Manufacturing is rapidly exiting the Country and as the article so explicitly describes, so are service jobs and eventually many professional jobs as well. Those who have lost their jobs are finding their future downwardly mobile as they find positions paying half or less their previous employment; record bankruptcies and foreclosures tell their story of survival on a day-to-day basis. Those who still have their jobs find unrelenting downward pressures on both wages and benefits. The net result in the not-so-distant future is the disappearance of the American Middle Class. The extinction of this class that has been the glue of the American social fabric for over two centuries does not bode well for this country. The effect of globalization and multinationals with no country loyalty (IBM can no longer be considered an American firm but a global one who seeks global advantages no matter what cost to any nation state) is the lowering of global wages to the least common denominator (As India will soon learn to its amazement when ‘higher-paying’ Indian jobs start moving to Filipinos and Indonesians who will work for half to third). As for globalization, beware of what you asked for, you just might get it, and we did!

2. National Security problems
We are also giving away our technology to other countries. As jobs are eliminated in the states, the people with those skills disappear and the information gets (partially) lost in the process. We are now so dependant on Asia that we would have a hard time if they cut all ties with the US.
the rapid escalation of outsourcing worries some economists and venture capitalists. Although startups rarely employ more than a few hundred people--often working for smaller salaries than big companies pay--they act as crucial incubators and entrepreneurial farm teams for established companies. Outsourcing startup work could have disastrous long-term consequences, critics say, depriving Americans of unique business experience and minimizing the likelihood that the next Hewlett-Packard will get its start in a Palo Alto garage.

"Silicon Valley isn't dead yet, but could outsourcing become a risk to the ecosystem?" asks Allen Morgan, managing director of Menlo Park-based venture firm Mayfield Fund. "Human beings aren't good at recognizing risks to the ecosystem when they're acting in their own self-interest--that's the case with the environment, and it might be the case now with Silicon Valley
Venture firms now sponsor how-to outsourcing clinics for companies in their portfolio, and more entrepreneurs are pitching business proposals that already include detailed offshore strategies. How "offshoreable" a project is can determine whether a venture firm will endorse a company with an initial funding round
3. Future uncertainties in education
Absurdly, Americans are being urged to "retrain" or acquire "additional skills" in the face of the trend to send jobs offshore — as if the vast majority of jobs they might retrain for couldn't just as easily be sent offshore, too, no matter what "additional skills" they might acquire. Too, the exporting of any job from any sector increases pressure on all the remaining sectors, because it increases the labor supply and drives down wages for everybody. Worst of all, the offshoring trend is accelerating, and is almost certain to accelerate even faster in the future; and if this occurs it will make for tremendous economic turbulence, which will make it difficult to even guess what to retrain for

4. Compression of wages everywhere in the economy:
Real Estate example—personal services flood

5. Loss of significant portion of tax base that will have to be made up by the rest of us (i.e. our own taxes rise greatly)

6.Privacy and security issues (of data)
Outsourcing jobs to offshore destinations can sharply increase data privacy risks and the complexity of managing that risk, several experts
at the Fourth Annual Privacy and Data Security Summit here warned this week. As a result, companies need to ensure that overseas vendors are contractually tied to specific conditions regarding how data is transmitted, accessed, used,stored and shared, they said. Those challenges include regulatory compliance, data protection and access issues, as well as monitoring and auditing issues.
Security breaches at offshore locations can be harder to
detect -- and deal with -- from a regulatory compliance standpoint. Under
California law, for example, companies are required to notify customers of
any database breach that may have compromised the customers'personal data as soon as the breach is discovered. With overseas vendors, it becomes a lotharder to know whether, and exactly when, a material breach may have occurred,
Also, when data is sent overseas for processing, companies often make little attempt at categorizing it. Personal data covered by privacy laws might be combined in one database with data protected under HIPAA rules or other laws. That makes it much harder to provide adequate levels of protection for different classes of data. Several companies that ship work overseas also handle data on European Union citizens and must abide by the more stringent requirements of EU privacy laws. In such cases, companies need to understand their own legal obligations.
Ensuring adequate physical protection of data at a foreign site is more difficult than doing so at a local site. Also, it's harder to find out if
data is being improperly accessed or misused. Sometimes overseas vendors mightsubcontract work out to smaller vendors within their own countries or tothose in other countries, adding yet another layer of risk.
A country's data privacy laws and its legal system also make a difference. India, which is the biggest outsourcing destination for many companies, has no formal data privacy law. Offshore vendors aren't obligated to comply with thesame privacy regulations their customers must meet as owners of the data.

7. Downward mobility, moving down economic scale to their level
8. Who will be able to afford all those cheap goods.
9. Crime, workplace violence increases
10. Potential civil war: haves vs have nots
In the SHORT-INTERMEDIATE term (10-20 years) offshoring could trigger an economic and political crisis in this country.
As we dilute our current "wealth" with 3rd world economics (masses living in poverty) by exporting all the wealth overseas, and importing disease, unemployment and hopelessness.
There will be a massive deflationary spiral triggered initially by the collapsing labor-cost "bubble" - one that has been growing and inflating for many many decades. And then add to that volatile cauldron, the $6 trillion government debt and the many
trillions of record consumer and mortgage debt that have been building up over the decades.With no jobs no-one will be servicing their massive debt loads anymore.Banks will begin to collapse.The economy will implode with a big BANG. Only the privileged few (in this country) will be able to afford the high priced products being sold by the companies that did all the offshoring. No-one will be able to pay for the overpriced housing, overpriced medical care, high taxes, any and all good and services sold in this country that on average are way higher than the rest of the civilized world.They will have to slash prices as demand goes to zero. And finally, it will be have versus have-not battle with the wealthy in their protected, gated communities guarded by their own security force attempting to protect themselves against the unemployed mobs in a scene reminiscent of the storming of Bastille.