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Economic Treason: The New Future?

Winners and Losers in the outsourcing game

A trend begun on factory floors in an effort to replace low- and medium-skilled blue-collar workers so companies could save money, outsourcing has recently become a heated election-year issue. While it is difficult to hide plant closings and relocate their operations, it takes only a few clicks of a mouse on a virtual ledger to lay off hundreds, if not thousands, and hire 10 times as many more overseas. Who really benefits from this? Despite the reports from executives who swear by outsourcing, the answer is not as obvious as you might think.

In the beginning, no one - from the controllers and their financial analysts to the "nameless, faceless drones" on the manufacturing floor - really knew this would happen. Then one day someone realized it would be cheaper to take manufacturing jobs and send them elsewhere. Besides, the people here could always learn something else - the next big thing would always be around the corner. The result was devastating.

Families were forced to sell their homes, and countless lives were ruined. Many people still have not fully recovered from this attempt to "offshore" their work - work that can be done here just as efficiently as "there," wherever "there" is.

Fast-forward to the relatively recent past. Many people in various parts of the U.S. took part in one of the largest economic expansions in history, known as the "dot-com boom." Companies employed many people, each with huge amounts of heavily diluted stock options that may or may not have had a chance for success.

To feed this frenzy, companies claimed they needed even more people and thus created special visa programs to hire a constant stream of competent talent from overseas to make sure their widget or software application was better, faster, or cheaper than their competitor's. When the bubble finally burst in the early part of the 21st century, many of these companies went bankrupt, merged with other companies, or limped along into the present day.

Those that managed to hang on did grow, but had issues with showing it to the world. Some of these companies decided to lay off entire divisions and claimed huge savings, hoping that their stockholders wouldn't read their 10-Ks. Many of these companies showed that they were profitable, but quietly enlarged their operations overseas.

At least one U.S. CEO has gone on record claiming that the U.S. workforce is not smart enough, which justifies the need to go overseas for labor. When we hear something like this, we need to be very skeptical. Many of the people who work in the IT field are highly educated and need to be aware of what is going on around them. The question remains: Who are the winners and who are the losers of this outsourcing game?

  • The American employee (loser): American employees lose in both the short and long term because they do not get an opportunity to defend themselves. If things do not change, they will continue to lose their jobs, not just to someone overseas, but to a CEO who is too shortsighted to see the big picture.
  • The CEO (winner/loser): The CEOs are winners in the short term but losers in the long term. While CEOs may be winners for now because they gain personal wealth, they mortgage their future - eventually they will have nothing left to sell after the company (or companies) to which they have outsourced owns everything.
  • Board members (winners/losers): Same as CEOs; board members are little more than a set of pawns in this game, because they don't have much say in what is going on. However, they should stand up and do what is right for their companies - and more important, the country - not just what is right for their wallets.
  • Outsourced employees (unknown/winners): While many writers have stated that, thanks to American companies, many of the countries that are home to offshore employees are developing a middle class, it is unclear to me whether this is something we should feel responsible for. If other countries do this along with us, I am fully in support, but we should not be going it alone (or mostly alone). Further, this is not to say that I am a protectionist or an isolationist - we do need equality between the U.S. and other countries - but will these countries become like the animals in George Orwell's Animal Farm - where some are more equal than others? In the long term, they are truly the winners because at the current pace, companies will give them all of the technology, leaving us with nothing to work with - which is a very scary proposition.
So where does that leave us? According to a story I heard on the news, 30 states are working on legislation to restrict or punish companies that outsource. However, the question is, to what degree? Will it be a slap on the wrist or will it be something punitive? For the benefit of the whole U.S., it clearly needs to be the latter.

In general, most companies have looked only at their short-term profits as an indicator of whether or not to outsource. While this may be okay for an individual company, when everyone does it, it creates the crisis we have today. We have transformed our economy from one that is manufacturing based (where we create value) into one that is service based (where we simply move money from one pocket to another). The foreign countries that do the manufacturing for us will reap the benefits in the end.

There is no reason why companies can't do manufacturing here. People can be trained; assembly lines and factories can be built. Further, incentives can be put in place to get people interested in software development and IT positions in the medium and long term. It is very important that companies know that this is a very serious issue - not just an election-time phenomenon. Outsourcing truly is criminal!

More Stories By Jeff Schaffzin

Jeff Schaffzin is an IT industry veteran who has worked for a number of leading software companies in such segments as relational databases, product life-cycle management, business intelligence, and application servers. Jeff has served as a courseware developer/trainer, applications engineer, and in product marketing/management positions. He currently works as a writer and a marketing consultant in the enterprise software industry.

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Most Recent Comments
john anderson 05/13/04 01:51:40 AM EDT

we all live and die by profit. we make more profit when we can reduce cost. we lose profit (and court death)when we fail to take a cost reduction our competitors can.

outsourcing that reduces cost is a dynamic that will grow.

the real question is how do we assist our own unskilled/semi skilled workers to add real value such that others will outsource here (where ever here is).

the creation of capital is good. we just need to create it. then with the newly created capital we can assist our fellow citizens.