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Thursday, July 1, 2010

Thoughts on Outsourcing

I was reading a report from the Congressional Research Service (you can read it HERE) that detailed foreign aid to select countries. For example, during the year 2005, the United States contributed slightly more than $98.6 million dollars in aid to India, exclusive of food aid. During that same year, it is estimated that 587,592 U.S. jobs were outsourced to firms overseas, including India. You can read a report with this information HERE.

Now I'm not going to do any cheap math, but it does seem on the surface like our tax dollars are going to support countries that may in fact be using that aid in turn take jobs out of our economy. This is unsettling, to say the least. This is also a very complex issue on many fronts.

Does outsourcing make economic sense for a company? Basically I think the answer is "probably yes", but I've read plenty of articles that point to high percentages of errors and sky-high turnover rates at off-shore firms that can muddy the actual cost picture. American companies are notorious for only looking at the short term and for not really understanding their indirect costs (WalMart, a company I do not normally admire, is actually really good at both of those exception for sure).

Is outsourcing solely an economic issue? The answer is a definite no. It certainly causes short-term disruption (a euphemism for sure) to directly impacted workers, but I really can't find any research that points to the long-term impact that outsourcing has on individuals. Are they actually better or worse off over the long term? I really don't know. Research aside, losing one's job is one of the most disruptive things that can happen in your life, period.

Is outsourcing a political issue? Honestly, I don't trust politicians when they talk about issues like this. Why? I think the interests of most politicians lie in telling people what they want to hear ("Outsourcing is good" said Senator A to the corporate CEO as he received the PAC check; "Outsourcing is evil" said Senator B at the town hall) as opposed to a reasoned discussion of the facts. Some things in life are not black and white and some things make horrible sound-bytes, both of which make for horrible political discourse.

While there are a lot of "not sure" and "possibly" statements when it comes to this issue, one thing is absolutely certain: whether we like it or not, this issue isn't going away. As companies try to squeeze every last drop of cost savings out of their businesses, the notion of cheap but skilled labor is nothing but tempting. What's more, the world economy is increasingly becoming intertwined, which isn't necessarily a bad thing, at least at a macro level. A country is less likely to make war on a neighbor if 25% of its GDP is tied up in trade with them. None of this matters though to the people who have to personally experience these economic concepts themselves in the form of a lost job. For them this is simple stuff: It sucks.

Maybe for now though the most important concept we need to remember has nothing to do with economic's compassion...compassion for those who are anxious over the prospect of losing a job and compassion for those who are facing difficult choices because they already have lost a job. I can't control the strategic decisions of a large company, but I can at least control how I act and react to those who bear the brunt of those decisions. I can also continue to learn more about these issues because a little more knowledge is never a bad thing. Maybe, just maybe, knowing more about this will help me deal with and react to it in a more productive manner.

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