The Evils of Outsourcing?

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It’s been one of the major battle cries against “big business” for the past several years.  It’s been ruining the economy and is just another way for companies to abuse their workers.  And it won’t stop until it puts the United States economy to a screeching halt.

It is…outsourcing.

Outsourcing is one of the few things that a business will do that seems to anger those on the right as much as it does the left.  The act of sending some jobs somewhere overseas never evokes anything but disgust from many Americans.

But why?  Why would a company pick itself up and move all the way to another country to start doing business?  Does it ever have any benefits?

Like anything else in the business world, it’s all about money.  And don’t be fooled, that’s not a bad thing.  Businesses want your money.  If they didn’t, they wouldn’t really try to make anything that would tempt you to give them your money.  It’s through this desire for cash that someone will go out of their way to please you.  Who do you tip more: the cranky, slow waiter or the cheerful waiter who is quick with his service?

When a company moves overseas, it’s a business move.  It’s expensive to purchase property and then to renovate that property in order to make it suitable to operate your business, so there’s got to be a good reason for them to do it.  Usually, the reason is because it costs too much money to run in the current country.  This can be the result of high taxes or labor becoming too expensive—or a combination of the two.  Notice the countries that companies move to.  They’re places like India, China, Pakistan, Indonesia, etc.  What do these places have in common?  The cost of living is lower than it is in the United States.  This makes the cost of labor drop considerably.

We live in a global economy nowadays and that likely isn’t going to change.  And that’s a good thing because the more brains we put to ideas and products, the better the outcome.  Workers in the US have to understand that they’re no longer just competing with the new, young kid who would take your job for a few dollars less an hour; they’re competing with people who will literally do your job for a few bucks a day.

Outsourcing jobs is depicted as an immoral act because when someone loses their job, it causes them suffering.  Sure, losing your job usually isn’t a good thing, but if you only look at it this way, you’re seeing just half the picture.  It’s very ironic—the same people who hate outsourcing are many times the ones who lament the plight of the poor around the world.  When a job is sent overseas, it means that someone who otherwise wouldn’t have gotten the job is now working.  It’s helping the local economy.  As meager as the paycheck by our standards is, it allows the worker’s family to eat.

What happens if the company decides to send the jobs back here?  Now the people in the poorer country lose their jobs.  But no, don’t be concerned about that.  You, living in Nevada, should be concerned about someone losing a job in Maine, but not about someone losing their job in Thailand.  Does that make any sense?

The lowering of production costs that come with outsourcing are of benefit to the consumer.  Lower costs to the business means that they can sell their product or service at a cheaper price.  The cheaper prices keep more money in the pockets of the consumer, some of which may go to other businesses that they wouldn’t have otherwise patronized.  This grows these other businesses to the point that may be able to hire the people looking for jobs after theirs were outsourced.

It follows the same principle as technological advances (computers taking the jobs of people).  If technology and outsourcing were so bad for the job market, why hasn’t it caused massive unemployment?

So what could be one of the worst things we can do to businesses sending jobs overseas?  Tax them, of course!

It’s the new hip thing to say, “We should impose major tariffs on imports.  We should tax companies that send jobs overseas.  This will make it easier for America to produce for American consumers.”  It sounds nice, but it’s going to kill the pocketbooks of the people in this country.

Say it costs 90 cents to produce a product in the United States and it sells for $1.  In India, it only costs 60 cents to produce an identical product, so it can be sold here for 70 cents.  Apparently, that’s bad, so the government imposes taxes and tariffs on companies that have outsourced to India.  With the additional taxes, it would cost $1.20 to make the product in India (making the selling price $1.30), so the company brings production back to the United States.  Because of lack of competition, the cost of production goes up to $1.10.  Because of this protectionism, it now costs $1.20 to purchase the item that you could have had for 70 cents.

This was a simplified example, but the concepts hold true.  Businesses are always trying to lower the amount of money they spend to make their products.  Preventing this results in prices from settling in at their natural (i.e. lower) rates.  Since companies want to keep their profit margins, taxes and fees on a business aren’t actually absorbed by the business.  They are passed on to the consumer.  If the price of food for cattle dropped drastically, you’d see a drop in the price of milk and beef.  If they imposed a “cattle feed” tax, milk and beef would go up in price.

Just remember, a business is not the property of the employee (assuming it isn’t employee-run, obviously) or the government.  The owners, well, own the business.  If they can find people to work for them at a mutually agreed upon price, no matter where in the world it is, it’s none of your business to coerce them into doing something differently.

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Lisa Small
Guest
I was recently laid off from a large mortgage corporation I was employed at for 2 1/2 years. During those 2 1/2 years I observed some many things that surprised me because I had been out of the corporate world for about 15 years. Some of what I observed was poor managment, lack of knowledge, lack of care for employees and customers and outsourcing woes. Since this article deals with outsourcing, I’ll focus my comment on that. In the dept I was in, we outsourced many tasks to India and the Phillipines (I’m not sure where else). I was there… Read more »
Lisa Small
Guest
Reposting my comment with corrections: I was recently laid off from a large mortgage corporation I was employed at for 2 1/2 years. During those 2 1/2 years I observed some things that surprised me because I had been out of the corporate world for about 15 years. Some of what I observed was poor managment, lack of knowledge, lack of care for employees and customers and outsourcing woes. Since this article deals with outsourcing, I’ll focus my comment on that. In the dept I was in, we outsourced many tasks to India and the Phillipines (I’m not sure where… Read more »
Rollo McFloogle
Guest
I may have not done a good job in making clear is that I’m only laying out what businesses should be allowed to do in a free market. It sounds like your company was just poorly run. Bad outsourcing will turn out badly. It’s not accepted that switching to computerized systems is usually a pretty good thing for business. However, choosing terrible software isn’t going to work, but that doesn’t make computers bad. When an economy starts outsourcing it’s work (and is doing it healthily), it’s moving onto bigger and better things. We outsource most tasks in our own lives.… Read more »
jeangarrell
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Reblogged this on njgarrell.

ISM Group, Inc.
Guest

Reblogged this on ISM Group, Inc. and commented:
As long as our government keeps raising taxes and mandates on businesses in the US, companies will outsource.

Steve
Guest
Regardless of whether or not a company decides to outsource, the decision must be based on a solid business model. It sounds like there was a lot of problems with the mortgage company to begin with. Outsourcing was an easy way to lower costs, but this only put a band-aid on a wound that required stitches. As for the CEO who didn’t deserve $2 million, who is anyone to say what this individual should have been paid? I’m sure the salary was mutually determined between the CEO and a board of directors or shareholders. These individuals are financially vested in… Read more »
Lisa Small
Guest
Steve, If you re-read my comment I wasn’t begrudging the CEO or anyone, just merely questioning is a person’s knowledge and skills really worth that much. Sadly most of us don’t seem to question much these days. Without questioning we fall prey to whatever someone else decides is good for us. It’s quite possible that by paying someone extraordinary amounts of money does damage in the overall scheme of things. It also raises the bar so that other companies have to compete. Where does it end? Problems like salary wars can arise and then the focus is lost. Many people… Read more »
Steve
Guest
A person’s skills are worth what the market is willing to pay. Period. In the situation you described, the CEO was paid $2 million because those in charge of the purse strings believed his contributions to the company would equal or (most likely) exceed the cost. If the company felt your labor was worth $2 million, I’m sure they would have gladly paid you the same amount. And what is the problem with salary wars? As salaries increase, it attracts the best and brightest individuals to enter a particular industry. You can argue all you want about people wanting to… Read more »
lance
Guest
While the mexicans work for $8 per hour, its pretty hard to compete here in AZ. Similarly, if the Chinese are willing to work for $2 per day, US manufacturing in Cincinnati has no chance. Maybe if we supported organized labour movements in Mexico and China then not only would be be preventing the rich from stealing from the poor, we could also provide quality employment in Detroit. And really, do we need cheap stuff so badly? Maybe we could get better at doing with less instead. With a global minimum wage, Walmart may go out of business, Horders would… Read more »
Rollo McFloogle
Guest

How is paying someone to work for $2 an hour theft? If businesses only spent $2 an hour on labor, they’d be able to invest that money in other things.

slappyjones2
Guest
Thanks for checking out the blog. If we artificially raise prices by forcing employers to pay more money to their employees above what they would agree to in a free market, then more capital goes toward things we used to get for less. That give us less money to spend on other things, which would have devastating effects in the economy. It could very well force small and mid-sized businesses out of the market because they’d have a tougher time covering the costs. Then you’d have a few large WalMart type companies that employee everyone. When that happens if your… Read more »
lance
Guest
“How is paying someone $2 per hour theft?” During the Diaz regime in Mexico (1876 – 1912) the generational land owners discovered a new law requiring them to have legal title, which really meant their mostly untitled land went to auction. Often sold for under $1 per acre, they did not have any currency with which to bid. Consequently,the Figuero brothers found themselves owning 13 million acres and over 500 000 cows. As for the peasants, they now had new jobs. Since they had no options to work in the paint store, their only choice was to work on the… Read more »
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[…] few posts ago, I spoke about the apparent evils of outsourcing.  The sort of outsourcing discussed was moving jobs to another geographic location in order to […]