Last time I talked about how blaming outsourcing for the ugly U.S. jobs situation is misguided and just plain wrong. I promised to share a letter I prepared to President Obama in response to Monster’s Keep America Working Project, so here it is:
Mr. President, I feel your pain.
The American people have spoken. About the jobs crisis, you need to fix two things: 1) Age Discrimination and 2) Outsourcing. Good luck.
There is little nuance in the public’s two priorities. Old folks find it hard to get a job and, according to popular opinion, Outsourcing is Evil. As the lead researcher and faculty for the University of Tennessee’s Performance-Based Business Programs, I have a few glimmers of hope to share with you about item #2 – Outsourcing.
First of all, this little secret should be shared with the public: Outsourcing is not evil. In fact, if you outlawed outsourcing tomorrow, you would create a tsunami of American job losses. Let’s look at one industry that would suffer – outsourced logistics. Dr. C. John Langley Jr. reports the Third Party Logistics (3PL) industry accounted for $128.1 billion in revenue for North American companies in 2009 (that’s revenue associated from outsourcing logistics activities). That’s a lot of jobs, Sir.
Think of that UPS commercial “We love logistics!” UPS is a firm that exists BECAUSE of Outsourcing.
Plus, the companies using 3PLs credit them with helping them achieve critical goals related to service, cost, and customer satisfaction. Definitely not evil.
Now let’s get the basic terminology right. The correct term for sending jobs to other countries is Offshoring – not Outsourcing. Offshoring may in fact have nothing to do with Outsourcing! For example, Intel owns its own plant in China and many other locations in the world. That, Mr. President, is not Outsourcing but Offshoring. There are lots of reasons for business to reconsider using “low-cost” sites like Asia and China to produce goods and perform services.
Third, most businesses usually figure out how to work through issues when things are not economically sound. Recently, individual businesses and industry studies show that Offshoring may not be the best solution and, often, it is laden with problems and disappointments. The Milwaukee based American Society for Quality polled more than 300 companies and found only 34 percent said offshoring provided good value.
The common challenges of procuring goods or services outside of the United States include:
- Long term commitment and up-front investment is required for ROI
- Culture and time differences make daily operation complicated
- Communication and language issues create obstacles to management and customer service
- Cost of vendor selection, transition, and lay-offs
- Employee morale and loss of productivity in the home base
- Uncertain delivery of goods – Rising fuel cost causes Ocean Liners to slow down in order to conserve fuel. Homeland Security Inspections can delay movement of goods.
- Quality control is often difficult. (i.e. Mercury based paint on toys made in China)
In addition to all those business obstacles, there is the added problem of – dare I say it? – government intervention. Instability is present in many countries, making a long term commitment a bit scary. Here, in the U.S., there is proposed legislation for some high level meddling by prohibiting government funding to companies engaged in Offshoring, requiring identification of Offshoring to customers and authorities, and/or restrictions about transmitting personal information, (i.e. credit cards) overseas. This threat is likely enough to scare off companies from Offshoring.
And, as with most problems, businesses typically find a better way. Progressive companies are turning to a new Outsourcing model provides more value for the companies involved. Companies like the $5m Outsourced manufacturing firm MegaTech of Oregon that are investing in innovative approaches to outsourcing known as Vested Outsourcing to radically change how business is done. Rather than create outsourcing contracts centered on individual transactions or widget manufacture, it contracts for mutually agreed upon goals. In other words, business buys results, not mere activity. A full description of what this means and how it’s done can be found in the book, Vested Outsourcing: Five Rules That Will Transform Outsourcing, which is the #1 book on Outsourcing on Amazon.com.
So, Mr. President, there you have it – my glimmer of hope. There may well be a degree of natural attrition to Offshoring that will have a positive impact for American jobs. It’s a small piece of the puzzle, but, isn’t that just what is required? No magic bullet – just pieces of the puzzle, put together, a few pieces at the time, to put together a whole new, healthier Jobs picture.
Ok, I’ll get off the soapbox now!