A Practical Perspective of the Limits of Business Outsourcing
It has been taken for more than granted that globalization and outsourcing are the ways of the future and that the future is here. Yet times are changing yet again. High oil and fuel prices have seen to that.
What is the rationale behind outsourcing? "Outsourcing "after all is why when you go to your local Wal-Mart store that everything is "priced so reasonable" and yet you see your neighbor's house foreclosed. It turns out that no one comes to buy pizzas, or buy other such conveniences and luxuries so your kids either cannot find the old stand by jobs , or even when they do find jobs - all that seems to be available is those "entry level " jobs at the big box stores. Even with all the experience and time put in at the world, at these jobs there are few, if any, of the better, upscale jobs which in former years a worker upgraded to, and then was able to support a home and family with the greater income of the "better "jobs.
What is outsourcing? Outsourcing can be said to be the practice of using outside firms to handle work normally handled in house by the firm. For any of a number of reasons work was outsourced previously - less cost , non unionized workers, less benefits to workers resulting in lower costs, deadlines, production shortages etc etc.
The list was endless. Outsourcing became routine. The difference now is that outsourcing used to mean sending the work across the country or across town. Now outsourcing means that the work is being sent far away - somewhere half way around the world. It can be China for manufacturing, or India for services and work that can be done by telephone or able to traverse the globe by internet.
However things are now changing. As with most management adoptions the ideas are often taken totally out of context to great extremes. Take as an example "just in time delivery". Just in time delivery was a concept pioneered and implemented to great success in Japan. Instead of factories holding large amounts of stock and parts Japanese factories worked with much lower stocks. Indeed parts essential for production were often delivered to the factories "just in time".
The whole idea sounded great to North American managers who adopted in whole hog. After all it was the "modern way", "more efficient " and in the end "more profitable for the bottom line", The only fly is the ointment is the concept of distance in North America is not what it is in Japan. Perhaps in some areas of the country, such as the factories of Indiana where everything seems to be nearby and local it works fine.
Consider the ludicrous situations where couriers are hired just to drive one box to a factory 600 miles away for just in time delivery. That part it seems is the linchpin of production of a major item. In the end it all comes down to proper balance and placing ideas and things in perspective.
In the same way globalization and outsourcing have their merits and limitations. Mundane tasks which can be done at a lower task far away and at much less cost are fine. Indeed this can offload routine, time consuming tasks such as tax returns to a foreign worker to complete are fine. The highly trained and certified accountant can now apply his time to better purpose - in estate and tax planning for his clients, on an ongoing, non rushed basis, as opposed to having his main job the yearly, overwhelming spring rush of completing tax returns. This results in a much better utilization to time and resources for all.
Currently the whole concept of the value and costs incurred in outsourcing may change yet again. With increases in the cost of oil and transportation the waterfront is on the move. The increased prices of oil and transportation change the whole marketing and production cost mix of outsourcing to China and its environs and exporting to the United States. Raw materials cost more to transport. The products are often produced in pieces at one point, and then shipped onwards, sometimes to another country for the next steps and eventually completion. Transportation costs of both raw materials and shipment of production goods are increased. On top of that the final step of
Shipment of the finished goods to America is now much more costly as well. The major component of shipping costs in modern container ships is guessing what - fuel.
American goods and the raw materials to produce these goods are all closer to home and the American markets.
It may not be the end of American manufacturing, due to globalization and outsourcing. It's all in the marketing and cost structure mix.