Outsourcing the death of the economy!

[Golfman25]

I'll add my $.02. First, the only way to create wealth is to grow it, mine it, or make it. Everything else just passes dollars around.

Second, we need to have an economic system that provides for everyone who is willing to participate. It is unrealistic to expect everybody to start their own companies and fend for themselves. The middle class provides the workforce and the disposable income which keeps our economy running. Unfortunately, the middle class is now being squeezed out of existence. If the ecomomy fails to provide for them, we risk a "protectionist revolution."

Third, todays outsourcing model is simply to produce in the low wage country and sell to the high wage country. It is an excellent business model until the high wage country no longer has the income to purchase.

Foruth, true free trade globalism depends upon many factors. Political freedom is very important so that the workforce can ensure that they are not exploited. Also, rules must be set, followed, and enforced.

If the US continues to follow a "Free Trade" at any cost policy, we will be in trouble sooner or later. Think about this -- we have had low interest rates, tax cuts and rebates, good consumer spending, aggressive expansion of retail giants (Walmart, Target, Home Depot, etc.) people spending everything they have on as much cheap crap that they can fit in thier SUV, yet our economy as measured via GDP, unemployment, etc. is only doing ok, not great, our budget deficit is huge, our trade deficit is huge, real incomes are flat, and real job creation is lagging. Seems to me that with all of this stimulis we should be doing a lot better.

 

[ratboy88]

Quote from Midas:

And their standard of living is bad?

Most "Western" workers are spoiled. 2 car family, vacations, computers, more food than you can eat. In short fat and happy (look to rising obesity rates for proof)

but that is the point.....our middle class had a nice quality of life. THAT WAS A GOOD THING!!!!!!!!! is it wrong to want my people to have good lives. our parents generation had it better than their parents and so on. we will be the first generation to hand our children a worse standard of living. it is not going to come from washing each others laundry. please tell me where these people are going to go to.....it is not out there. the biggest growth industry will become the armed services...and many will have no other choice at this rate. almost seems like it was planned this way. oh, btw, if Bush wins we will have a draft...and this time there are no loopholes...even for women. hello NEW ECONOMY. people wake up. you think you are being so smug saying adapt....will you people come on here when your indian web site fails....i doubt it.

 

[Hydroblunt]

Quote from brokerboy:

What is the hidden cost of outsourcing? I’m curious because you have an interesting point if its true. Let’s use AOL outsourcing jobs to India. If you ever notice most customer service rep's sound Indian and have American names. They have schools that train them to handle customer service for American companies even. The cost of routing calls to Indian can't be that high anymore so what other hidden cost do they have?

The biggest hidden cost is the quality of the product. I've dealt with few of these Indian call centers already and I am just baffled at the communication barrier. Just because they can be trained to sound a certain way does not mean they actually understand what is being said and what they are saying. I remember talking to one of these Indian outsourced reps and having problems figuring out my ATM withdraw limit because she simply has no idea of what I was talking about. ATMs not common in India.
The outsourced Dell tech support has to be the best example of this. Those people are hysterical.

Second of all, it is not like the outsourced center just appears out of nowhere. It does cost quite some money to establish an outsourced center. Phone reps is one thing but design, tech & document work is another. There compability issues to be dealt with, power, real estate and so on.
Let me just point out an example from the presentations work for Investment bankers, something I did. Already many of those jobs outsourced and it just ended up costing more. Instead of working for 2 hours on a job where the I-banker can actually communicate in person with the presentations operator, the job has to be resent 3 or 4 times by email because of the communication barrier. The work suffers, time is wasted all to pretend to save costs.

Some jobs are obvious to outsource but ones that involve interaction and integration with the rest of the company cannot be judged by simple labor costs. Of course try explaining this to the executives making these decisions.

 

[ArchAngel]

Quote from Hydroblunt:
The biggest hidden cost is the quality of the product. I've dealt with few of these Indian call centers already and I am just baffled at the communication barrier. Just because they can be trained to sound a certain way does not mean they actually understand what is being said and what they are saying. I remember talking to one of these Indian outsourced reps and having problems figuring out my ATM withdraw limit because she simply has no idea of what I was talking about. ATMs not common in India.

Didn't happen to be Citibank was it??

I've had similar problems with the part of Citibank's call center that's been outsourced to India. Three for three times I've had to have had to be switched to someone in a US call center in order to find someone who could handle a simple transaction.

Have also had to bail out and re-source a major software development project for a client recently who called me in after they'd wasted a year working with an Indian outsource firm and still had no material deliverables.

Outsourcing as an industry goes in waves every decade. This round will likely go the same as previous waves. Companies will outsource as much as possible thinking it will save/make them money. It'll peak when they finally realize it doesn't work as well as they thought it would and/or the short term financial benefits from certain deals are exhausted and then this round will have peaked and it will retrace to a more practical level.

Citibank's recent multi-billion dollar INsourcing plan for technology is a good example of a company that's found this out earlier than others.

 

[damir00]

Quote from Audacity17:


Money is made on the difference between marginal revenue and marginal cost per unit.

exactly. and it is why your original bulldozer example is so completely wrong.

 

[damir00]

Quote from aradiel:


low (human) capital mobility;

exactly. very low mobility of human capital relative to other parts of the economic system is precisely the ingredient needed to create serfs. this needs to be fixed in globalization - either by restricting the flow of capital or enormously increasing the free flow of labor - or Really Bad Shit is going to happen.

 

[brokerboy]

Quote from damir00:

exactly. very low mobility of human capital relative to other parts of the economic system is precisely the ingredient needed to create serfs. this needs to be fixed in globalization - either by restricting the flow of capital or enormously increasing the free flow of labor - or Really Bad Shit is going to happen.

We are slaves in someway already. I don't see government ever stepping in to really fix the problems. The industrial revolution created major corporations and it bought the governments with its great wealth. The funny thing about America is we keep a blind eye to everything til it happens to us personally. We excuse actions that hurt others by saying” I as an individual did nothing to harm anyone else”. The government of America does not have a face and leaves you no way to revolve issues. They figured us out by giving just enough to control us.

 

[Audacity17]

"exactly. and it is why your original bulldozer example is so completely wrong."

No, sir, you have not shown that I was wrong. Rather I have shown that you are. You said, and I quote:

money is made on volume of people working for you, not on volume of "stuff" an individual worker does for him/herself.

To which I replied, go hire a bunch of people and retire then.
Rebuttal?

Demand for a product leads producers to seek inputs to increase production. This can come from many places, including human capital. Employers will seek to boost the amount of production from present workers before hiring more though. According to you, employers will just hire more people to increase revenue, even before demand for the product requires it!!!

It is not even arguable that the richest people in history got so through selling volume to the masses. Getty, Morgan, Gates etc etc. If you don't believe that capital formation doesn't lead to increased wealth, what is the point of compounding of money???

QED

 

[damir00]

Quote from Audacity17:

If you don't believe that capital formation doesn't lead to increased wealth...

i never made the above statement (which is tautalogical to begin with). i'd love to continue this, but sorry, you are way to non sequitured for my level of patience to make this a useful conversation.

have a nice evening!

 

[Audacity17]

I just caught this one too.

"not only does this not support your argument, it actually runs counter to it. consumer electronics is the prime example of an industry that employs huge numbers of people, sells billions of gadgets, and yet has a return on equity lower than just sticking the money in a bank."

Consumer electronics may employ a lot of people. So what. What has the trend in consumer electronics been towards, hiring people or robotics? How about semiconductors? Has the volume of consumer electronics made and sold went up or down in the last 40 years? How bout the number of companies involved? How about the overall dollar amount made? Who cares about return on equity and margin. Those numbers are high when someone first has a monopoly. As competitors come in, margins come down. But they dont go to zero, as you suggest! Why do those margins go down? Because people figure out ways to reduce costs relative to production. They can therefore charge less per unit and make more overall money. Grocery stores have low margins. They make plenty of money.