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Thread: Outsourcing & Offshoring: A Perspective

  1. #1
    Cyburbian Emeritus Bear Up North's avatar
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    Outsourcing & Offshoring: A Perspective

    One (1) of the topics that is endlessly debated during this Prez election here in pivotal swing-state Ohio.....outsourcing of work that used to done by laborers in the U.S.A. In some cases, major corporations that used to manufacture in the states closed their plants and moved the work to China, etc. In some cases, products that used to be manufactured by American companies are now only manufactured by countries such as China, etc.

    In the distribution business that this Bear is in, we have some products that we market, sell, and distribute that used to be American-made. These products are now only available from overseas. Our facility is receiving about five (5) to seven (7) 40-foot inbound containers of floor-loaded product, destined for customers all over the U.S. and Canada. .....and manufactured overseas.

    When these products were manufactured in the states those companies doing the manufacturing all tried to reduce their costs and stay competitive with the Chinas of the world. Eventually, it didn't happen. Thousands upon thousands of Americans lost their jobs. Many would argue that it was a case of market realities, eventually weeding out the non-competitive.

    This business is vital to my organization so we have no choice but to buy from China and the other far east suppliers. And now we are considering taking another product......one (1) of our best-selling products and the product that really started our company.....and moving all of the manufacturing to China. Our partner vendors there can make the products for us at a much less-costly rate, keeping our margins where they should be.

    But.....and this is interesting.....another major local company that buys from us has basically told us that they only want "American Made". So, the net effect could shake out to be that we have to have multiple SKU inventories, to keep that major customer happy and to reduce our costs (overall) for the product.

    And finally, in a week at work when all of this was shaking down, a friend of mine from Findlay, OH, tells me that 20% of the products that his company has outsourced to China are rejects.....basically greatly reducing or eliminating the margin improvement that was planned with the outsourcing.

    If these two (2) instances I have personal contact with or knowledge of are hints at the beginning of a trend.....the next four (4) years is going to be VERY INTERESTING for either George W. Bush or John Kerry.

    Won Chow Bear
    Occupy Cyburbia!

  2. #2
    Cyburbian donk's avatar
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    For an interesting take on this subject (from the apparel industry's POV), you may want to look at

    http://www.americanapparel.net/mission/index.html

    This company has been a media darling (part of its marketing strategy). I know it is only tshirts and sweats, but....

    or

    http://www.newbalance.com/aboutus/index.html

    or

    http://www.billskhakis.com

    All are private companies, who have made a conscious decisions about who and how they want to do business. Profits could be higher, but how much $$$ do you really need?
    Too lazy to beat myself up for being to lazy to beat myself up for being too lazy to... well you get the point....

  3. #3
    Cyburbian Michele Zone's avatar
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    I have read some things that suggest that companies that outsource to reduce costs often don't get what they wanted. It often hurts the company. Like your contact in Findlay indicates, products made on the cheap in lower-cost markets are often of lesser quality as well. Someone I know here works at a big name company in this region and she said that they were trying to cut costs by sending jobs overseas...and they had folks from whatever country come here for training and then some of them don't want to go back to India or whatever after they have this high tech training. The ones that do go back to India (or wherever) get the expensive company training and don't stay for long -- now that they have the training, they are worth more. Meanwhile, the work that is done is of inferior quality.

    I have also read that companies that take care of their employees -- pay good wages and benefits -- can wind up with sufficient employee loyalty that they are money ahead over the average turn-over rate for the industry AND employees that have been there for years and years produce a quality of work you cannot match with a new hire.

    I think outsourcing is a quick and dirty solution to a problem that isn't simple enough for that to be the best solution. In one of the business books by, um, Hawken (?), he makes the point that "invest" does not just mean to put money and resources into something. It also means to try to develop a certain quality of something -- like being emotionally invested in a relationship. (Man, am I garbling it.) What are you in business for? To "make money"? Or to make a particular product? Obviously, you cannot stay in business if you cannot meet payroll, etc, but is your purpose really just about The Bottom Line? If it is all about "money", does it matter at all what you make?

    The answer for me is that it isn't just about making money. When my husband was hassling me a few weeks back about "get a job, any job", my sarcastic reply to that was "Fine. I will become a hooker. They make good money and it is a job, any job." He hasn't tried to pressure me again.

  4. #4

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    The reality is, though, their learning curve is pretty fast, and they (the Chinese) are HUNGRY. Millions of ex-peasants are on the move and desparate.

    Those rejection rates will come down pretty quickly. Remember when "Japanese" meant shoddy quality-now (my Subaru aside) it means the world's gold standard. Expecting Chinese made goods to continue to be shoddy is short-sighted.

    I may bemoan this reality constantly, but I also think its inevitable. The United States needs to get used to the idea of "Britainization"-which will make our more rabid superpatriots sad, I know, but demographics and economics rule over "We are God's own country, led by God's annointed president".

    For one thing, the Chinese are a lot closer to Central Asia's newer oil stocks-and far more ruthless than even our most rabid neocons. Who'll get the oil?

    Your kids and grandkids need to learn Mandarin, folks.

    Brian "Doom and Gloom" ")

  5. #5
    Chairman of the bored Maister's avatar
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    Wow, big topic. I think that two American ideals have come to do battle on this ground. On the one hand we have patriotism and on the other we have capitalism. Both of these 'isms' are flawed and it is when the virtues of the one 'ism' conflict with the flaws of the other 'ism' that we arrive at our current state of affairs. Patriotism is a (arguably irrational) belief in the superiority of character and abilities/capabilities of the human beings within a specific geographically bounded area. It is an essential component to another 'ism' - nationalism (reasons for having a 'nation'). A patriot is therefore one whose actions support/defend the character or the beliefs and interests of the folks within a particular chunk of real estate. Capitalism, the economic system whereby the means of production and distribution are privately owned and operated for maximum profit under competititve conditions, happens to be another cherished American ideal (if not actual practice). Because of the confluence of the availability of large quantities of cheap energy, increased productivity from mechanisation, and improvements to communication and transportation networks, 'supernational' corporations became readily capable of exporting capital, labor, and even marketing outside national boundaries. Technology made this possible. The ability to more efficiently exploit labor in less developed areas of the globe has meant that the greatest profits to those posessing capital comes directly at the expense of those who previously provided labor (i.e. loss of jobs previously held by American workers to lower payed workers in China, Viet Nam, etc.). Those holding the capital argue (though perhaps not with these exact words) that the situation is only a problem because the workers' demands within the boundaries of the US are exhorbitant and that if they would only lower their standard of living (e.g. work longer hours for lower wages with less benefits such as health care for workers' families, and not engage in collective bargaining) then the situation wouldn't be a problem. These same folks holding the capital and reaping the profits can also pat themselves on the back that they are being 'patriotic' in the sense that "what's good for General Motors is what's good for the USA", namely increased profits to shareholders and therefore increased wealth for the good ol' US of A (or as it happens any number of other industrialized countries). For the last couple decades we have seen an increase in national wealth, but it has occurred in a manner that the wealth has been concentrated in greater and greater quantities (and percentile) in the hands of the very wealthiest folks who happen to hold the capital (and its something obscene like the top 4% of the population holding 90% of the wealth in this country - not sure of the exact figures). Meanwhile the same workers are asked "patriotically" to only purchase goods manufactured at higher costs in the USA, as opposed to the profiteers being asked "patriotically" not to exploit labor in less developed areas outside national boundaries.
    That's the situation as I perceive it. What I think must happen is the world's political systems and thinking needs to make another quantum leap on the order seen in the 18th and 19th centuries in order to address the phenomenon of supernational corporations which owe no allegiance to any nation just themselves and their shareholders.
    Last edited by Maister; 11 Oct 2004 at 11:30 AM.
    People will miss that it once meant something to be Southern or Midwestern. It doesn't mean much now, except for the climate. The question, “Where are you from?” doesn't lead to anything odd or interesting. They live somewhere near a Gap store, and what else do you need to know? - Garrison Keillor

  6. #6
    Cyburbian michaelskis's avatar
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    I agree with Maister on the idea of the ‘isms’. One thing think that needs to happen is better financial education for not only the US government, but also for corporations and individuals. We are a society that is based on credits and loans. Look at cooperation’s such as Harley Davidson who do not have debt. They keep their employees in the US, pay them good wages, and make good and popular bikes. They also represent the whole Made in the USA concept. We as a society have gotten to the point where debt is a normal aspect of life. What happens is those who are not in debt get rich because they do not pay the banks for interest charges. Imagine what would happen if a person saved the money that they would spend in interest charges… now imagine the money that would be saved if a cooperation did not have that same loan. They would be able to charge less for their product, and pay their employees more.

  7. #7

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    At the same time, though, the use of corporate debt allows companies to "finance" major acquisitions/expand technology/etc. The net result of a no-debt corporate economy would be a much poorer economy. And, part of the reason Harley survived is because a government handout enabled them to overcome their bad patch.

    As for personal debt, again. in small doses, its ok. The vaunted American home ownership would be a lot more challenging without debt. There are, of course, some of us who have no self control, but that's another story....

  8. #8
    Cyburbian Michele Zone's avatar
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    Slightly OT:
    Debt per se is not a bad thing. Debt used wisely to finance investment is a good thing. Debt used merely to finance consumption is the beginning of a downward spiral.
    For individuals, college loans and mortgages are generally a good thing. Credit card financed vacations and other indulges are a bad thing (financially).

    My dad grew up in The Great Depression and I was raised to believe "debt is BAD", no qualifiers. It makes me crazy that we owe money. But at some point I realized that the kind of debt we have is a privilege of the middle class: poor people don't have access to the kind of credit we have and I could not have gone to GIS school, we could not have bought a house, etc. without it. I still would prefer to not owe anyone a dime, thanks, but I no longer neurotically torture myself about.

    Corporate debt is a topic I am not awake enough to wrap my brain around. If I were, this would all sound much more relevant to the topic.

  9. #9
    Chairman of the bored Maister's avatar
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    Quote Originally posted by Michele Zone
    My dad grew up in The Great Depression and I was raised to believe "debt is BAD", no qualifiers. It makes me crazy that we owe money.
    I'm sure the Great Depression did alot to turn folks off to the idea of credit, but the Depression would only be one of the more recent phenomenon to instill fear concerning the practice of moneylending (think of a 10 year stint in "debtor's gaol" and I'm sure it goes back even further than that). I think it was the character Polonius who said in Hamlet "neither borrower nor lender be."

    Personally, I can't stand the idea of owing any instituion money. Yet I do.
    People will miss that it once meant something to be Southern or Midwestern. It doesn't mean much now, except for the climate. The question, “Where are you from?” doesn't lead to anything odd or interesting. They live somewhere near a Gap store, and what else do you need to know? - Garrison Keillor

  10. #10
    Cyburbian michaelskis's avatar
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    All I can say is if you sit down, and add up all the interest that you paid to a bank, I think that you would be a surprised. It is better to wait and save the money then to just buy... I know that I am going to pay off my car before I buy I house. (I am going to triple my payments, so that should be done in the next 8 months)

    After that, the only debt that I am going to have is a house, and a college loan.

  11. #11
    Cyburbian Michele Zone's avatar
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    Off-topic:
    Legally, the only debts I have are as follows: A college loan from going to GIS school, about $600 owed on my Bombay card for about $1800 worth of steeply discounted office furniture for my business, and about $100 on my business credit card. Yes, the student loan is like $19,000 and I am not thrilled. But, given my health problems, I could not consider leaving my husband without enough education to have hopes of making good money at a "desk job". Working at McDonald's or some such would not pay the bills and would physically kill me.

    All other marital debts are going with hubby and his newly purchased used SUV is solely in his name, bought after the paperwork was filed to commence dissolution of our marriage so I have no responsibility for it.

    Michael, in a way, I agree with you. But I think you don't really understand my point. Although I am very conservative about taking on consumer debt or debt of any kind, I am deeply grateful that I can GET a $19,000 student loan, a business credit card, etc. Quality of life is worth something too. If you had not gone to college and taken on a student loan, what kind of work would you be doing? Under such circumstances, would you be ABLE to save enough to go to college without a student loan? If I worked at McDonald's for the next 20 years, would I EVER have enough money to go to GIS school? Not likely.

    And my car is 13 years old, has no hubcaps and precious little paint and is generally an eyesore. But it gets me from point A to point B without a car payment. However, when the repair costs exceed having a regular car payment, you betcha, I will be car shopping at that point. Money management decisions are not always as straightforward as they appear.

    And, no, I am not likely to be surprised by adding up the interest I am paying. I managed our money for 17 years and was really rather OCD about the interest we paid, etc, given that we lived on one income and the budget was always tight.

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