Pro-Globalism View of Outsourcing and Outsourcing Critics
“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” — Adam Smith, The Wealth of Nations, 1776
We find ourselves in uncertain times caused by globalism and the talk of self-preservation. Where the Western world once sat behind the wheel, driving technology and automation into our businesses and personal lives, poorer countries are now poised to operate, maintain, and improve the technology the West created. Adam Smith’s great “Invisible Handle” metaphor contains a balancing paradox. The West’s businesspeople moved factories and service operations to foreign countries to take advantage of low wages. These wages improved, creating new economies in once poor countries. Over time, an equilibrium will be found and will persist until new entrepreneurs drive innovation, which will again make certain countries mighty until these innovations are outsourced or imported to other countries for the poor countries’ benefit.
And so the seesaw rocks back and forth.
One of the great frustrations of those who see the pattern of globalization is the extent to which the normal, non-entrepreneurs will go to protect their world from change. Like a great freighter’s anchor, the protectionists will dig deep to prevent natural change rather than hoisting anchor and going with the natural flow. The natural flow is unstoppable, because unnatural barriers to change will cause catastrophic disasters.
Your only choice is preservation of self-interest – to become rich and wealthy through innovation.
In the outsourcing world, which started in manufacturing, moved to information technology, and now is squarely focused on services, the challenge is innovation. Driven by economic pressures, more often than not, a company outsources XYZ and takes the entire savings to the bottom line. The savings is just temporary, as the labor arbitrage or a vendor contract negotiation will find equilibrium again. Consequently, outsourcing critics speak truthfully about the impact of outsourcing to local jobs, although most see only the short term impact.
A company that outsources and does not invest in innovation or transformation misses the great value of that could be created by infusing the freed capital back into its operations. The long term impact of the failure to innovate is devastating because competition will, eventually, find balance again.
The problem with outsourcing critics is that the laws they seek to enact are noting more than the proverbial finger in a dam’s leak. Eventually, innovation will be exported and the competitive equilibrium will bypass the very communities the critics wish to preserve. Halting globalism is simply impossible.
The critics need to focus on innovation, not preservation. Thomas Friedman’s “The World is Flat” was not so astounding for its exposure of the extent of outsourcing. Rather, the exclamation point of Friedman’s book was the last few chapters that explained the souring of Western education, the very fuel of innovation.
Companies who take outsourcing savings to the bottom line are no less at fault than our governments and societies. Companies that outsource and do not gain great competitive advantages through their partnerships also are at fault. Communities and politicians who expect protectionist measures to work are at fault, too.
In this global environment, the winners are those who realize their self-interest is tied to creation, not preservation.
Related posts:
You make some pretty sophisticated points in this post.
Here’s the deal… you either grow or die. Outsourcing isn’t about pinching pennies (those narrow-minded, short-term-only, immature cheapskates who think it is deserve to have their projects fail) it’s about fostering innovation. And guess what, innovation ain’t easy. It takes time, money, and resourcefulness. Outsourcing is about leveraging your time and money so that you can focus on being resourceful.
There’s a lot of talk about outsourcing and innovation. Everyone was proud of their ‘lift and shift’ solution to non-core services in order to save a few bucks. But saving a few bucks isn’t cutting it anymore. Businesses need innovative solutions to their problems.
Raza Imam
Bingo! Actually, “giving you my mess for less” is the model most companies follow. Call it outsourcing 2.0 (following the wide use of contractors in the 90s and early 2000s – 1.0). This next efforts have to be on transforming.
Joseph Stiglitz (Nobel winenr for Economics and was Chief Economsit for the World Bank) said while on a trip to India, that 600 million people from India (out of the one billion!) have been left out of the “development” fold of globalization. So, obviously, all India is not going to migrate into middle class, if anything the inequality is far, far worse now, after the advent of globalization. Similarly newspaper reports have pointed out how Chinese workers are working in apalling conditions, to chhurn out the low cost products, with poor pay, cramped rooms, no accident or health insurance benefits, no job security, no overtime, long working hours – so who is actaully benefiting from this sort of globalization? Corporates ofcourse, and the few privileged people of India nd China who have been able to get educated in engineering and technology! Not the vast majority of population.
Two books to read, which offer a counterperspective to Friedman’s “The World is Flat.”
The Harvard Professor, Pankaj Ghemawat’s latest book, “Redefining Global Strategy,” is more academically inclined. I read an article of his published in the journal, “Foreign Policy”, where he argues that the world is, at best, only semi-globalized. His argument being that Cultural, Administrative, Geographic and Economic aspects of a nation come in the way of total globalization from taking place and cites examples of the same.
The other small, but interesting book, is by Aronica and Ramdoo, “The World is Flat? A Critical Analysis of Thomas Friedman’s New York Times Bestseller.” It is a small book compared to the 600 page tome by Friedman, and aimed at the common man and students alike. As popular as the book may be, some reviewers assert that by what it leaves out, Friedman’s book is dangerous. The authors point to the fact that there isn’t a single table or data footnote in Friedman’s entire book. “Globalization is the greatest reorganization of the world since the Industrial Revolution,” says Aronica. Aronica and Ramdoo conclude by listing over twenty action items that point the way forward, and they provide a comprehensive, yet concise, framework for understanding the critical issues of globalization.
You may want to see http://www.mkpress.com/flat
and watch http://www.mkpress.com/flatoverview.html
for an interesting counterperspective on Friedman’s
“The World is Flat”.
Also a really interesting 6 min wake-up call: Shift Happens! http://www.mkpress.com/ShiftExtreme.html
There is also a companion book listed: Extreme Competition: Innovation and the Great 21st Century Business Reformation
http://www.mkpress.com/extreme
http://www.mkpress.com/Extreme11minWMV.html
Holy smokes, a British Professor in Edinburgh who writes a blog, “Adamn Smith’s Lost Legacy” who reviewed our article. Have a read here:
http://adamsmithslostlegacy.com/2008/03/correct-vision-of-outsourcing-though.html
Thanks, Gavin!