By Albert Schmool
Until recently, poverty and economic strife were terms that elicited thoughts of distant, third-world countries and their foreign citizens that had little, if anything, to do with the U.S.A. For quite some time America had been associated with prosperity and opportunity. In the midst of the current economic downturn (read:‘depression’), those notions of success and stability have been shattered. Desperate to cut costs, companies have been firing previously inconceivable amounts of employees, leading to a threatening scarcity of jobs. One needn’t look far to find hordes of Americans scrambling for any job attainable in order to pay their most basic expenses, such as their house mortgages. As the number of bank-seized homes continually grows (spurred by mortgage defaults), displaced Americans and their fellow citizens alike are beginning to fully comprehend the inherent value and vitality of jobs to a thriving economy.
With this newfound importance of jobs in mind, retaining as many American jobs as possible within our economy has become a main priority of the American citizen. During the mid-1990’s, though, a business practice known as “outsourcing” was introduced that not only ignores his/her cause, but exacerbates the problem.
Companies such as Dell Inc., the largest personal computer manufacturer in the world, began transferring their non-core business operations to cheaper labor markets mostly located in India. The reasons for corporations to outsource non-core business operations, such as Information Technology sectors and customer service bases, are quite obvious. Replacing American employees with foreign employees willing to work for fractions of their salary reduces labor costs by up to 50% while simultaneously allowing management to dedicate all of their focus to core business operations. With nearly all corporations currently outsourcing at least parts of their operations overseas, companies that choose to refrain place themselves at a potentially fatal competitive disadvantage.
While beneficial to companies, outsourcing has expedited the increasing scarcity of jobs in America. Americans who formerly had fair competition for jobs suddenly have no market for their long-developed skills. The number of jobs lost increased every year from 1999 to 2003, more than doubling in that time frame to 4,838,000 jobs lost in 2003. The growing popularity of outsourcing, and the establishment of outsourcing as a necessary strategic move, led to a 12% jump in outsourcing as a proportion of total jobs lost from 2003 to 2004.
Despite the fact that outsourcing had gradually become a necessary business operation, employees and labor unions received the changes with much disdain. Protectionism, or the idea that American jobs should not be shifted to cheaper foreign labor markets, gained massive popularity while public displays against outsourcing began to form. “Alliance at IBM,” a group of current and former employees of the software giant, rallied outside of shareholder meetings, protesting the job losses. More proactively, 100,000 workers at SBC Communications Inc. went on a 4-day strike to protest outsourcing. NGO’s such as “SaveUSJobs.biz” also joined the debate, buying stock in outsourcing companies such as Hewlett Packard in hopes of gaining leverage in board meetings as a significant shareholder.
In a widely popularized outsourcing backlash, employees at a manufacturing plant for Burberry, a British clothing company, were joined by celebrities and politicians in rallies outside of famous Burberry stores in London to save their jobs that were being outsourced with the closing of a British production plant. Claiming that Burberry was abandoning the British roots it claims to hold highly important, these protesters posed a threat to Burberry’s consumer image. The companies on the receiving end of these criticisms were in a very tough position, as they could not afford to place themselves at a competitive disadvantage by paying higher wages, yet wanted also to remain loyal to their employees and customers. Ultimately, Burberry promised to help redeploy 50/250 of the workers fired due to the closing plant. The move was viewed by the protestors as an attempt to pacify its critics, rather than a dedication to protecting jobs, and was therefore somewhat in vain.
Another response by outsourcing companies was to take advantage of an immigration loophole and bring in foreign workers to work on American soil using L-1 visas. The companies claimed that jobs were not leaving the U.S., and thus they should not be under fire. Unsurprisingly, this move was also highly scrutinized since it failed to accomplish the goals of the displaced workers- to return their jobs not only to America, but to Americans.
After several failed attempts to reach a middle ground, many labor unions proposed an idea of “responsible restructuring.” This meant that outsourcing corporations would pay 70% of the difference in salaries between the old outsourced jobs and the new jobs picked up by fired employees. However, corporations were quick to dismiss this proposition since the “restructuring” would force the companies to absorb many of the costs they shed by initiating outsourcing in the first place.
In addition to outsourcing’s detrimental affect on companies’ public images, studies have shown that outsourcing customer service and IT jobs to Indian and other Asian countries has another significant flaw: it has left many American business managers unsatisfied. In studies conducted by Dun & Bradstreet, 75% of executives claim that outsourced suppliers don’t have a good understanding of the corporation’s objective. D & B also found that 50% of outsourcing relationships fail within 5 years. Apparently there remains a border that has yet to be overcome in the shipment of jobs overseas. A lack of efficiency has led to 40% of executives claiming to feel “neutral at best” about outsourcing.
Dell can take advantage of this dissatisfaction by investing in their own outsourcing agency overseas. If Dell were to scout and prepare their own foreign workers, rather than contract a foreign agency to do so, many of the inefficiencies due to miscommunication would disappear. This type of venture can help Dell solve several of the perils of outsourcing. It would concurrently abolish the inefficiencies that can plague an outsourcing relationship and create jobs for American to both train and manage foreign workers, which would help reduce the company’s net jobs lost. Dell would also gain experience and opportunity in an industry that has yet to be tapped and has been projected by Casey, Quirk and Associates to grow to $510 billion by the end of 2012. If managed correctly, Dell would reap great profits from being on the frontier of this industry and could focus a portion of that money towards creative initiatives to retain valuable U.S. jobs.
Regarding these initiatives, Dell can mimic some U.S. companies that have already begun incrementally weaning themselves off of their addiction to outsourcing. Atreus Systems Corp. (an internet software producer) has instituted a practice of “inshoring.” This idea sends corporations to rural American cities rather than foreign countries to look for cheaper labor forces. Jobs in these cities are even scarcer than in urban cities and thus employees demand lower salaries. Airline agency “Jet Blue” has also developed an alternative to outsourcing, known as “homesourcing.” This procedure transfers normally full-time office jobs to part-time, work-at-home jobs in order to reduce costs and raise efficiency. “Homesourced” employees are willing to work for lower wages as previously necessary bills such as transportation, lunch, business attire, and nannies, are no longer deducted from an initially higher paycheck.
“Inshoring” and “homesourcing” are also effective because they take advantage of government tax breaks issued for companies moving to rural American locations. Realizing the importance of maintaining a high level of employed citizens, the U.S. government also established added incentives (in the form of tax breaks) for companies to invest in entrepreneurial projects that will themselves create more jobs as they grow into established companies. When considering the tax breaks, combined with the lower wages, corporations deploying these methods can nearly imitate the slashed costs of outsourcing while simultaneously strengthening their image as a company fighting to keep American jobs.
An alternative way to bridge the gap in costs between American labor and foreign labor is to generate profits through establishing a new market for that American labor. Dell has begun doing just that by introducing their “Gold Technical Support Package.” This package offers customers access to “North American-based phone technicians” at an additional cost (vs. free foreign customer support). With this new service, Dell is effectively shifting some of the burden of retaining American jobs onto the American citizens themselves, who are paying for a portion of the employee’s salary.
As a business operation that significantly cuts costs, outsourcing is not projected to fall completely out of favor with companies in the near future. Especially in lieu of the current economic situation of the U.S., it is difficult to place the onus on companies alone to close the gap between wages and absorb the costs. Despite this, a lack of jobs exists today as a major detriment to our economy and society at large.
Dell’s social imperative is born of this lack of a responsible party. Dell has the opportunity to mend the divergence between the jobs that American citizens need, and the salaries that corporations need to pay. More important than jobs that it can retain within its own company, Dell can set a precedent for many other companies to mimic through the implementation of the aforementioned ideas. By introducing “inshoring,” “homesourcing,” and “Gold Technical Support,” Dell can prove that the difference in salaries can be significantly lower than expected. Through the venture into its own outsourcing agency, Dell can establish a method of generating the capital needed to make up for that smaller difference, and more. The potential for profits combined with the boost in public image place Dell in a desirable position to affect significant beneficial changes in the society that fuels their profits, harbors their operations, and most importantly, desperately needs their help.