Outsourcing: Opportunities, Myths and Realities

Outsourcing is a very widespread practice, with unknown boundaries.  In that respect, the US is a leading nation, as in many other areas.

A constructive and realistic way to visualize jobs displacement by outsourcing is as an opportunity to upgrade skills and remuneration. History and experience unmistakably show that, in the long run, excessive emotional attachment to personal working habits does not pay well. An open, flexible mind, with a strong desire to learn new skills, is the best preparation of them all, for the hyper-competitive global economy.

As a general rule, those jobs transferred abroad do not come back. What does come back in return is a great opportunity for better, higher paying jobs that, logically, require higher skills. After all, that’s the essence of having the privilege of living in a developed nation.

As a counterbalance of the outsourcing of jobs, lies the inevitability of all developing nations, with no exception, to permanently have to resort to developed nations to acquire sophisticated and specialized goods and services. At the end of the day, at the consumer level, outsourcing is a true win/win situation for everybody.  At the jobs level it is also a win/win situation; however, in the short run, job displacement creates a painful situation, no matter how we approach it. It is a process of creative destruction.

Outsourcing, as an inseparable offspring of globalization, is not a socioeconomic phenomena that can be reversed in a beneficial way for both sides of the equation. There is a great deal of value added to global society by its mere existence. Granted, outsourcing usually is also a very disruptive and painful process because of the jobs dislocation it creates on one side of the deal; every reasonable effort to avoid or minimize that disruption/pain has to be done.

How much latitude is there really for managing outsourcing?

Most of the time, there is a false debate about outsourcing, because, in the final analysis, there is only so much any government can do to effectively counterbalance it. Most fortunately, however, there is plenty of room to gain sizeable benefits from outsourcing by preparing society for this inevitable phenomena. When outsourcing, there is a disparity in time between the preparation (retraining) a developed society needs, and the job displacement it creates; retraining usually takes a long time, if done appropriately, while job displacement is usually an immediate process.

There are five basic principles that provide the conceptual foundation to a proper understanding of the topic:

  • Competitive (comparative) advantages

  • Creative destruction (arbitrage of opportunities)

  • Constructive Use of Our Differences

  • Resistance to Change

  • The price mechanism

Understandably,  as a fact of life … as an undeniable reality, not all nations are endowed with identical resources, both natural and human ones:

  1. On one extreme of the spectrum, stand the most affluent countries, nations with high levels of technological development, with high living standards for their population, meaning high labor costs.

  1. At the other extreme, the many and poor underdeveloped nations, with negligible technological advancement, yet with abundant cheap, unskilled labor.

In between those extremes, there are all sorts of possible combinations, to different degrees.

In an increasingly globalized society, like the one we have been experiencing in recent decades, companies and entrepreneurs have been rediscovering the gigantic benefits to be reaped from this noticeable contrast in resources among nations. I emphasize rediscovering, because throughout the ages, mankind has always, and rightly so, been taking advantage of those differences … that’s what globalization is all about. In fact, in essence, that is the foundation of international trade as well as all sort of exchanges in services too. In Economics, it’s called a competitive (comparative) advantage.

Scientists, scholars, professionals, and business people in all nations on Earth are constantly in search of a solid, lasting competitive advantage … that’s what competition is essentially all about.

The only valid and lasting way to progress is by intelligently applying each and every competitive advantage at reach; in other words, by making a constructive use of our differences, as individuals, as corporations, and as nations.

The price mechanism, in turn, provides vital and dynamic information to guide planning and decision making. The role of the price mechanism in a free society cannot be overstated. Unquestionably, the greatest social function the price mechanism provides in a free economy is signaling where to exploit the large price discrepancies (arbitrage) by benefiting consumers through high quality and less expensive products and services.

How can a developed nation like the US protect its citizens from the negative and very disruptive/painful effects of outsourcing?

 

“Creativity is intelligence having fun”

–Albert Einstein

If adequately handled, outsourcing can and must turn out to be a blessing in disguise, by presenting a huge opportunity to significantly improve the skills of developed country’s population, creating a most welcome virtuous circle: new needs, new higher paid jobs, demanding higher skills (the mere essence of being a developed nation).

There are abundant testimonials of wealthy nations, with very high labor costs, that are very successful in managing, to their advantage, the outsourcing phenomena: Germany, Netherlands, the Scandinavian countries, Switzerland, Singapore, South Korea, Taiwan, Israel, the Czech Republic, and Chile, among others. To a high degree, the US is also a very good example of it. The ingenuity and resourcefulness of the American labor force is well established. Along those lines, the US is a leader in many high paying jobs, high-level activities; among others: high-tech in general, IT (including software), aerospace, engineering, entertainment, consulting and publishing.

Thus, high labor costs by themselves are a correct reflection of affluence and competitiveness. Alas, the dynamic nature of the world economy does not guarantee anything forever. It is extremely important to always be ready, with the appropriate constructive attitude, to learn and become better by the day in our daily professional endeavors. That’s the only infallible formula to successfully cope with globalization and everything associated to it, like outsourcing.

At the corporate and individual levels, there are also a myriad of testimonials of success stories. The path for success in the global village is clear and well established.

There is not –nor will there ever be– a single country with competitive advantages across the whole spectrum … that’s a virtual impossibility. Hence, if appropriately handled, both the global economy and outsourcing leave plenty of room for everyone, provided that the right flexible and dynamic attitude is ever present and honored.

Dinosaurs did not adapt to new, changing circumstances on our planet. As a result, they disappeared from the face of Earth. Metaphorically, that’s a telling story of how we all must collectively strive to avoid prolonging unnecessarily the pain that the job-displacement/retraining process implies.


Related Posts Plugin for WordPress, Blogger...
About Martin Marmolejo

Global Investment Manager | Founder & Managing Director at MMA Global Investment Management | Proud husband and father | Follow me @globalmarmolejo.

Trackbacks

  1. […] Outsourcing is a very widespread practice, with unknown boundaries.  In that respect, the US is a leading nation, as in many other areas. A constructive and realistic way to visualize jobs displacement by outsourcing is as an opportunity to upgrade skills and remuneration. History and experience unmistakably show that, in the long run, excessive emotional attachment to personal working habits does not pay well. An open, flexible mind, with a strong desire to learn new skills, is the best preparation of them all, for the hyper-competitive global economy. Read More. […]

Leave a Reply

%d bloggers like this: