I’ve had several tidbits on outsourcing building up recently, so here’s a quick post to clear them all out. Maybe it will also satisfy my ongoing desire to rant about outsourcing for the week… or maybe not.
First off, The Skeptical Optimist has an analysis of where jobs went over the past twelve months that is a little contrary to conventional wisdom. Massive waves of manufacturing jobs being lost to China, right? Well, not exactly.
I decided to check the numbers—always a good idea, I’ve learned, when the primary source is doom-peddling politicians—and, as usual whenever I do that, it turns out there’s more to the story than they’re telling us. I was also interested in the wage rates for each of those job categories, to check the accuracy of the assertion that we’re turning into a nation of so-called burger-flippers. Compared with the manufacturing jobs that went away, it’s true that the “leisure & hospitality” jobs (“burger flipper” jobs, if you’re a politician) make a lower wage, but it’s also true that far more new jobs (paying at least as much as the manufacturing jobs) were created in other categories, especially in professional & business services, and education & health services.
Looks to me like the manufacturing job reductions were more than replaced by new, higher-paying jobs right here in the USA. There are 1.57 million extra jobs in our economy versus one year ago. So, if it’s true that we "sent" 0.17 million manufacturing jobs "overseas," that means 1.74 million new jobs had to come from somewhere. Could foreign countries be exporting more jobs to us than we’re sending to them? In other words, do we have a huge trade surplus in jobs?
Every so often, it’s worth revisiting old controversies to see whether the reality matches the rhetoric. In a recent paper, Jacob Funk Kirkegaard of the Peterson Institute for International Economics did just that for offshoring (a.k.a., overseas "outsourcing"). He reviewed many studies. His conclusion: "The heated public and political debate . . . has been vastly overblown." For the United States, Kirkegaard examined a survey on "mass layoffs" from the Bureau of Labor Statistics to see how many stemmed from offshoring. The answer: 4 percent. That included both manufacturing and service jobs.
The BLS counted almost 1 million workers fired in layoffs of 50 or more. That isn’t a huge number in a labor force of about 150 million. Moreover, most causes were domestic. The largest reason (accounting for about 25 percent) was "contract completion" — a public works job done, a movie finished. Other big categories included "downsizing" (16 percent) and the combination of bankruptcy and "financial difficulty" (10 percent). It’s easy to blame all our economic anxieties and problems on globalization, because that makes foreigners and multinational companies responsible. Though satisfying, it will also be self-defeating if it diverts attention from fostering a healthy economy at home.
The reason may be that the tide of outsourcing may be changing. As Management Issues tells us,
The finding adds to growing evidence that offshoring is not a cost-costing panacea. A study in April by Compass Management Consulting found that Europe’s €4bn outsourcing industry is facing a mid-life crisis because organisations are finding that, far from saving them money, IT and business processing outsourcing deals often end up costing far more than they would have done had the work been kept in-house.
The Sourcing Innovation blog then analyzes that leeriness a bit further,
The first article of note is Paul Snell’s Sourcing Hotspots article over on SupplyManagement.com which notes that LCCS is an intimidating subject to approach and that just knowing where to begin, where to go and how to balance the risks are enormous challenges for buyers. The article starts by noting that before thinking about where you want to go, you must decide what it is you want to achieve and that reaching these decisions is an intensive process taking anywhere between two and six weeks. You will need a team of procurement people to dedicate themselves to the issue to make the right decisions.
Executives are beginning to understand the complexity of offshoring, including the potentially hidden costs. Offshoring to get closer to customers can make sense, but simply chasing low labor costs doesn’t.