Outsourcing will destroy the west

by Frank 5. February 2012 13:01

Many years ago when I was living in the USA I watched in amazement as US car companies in Detroit outsourced car production to Mexico and Canada and laid off thousands of workers. My mind struggled with the logic because surely laid-off workers wouldn’t be able to afford new cars even if they were made cheaper in Mexico?

The trend continued and accelerated over the years and each time I read about more outsourcing and layoffs I wondered, “How do they expect laid-off workers to be able to buy their goods?” “What is the point of reducing costs if at the same time you also reduce the size of your market?”

Have you been to Detroit lately? Have you seen first-hand what outsourcing can do to a city and communities?

The why is easy to answer; senior executives wanted lower costs to make the Wall Street analysts happy and to then earn them much bigger bonuses. Hedge funds and M&A companies wanted lower costs to make doing deals easier and more profitable. A small number of very greedy and avaricious people at the top were more than happy to destroy livelihoods, towns, states and even countries just to get even richer than they already were. This is an example of greed on a scale we have never seen previously. Lives are being destroyed by people with more money that they can ever spend savagely and uncaringly destroying others to become even more obscenely wealthy.

We all know that no developing nation can transition to a developed nation without a large, growing and healthy middle class. Why then are western ‘developed’ nations now destroying the middle class? In the USA the obscenely rich are becoming richer, the middle class is shrinking and the poor class is growing. Is this how we want to continue? Is this a recipe for success for a country or just an incredibly selfish recipe for success for a tiny minority? Why are we letting it happen?

I almost choked when I recently read Apple’s explanation of why it now manufactures everything in China using Foxconn. Basically, they said it wasn’t because of lower costs (rubbish!); it was because the expertise and supply chains were no longer in the USA. Doesn’t Apple realize that the expertise and supply chains are now longer in the USA because USA companies outsourced their IP and laid off the expertise in the USA? Apple originally outsourced because of lower costs and eventually this outsourcing destroyed the ability of the USA to compete. It is a case of cause and effect; the outsourcing came first and this in turn destroyed America’s ability to compete. Now we have a situation where Apple’s competitors are unable to match its manufacturing costs and the only solution for them is to also outsource to Chinese companies like Foxconn thus further eroding the US’s ability to compete. If this trend continues the USA will soon lose the ability to build electronic devices.

Because of outsourcing western countries have lost not only jobs but key skills and manufacturing capabilities that they will never get back. Smarmy western politicians blithely talk about re-training programs to solve the unemployment problem but what is the point of re-training people if there aren’t any jobs? How long before these same idiotic politicians mandate children staying longer in school and making college education compulsory just to make the unemployment figures look better? Worse still, we are borrowing vast sums of money from the same countries we have outsourced to to fund unemployment benefits and retraining programs. How stupid is that? Let’s exacerbate the problem by becoming impossibly indebted to the countries that have already stolen all our jobs and destroyed our economies? Is it just me or are other people struggling to understand the big picture? Why are we letting it happen?

Did you know that Australia no longer produces tyres? We closed the last local tyre producer last year and we now we rely 100% on imports. Surely tyre production is a strategic industry that we can’t afford to lose? More importantly, once that factory is closed and the equipment sold off or scrapped we can’t simply restart this industry. The workers too have gone along with their many years of irreplaceable skills and experience. Production facilities and expertise irreversibly lost. This same thing is happening in all areas of our economy, we are losing the ability to make things and we are losing our self-reliance. We are becoming more and more vulnerable each year and more and more indebted each year. Why are we letting it happen?

In the last 30 years we have seen the largest transfer of wealth and IP the world has ever seen. Western nations have transferred their wealth and their IP to developing nations and become massively indebted in the process. Where is the up side for the vast majority of citizens in western nations? We are we letting a tiny minority of the super-rich destroy our economies and steal our future? Why are we letting it happen?

My main fear is that the outsourcing trend has gone on so long that it is now irreversible; that the problem can’t be fixed. I don’t just worry about my retirement; I worry about the future of my children and grandchildren. What kind of world have we left for them?

I own and run a software company that produces what we call enterprise content management software, a broad term that includes applications like records management, document management, CRM, imaging, contract management, etc. At least once a week I receive some kind of proposal from mainly Indian firms to outsource my development and support functions. I tell them not as long as I own the company.

We do everything in house because that way we produce a far better quality of product and an infinitely higher quality of support. Outsourced development doesn’t work and neither does outsourced support. In my business, outsourcing does not product better quality, it produces rubbish. Outsourcing is never done to improve the product or services or to improve the client interface. It is only ever done by naïve and greedy senior executives to fatten their pay packets at the expense of their employees and long-suffering customers.

Why do you let it happen? Why do you support companies that outsource key functions and lay off Australian workers? Do you enjoy making support calls to Indian and Filipino call centres? Please think about your responsibilities and the future of your children and grandchildren. It may well be too late but I for one will be doing everything in my power to support Australian companies that don’t outsource and to remove my support from Australian companies that do outsource Australian jobs. We need to start taking action or we will not have a future.

Why are you letting it happen?

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