Caught in the xeno-bamia crossfire, these are dangerous times for the “outsourcing” industry

What's in a word?

The industry known as “outsourcing” is currently under its greatest-ever attack.  President Obama has made attacking Bain Capital’s promotion of itself as a “one stop outsourcing shop” as the focal point of his campaign.  And this is a serious attack – he has $512m in campaign money left to burn, and only $25m a month is currently being spent on attack-ads from both parties – the worst is yet to come (from both sides).

Without getting (overly) sucked into the politics, this election is becoming so nasty, so vehement and so contentious, that common sense is taking a backseat to negative politics, as many of the anonymous donors of hundreds of millions of dollars of Super PAC money demand victory at all costs, regardless of the collateral damage along the way.

Worryingly, for the business and IT services industry, we are all now caught in the crossfire.  This is quickly developing into an attack on “outsourcing” that is going mainstream, where many pundits and voters, not familiar with the complexities of global business, are jumping on the bandwagon. As a British subject observing these shenanigans in amazement, I am increasingly wishing this election process could hurry up and be concluded, so this country can finally get back to creating policies, as opposed to this civil war of partisan politics, which is focused almost entirely on negativity, where winning at any cost seems to be the order of the day for both parties.  I sincerely hope the global economy can hold up through November, as we endure this painful – and, quite honestly, rather shameful period in our history.

“Outsourcing” is the symptom of an increasingly competitive global economy, not the cause of America’s economic woes

To cut the chase, Obama is appealing to the fear from protectionists and the masses that US jobs are being “shipped overseas” and he will “insource” them back to the US if he is re-elected.  What he is glossing over is the fact that 97% of US organizations today, with over $1 billion in revenue, are already outsourcing some piece of their business or IT operations and – in most cases – some degree of overseas labor is used by the service provider.  What he needs to focus in on is why service providers use overseas labor:  because it is cheaper, and there is a lot more of it available.  Our current survey is exposing this fact in spades, which we will reveal soon.

The President should be bemoaning the fact that US labor costs are far too high and the country is not currently blessed with millions of people in urban or rural concentrations who are prepared to take on lower level white collar jobs at $25-40K per annum.  He should be bemoaning the fact that the US education system isn’t producing hordes of graduates qualified in ABAP programming that can compete with the Indian factory model.  He should be bemoaning the fact that the 8% of the US workforce currently  unemployed aren’t filling the jobs that are being “shipped overseas”.  Our data already shows that most US business would love to move work to onshore locations, and would be prepared to make much less significant cost savings, if it was available.

Organizations outsource because it makes them more competitive and it pleases their shareholders. If Obama truly wants to be the “Insourcing President”, then he has to figure out how to make the US labor force competitive with the rest of the world. That is where he should be focusing, as opposed to pandering to the xenophobia of the masses by claiming other countries are stealing their jobs because evil corporate leaders, which he claims Mitt Romney supposedly once was when at Bain, shipped them away in the first place.  ”Outsourcing” is a symptom of America’s continuously spiraling cost of living and lack of available talent, which is the real cause.

And what really gets my goat is the fact that “outsourcing” is always the whipping boy for corporate greed.  How about the software industry?  Forget shipping some jobs overseas, these guys want to automate  all corporate support activities and eliminate jobs altogether!  Why aren’t we seeing Larry Ellison, Jim Hagemann Snabe or Marc Benioff being demonized as job eliminators?  SAP just announced their best ever quarter – how many jobs have been eliminated because of the evil corporations plowing millions into their ERP platforms?  Why don’t we just call the software industry the “unnecessary job elimination industry”?

So how should the “outsourcing” industry deal with this?

For years, we’ve bemoaned – but ultimately ignored – the negative emotions that outsourcing incites, with which customers of outsourcing services really struggle (remember this piece?).  Most of have reluctantly agreed that we could never change the dreaded term, so we might as well be resigned to live with it.

And just when we were finally thinking that most of the mainstream IT and business process work, that uses some degree of offshore support, had become commonplace in today’s modern organization, the old “outsourcing is a dirty word” scenario has returned – and returned in spades.  This time, outsourcing is a really dirty word.  Just ask Bloomberg!

We all know Obama is pandering to the xenophobia of the masses to avoid losing votes to Romney.  We all know he’s not openly tackling the real causes of the US’ economic woes in his campaign… but he is the President.  And when the President is personally appearing on TV every 15 minutes, whipping up more fury about evil outsourcing, the services industry has, I’m afraid, now got an image problem that is worse than we’ve ever had.

We’ve made our feelings pretty clear, at HfS, that it’s time to evolve how we approach and promote global services.  Yes, it makes great conversation, but now the Pres is forcing the industry into a corner. We have to match the misperception of how the business and IT services industry operates with reality of what we really do – it’s clear these prejudices are not fading with time, the flames are always there to be fanned when it suits the purposes of protectionists and politicians.  Stay tuned, we’ll give you the opportunity to cast your vote soon about what we should do with “outsourcing” terminology, but in the meantime, I’d love you to share your feelings with us,

Phil.

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22 Comments

  1. Charles Felton
    Posted July 15, 2012 at 9:10 pm | Permalink

    Phil,

    I really enjoyed this post, and agree wholeheartedly with your concerns. We’re living in a time where politics has gone down the proverbial toilet and this latest attempt at creating fear and negativity is very unhealthy. You are completely correct that this whole election is not about who’s developing the right policies for America, but more about who is the lesser of two evils.

    Charles Felton

  2. Stephen Cohen
    Posted July 15, 2012 at 11:19 pm | Permalink

    Phil,

    These latest attacks on outsourcing and promoting insourcing are crazy. How can you force US businesses not to take advantage of global services and become uncompetitive as a result? Surely, many business will either relocate out of the country, or simply downside their workforces to keep costs down?

    While we’d all like to see more US business hire onshore, the key is to incentivize them to do so, not penalize them for looking at more competitive options,

    Stephen

  3. Biswajit
    Posted July 16, 2012 at 6:33 am | Permalink

    There is a larger trend and outsourcing is one of the visible aspects of it . The rule based transaction universe is either being automated or outsourced and finally automated . As per last decade trends , middle-skill white-collar and blue-collar jobs will reduce largely due to a combination of the automation of routine work .As per Institute for the Future,there will be more jobs at the lower spectrum ( care givers , bar tenders, cab drivers ) and on the higher spectrum ( design thinkers , strategists ) , the middle thinking jobs will vanish . America is already seeing the trend wherein there is more jobs at the base and more on the top with middle shrinking faster than ever . This trend will soon catch up with the rest of the world . The outsourcing industry is just a catalyst and like a catalyst , it would too get exhumed in the mega transition wherein new avenues of employment need to be created .President Obama should surely focus on jobs of the future ( clean energy may be one of his gambits which has not made an impact as it should )and not focus on the jobs of the past which will surely vanish not because of automation /outsourcing ,but because of natural process of evolution

  4. Posted July 16, 2012 at 8:16 am | Permalink

    I’ve always used the terms global sourcing and external service providers. What we also seem to forget is global sourcing keeps many US companies solvent in the face of competition, and create wealth and middle classes that can buy American products.

    US Gov’t should also focus on tax havens for companies investing in R&D and innovation. Every business center, in India, has been built based on a lower business tax rate.

    Lastly, companies spend a lot of time on what they should use external sourcing for, but rarely tie it into internal sourcing strategies. It’s a view of the entire organization makes sure all pieces fit together.

  5. Jonathan
    Posted July 16, 2012 at 9:06 am | Permalink

    Phil,
    Wait lets level set! The President is reviewing the case Romney has presented for why he should be president of the United States. Romney sites as the crown jewel of his experience his time at Bain. This brought that work into the cross hairs. Romney also didn’t help when he called the President “Outsourcer in Chief”. So what I enjoy about this site is the wealth of information and ecclectic commentary. I will go to Fox News if I want biased opines.

  6. Phil Fersht
    Posted July 16, 2012 at 9:26 am | Permalink

    @jonathan: we never take political sides here on HfS, we merely analyze the facts and how they impact global business. The issue here really isn’t an Obama versus Romney one, more of the fact that the “O” issue has now got caught in the crossfire of a very negative campaign from both candidates.

    I also wanted to make the point that Obama needs to focus on how he’s going to make the US great again, not making cynical attacks like this. I have always admired him, but have to confess this is the first time I have been disappointed with his tactics. He knows full well that Corporate America depends on outsourcing to keep it competitive and is using this issue to pander to xenophobic attitudes.

    It’s also a serious issue for the services industry, which has to cope with the negative fallout this is creating.

    PF

  7. Posted July 16, 2012 at 9:47 am | Permalink

    If we look at any news headline or what is that is trending on Twitter, it is easy to whip up a frenzy by focusing on negative information.

    Outsourcing is not wrong, but what needs to be identified and addressed is what ails US economy. GM and Ford were the market leaders in the automobile domain for decades, but as they did not adapt rapidly to changing consumer preferences they lost there pole position to the Japanese manufacturers.

    The need for US economy is to focus on education and on making people employable. A key challenge facing US corporations is inability to find and identify right resource at a competitive pricing, this challenge is faced by them because of the constraints that are faced by US education sector. How can a person start working at an X salary when he is already burdened by huge loans after his graduation which he needs to repay.

    When we compare the demographics of US and India, we can easily observe the vast difference, the median age for India is 26 years in comparison to approximately 37 years for US population, with an aging population and falling literacy rate can US flourish without foreign labor, be it within its geography or offshore?

    Mrinal Singh

    Web Presence
    http://about.me/mrinal.singh
    twitter: mrinalasingh Blog: blogs.ittoolbox.com/emergingtech/trends/

  8. Jonathan
    Posted July 16, 2012 at 10:28 am | Permalink

    @Phil
    I agree a negative campaign from both sides indeed. What neither has the political fortitude to say is that outsourcing keeps America cost competitive. We work in a global marketplace. We can work to ignore that fact, if we like. But it will reduce our agility and cause job atrophy at a greater rate. Mrinal makes a great pointing out Ford and GM’s failure to adapt. Expand that view to Americas Global dominance and you see the Macro similarities.

  9. Ron McIntre
    Posted July 16, 2012 at 10:48 am | Permalink

    I agree with the term being “global sourcing” because everyone forgets that industries have been outsourcing within the US for may decades to save money. It is the right solution but we have not been creative or innovative enough to understand the dynamics of collaboration to make our systems more efficient. This includes public as well as private sectors. We seem to be so focused on developing results for stockholders or greedy management that we forget the other parts of the equation, that being the employees and the customers.

    I am thoroughly convinced that we need to come together within the business community and expand the collaboration and cut down the walls so that everyone can profit from the growth and expand the innovation. Isolationism does not work, it only creates retarded growth and ultimate failure. We must put TRUST back into transactions at all levels.

  10. Cass
    Posted July 16, 2012 at 11:51 am | Permalink

    Phil said: “We never take political sides here on HfS.”

    Really? because that’s not how the post reads (at all).

    Surely Horses can find enough to say about outsourcing industry, process, and practice without turning the blog into a stump for Romney.

  11. Phil Fersht
    Posted July 16, 2012 at 12:04 pm | Permalink

    @cass – read our post on healthcare reform from a couple of weeks’ ago. I think you’ll find our frustration is with the lack of sensible political collaboration than any one party / candidate in-particular. To quote: “Frankly, the country would benefit from both parties collaborating on important changes that could benefit everyone, such as tort reform and creating more competition and consumer flexibility by allowing insurance to be sold across state lines.”

    I can assue you this piece is, in no shape or form, a stump for Romney, but a criticism of the cynicism of the recent wave of negative attack ads. We’ll be similarly hard on other attack ads that inflame prejudices regardless of which party they emanate from,

    PF

  12. Phil Fersht
    Posted July 16, 2012 at 12:09 pm | Permalink

    @cass – and one other thing to add: why oh why, in this country, can one not make a criticism of a policy or government action without being accused of making a political “stump” for someone? I come from a country where we engage in healthy political debate, regardless of our political affiliations. If we could get both Romney and Obama actually debating on the issues to improve this country, then we may actually make some positive steps towards making policies again, as opposed to this “you’re either with us or against us” attitude. I fear it’s this partisan attitude that could take this country down a dangerous path where political rhetoric always trumps what’s best for this country,

    PF

  13. Steve Ridgely
    Posted July 16, 2012 at 1:13 pm | Permalink

    Phil,

    Bravo to you for having the guts to call this out. I agree with your comments about this country being so polarized around the current political issues that it’s difficult for anyone to offer a sensible suggestion without being typecast as making a political pitch.

    Having followed your blog for many years, I always saw you as quite supportive to Obama, so applaud your courage to call him out on these latest negative ads,

    Steve Ridgely

  14. Cass
    Posted July 16, 2012 at 1:32 pm | Permalink

    @Phil – Having watched Parliamentary debates as reality TV, I sympathize with your criticism of the US political discourse. Still, a lot of your post is about one politician’s campaign tactics, not a “policy or government action.” Moreover, the post spins what Obama says in the video (which is that he will offer insourcing incentives, not that he will insource); and it tends towards yellowish prose like “forcing the industry into a corner” and “pandering to xenophobia.”

    Outsourcing is the perennial whipping boy of US politicians of every stripe. It has been for decades. And politicians will say outrageous things. Especially because these are constants, though, I think it’s possible to talk about policy and regulation without inciting partisanship or political debate. And, really, that’s all I’m suggesting.

  15. Phil Fersht
    Posted July 16, 2012 at 2:24 pm | Permalink

    @cass – that video is only one of several the Dem’s have released on the topic. I stay out of the politics, but when they directly impact the services industry it is my responsibility to make a call on this stuff. If I were to ignore this, I would not be doing my job.

    I would like to know what Barack is going to DO to bring jobs home, not have him pander to the xenophobic nature of the masses to win votes,

    PF

  16. Posted July 17, 2012 at 9:20 am | Permalink

    To be fair to both candidates, it should be pointed out that Romney has strained hard to distance himself from Bain’s outsourcing activities, hence the recent back-and-forth over when he officially left the company. It’s an uncomfortable spot: he’s running on his business credentials, yet can’t bring himself to defend decisions that many of his peers in large enterprises and private equity firms have been making for decades. I understand why he’s not willing to pick up the baton to defend the industry: it’s not an issue that lends itself to the unsubtle, bivalent world of 30-second attack ads. I further suspect the President is sophisticated enough to understand that this is a pretty cynical line of attack. But it sure looks to me like both sides are playing base politics in a campaign that will do nothing to contribute to an adult discussion of outsourcing, or lift a finger to educate the American citizenry of the realities of the global labor market.

  17. Posted July 17, 2012 at 10:06 am | Permalink

    Fantastic point you make about “Why aren’t we seeing Larry Ellison, Jim Hagemann Snabe or Marc Benioff being demonized as job eliminators”.

    There is really no end to which this debate can be taken. Should the state of New York or California prohibit their businesses being processed in South Dakota or Iowa. Should a Chicago account holder not have his calls answered in Des Moines or a San Francisco mobilephone customer his query in Sioux Falls?
    Are these state and city administrations going to curb this “outsourcing”?
    How about manufacturing sneakers in China and semi-conductor chips in Taiwan?
    Outsourcing is a given. At least in a free marke driven economy, which is what we all claim to be supporters of. In case of products it is called Import and Export. In case of services it is called outsourcing.

  18. Mel
    Posted July 17, 2012 at 1:38 pm | Permalink

    I agree about Obama’s pandering to the fear of the masses, and what is also missing from the political discussion is Romney’s defense of his leadership at Bain. Instead of stepping up to elevate the discourse and talk about his business experience, he avoids it by insisting that he had no involvement with the decision making there post -1999. Can we just have a grown up discussion about the globalization of business? No, us stupid U.S. voters would never be able to comprehend such topics. So just keep calling each other names and throw around buzzwords….it’s a long road to November.

    Note, I did not view this post as a stump for one candidate or another but a fair commentary on how politics is affecting the perception of an industry.

  19. James
    Posted July 17, 2012 at 4:25 pm | Permalink

    Phil Fersht – you are a saint for posting this.

    We live in a GLOBAL ECONOMY these days. Are we “shipping jobs overseas” for using an iPhone, or driving a Nissan? Or buying flat-packed furniture from Target shipped in from Thailand?

    Obama needs to get off this message – and quickly. He’s 20 years out of date with it.

    James

  20. Posted July 17, 2012 at 6:23 pm | Permalink

    I wish outsourcing were always a rational process that is solely about savings, but that’s absolutely not the case is all too many instances. In fact, under Maggie Thatcher, outsourcing in the UK government became a forced march regardless of whether it actually made sense from either an economic or any other sense: when I was covering the IT outsourcing market in the early 1990s, Thatcher’s legacy was all over the forced planning for outsourcing across UK, whether there was a legitimate service or business case for it. We saw that in IT outsourcing during the dotcom bust as well, when — against all warnings that more programmers don’t mean better results — large US companies outsourced/offshored their development efforts by hiring huge teams of off-shore contractors to do their dev work. One large financial services firm actually admitted to me they did this only to sop up non-US profits and keep from having to repatriate the money and pay taxes on it, and that the work was largely useless. So, it’s mythological to say that all outsources decisions are made for good reasons, they’re often done for exactly the wrong reasons too.

  21. Posted July 18, 2012 at 7:25 pm | Permalink

    There are just so many reasons why sourcing evolved go back to automation efficiency gains in the 70s (but was somewhat undetected because of attrition through retirements), y2k, global competitiveness and internal pressures from labor unions, government regulation, market expansion, shareholder profit taking and pressure demands, and the effects from the economic downturn. Your choices under these situations are limited and thus you have to make strategic business decisions. What few talk about is that in some sectors, such as voice based BPO the dominant ownership of these companies is either N.American or European enterprises so by suggesting ‘no sourcing’ is tantamount to saying no taxes and who cares about our own business enterprises. It’s a big hype to incite those that don’t know the facts. The sourcing sector needs to get off their seats and start defending themselves factually and stop taking the kicking that is occurring. One last point is that no one talks about the social and economic benefit to provider nations, guess maybe the West would prefer to write a check without further obligation then to provide seeds for the farmer to grow from.

  22. mgmt. student
    Posted July 26, 2012 at 2:02 pm | Permalink

    Nice piece, Phil… and even more enlightening are the posts/commentary.

    I was just wondering, if an American company starts earning majority of its revenue from abroad, what’s the advantage of remaining a US based business when it will be taxed on all its revenues, purely from a financial perspective?

2 Trackbacks

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