# Should firms be made to forego the option of outsourcing/offshoring? **URL:** \ **Category:** Great Debates\ **Created:** [July 7, 2012, 12:18am UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483 "2012-07-07T00:18:39Z")\ **Posts on this page:** 10\ **Page:** 4
**Author:** ![Fiddle\_Peghead](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fiddle_peghead/32/3506_2.png) [@Fiddle\_Peghead](https://boards.straightdope.com/u/Fiddle_Peghead)\ **Post date:** [July 16, 2012, 12:43pm UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/61 "2012-07-16T12:43:59Z")
> [@Stratocaster](#): > > I’ll move on then, since I don’t know how else to explain it and I provided you examples. But you haven’t provided examples, you’ve only _told_ me about contradictory statements elsewhere. And as I said about the essay, it doesn’t mention outsourcing. If a more knowledgeable person than I can point to where in the essay it’s addressed, perhaps in other terms, I would be interested. But yeah, let’s drop it, because I did not respond in this thread here to defend Krugman _per se_. **John Mace** said he was a hack, and I just asked for some evidence to back up that claim. I can look into that myself from here on. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [July 16, 2012, 2:17pm UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/62 "2012-07-16T14:17:29Z")
> [@WillFarnaby](#): > > Paul Krugman is a [liar](http://mises.org/daily/6055/Charting-Fun-with-Krugman). You won’t go far posting links to articles which do exactly what they accuse Krugman of doing. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 18, 2012, 1:51am UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/63 "2012-07-18T01:51:51Z")
> [@Voyager](#): > > He gave a very specific reason why outsourcing can be bad - it leads to lower wages and benefits for people at the companies who now have the job. In fact, it does exactly the opposite. Outsourcing is an example of _specialization_, which is one of the major factors in productivity improvement and therefore wage increases. Most companies do not outsource just to get lower priced labor. They outsource because they recognize that there are other companies building the part they need, and doing it better than they can, and therefore it makes sense to outsource the part than build it themselves. Sometimes the other company’s advantage is lower priced labor. But not always, and maybe not even usually. It’s all about tapping expertise of others rather than trying to develop it yourself and/or pulling your own people away from what they do really well and making them do something they’re not as good at. That WILL lower their wages in the long run. For example, let’s say you are a software company making a product to control factory robots. You know factory automation extremely well. Your competitive advantage is that you have great automation engineers with industry experience who know how to build software to control robots better than anyone else. However, this software has a lot of mundane pieces to it that have nothing to do with factory automation per se. It needs a database. Do you write your own? Or do you buy off the shelf? Or perhaps you contract a company that specializes in database design to build it for you - i.e. you outsource it. You recognize that it’s a waste of an automation engineer’s time to try to figure out how to parse an SQL query rather than how to make sure the robot’s arm isn’t over-stressed during a motion command. Your automation engineers make as much money as they do because of their specific skill set. You’re not going to pay them to do something they’re not good at, because then their productivity drops and you can’t afford their wages. In this way, outsourcing keeps wages high by allowing people to keep working on the tasks they are most productive doing. Now, you could also expand and hire new people. But that has its own costs, and you may not be able to find the people with the experience you need. And, now you’re building a company that starts to lose focus. Better to stay with what you know and outsource the rest. Every company outsources to a certain degree. Car companies pay subcontractors to build certain specialized components. Brembo makes great racing brakes, so GM outsources brake design on the Corvette to Brembo. If Brembo is a foreign company, GM is both outsourcing AND off-shoring. But at no point was it about the wages of Brembo’s workers. In fact, GM doesn’t even care about the worker’s wages at Brembo. All they care about is the price/quality of the product offered. Maybe Brembo’s workers make MORE money, but GM would have to pay even more to develop their expertise in-house. All GM cares about is that it can buy Brembo brakes and install them for less than it could develop its own brake system of the same quality. Brembo’s brand recognition also has value, and may allow them to pay their workers even more. In the end, both companies benefit. Outsourcing is ubiquitous in a modern economy. Anyone who opposes either outsourcing or off-shoring is ignorant of basic facts of how the economy actually works. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [July 18, 2012, 2:22am UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/64 "2012-07-18T02:22:21Z")
> [@Sam\_Stone](#): > > In fact, it does exactly the opposite. Outsourcing is an example of _specialization_, which is one of the major factors in productivity improvement and therefore wage increases. > > Most companies do not outsource just to get lower priced labor. They outsource because they recognize that there are other companies building the part they need, and doing it better than they can, and therefore it makes sense to outsource the part than build it themselves. Just to make sure everyone’s on the same page, Sam, bear in mind that people tend to confuse outsourcing with offshoring. Most people, when they say “outsourcing,” mean “offshoring.” Obviously, opposition to outsourcing is insane. It is simply impossible to run a business and not outsource - actually, it’s nearly impossible to live and not outsource. If a a small home-based business uses Quickbooks to do the accounting, that’s outsourcing (they bought Quickbooks from another company.) If they use paper clips, they outsourced the paper clips from Office Depot. The only people who ever oppose outsourcing are employees who don’t want their job outsourced, but on a macro level it’s irrelevant to the economy who makes the paperclips. What ALMOST everyone is talking about when they say “outsourcing” is “offshoring”, \* importing things from other countries.\* Even Krugman, who should know better, is guilty of this sloppy usage of the term. Now, of course, trading with other countries is fine, too, but I can at least understand why people would fail to understand that without being insane. Comparative advantage is not an immediately intuitive concept. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 18, 2012, 4:57am UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/65 "2012-07-18T04:57:47Z")
I’m not sure that it’s just a confusion between outsourcing and off-shoring. Management companies like Bain go into troubled companies and look for ways to make them profitable. Sometimes companies get into trouble because they make too many intermediate products and attempt to build too much in-house. As a result, their products suffer quality issues and they lose whatever it was that made them special in the first place. Even when this type of problem is recognized within the company it often persists because someone authorized that project and promoted it, and that person and/or the team would then look bad. So factions develop, and sclerosis sets in, and bad practices continue or even get worse. Management consulting companies are often hired because they are at arms-length from all the bad decisions, so they can be the ‘bad guys’ who shut down projects, streamline product lines and outsource the rest. They can kill the bad financial plans, identify management failures or process failures, and correct them. This often means layoffs, but the alternative is for the company to continue bleeding red ink and market share until _everyone_ is laid off. Sometimes the company is so far gone that all you can do is wind it down and shut the doors. But that’s also a healthy function, because it frees up all that capital and all those people to do other things of more value to the economy. No one wants to maintain a subsidized telephone operator industry. So we laid off a whole lot of people. Outsourcing doesn’t get anyone mad if it’s done right from the beginning, but it gets the workers riled up when a product made in-house is outsourced for efficiency reasons and the people building that product are laid off. Of course, the concentrated group of workers laid off is highly visible and grist for the political mill. What is less easy to see is the hiring going in the companies that are winning the contracts to build the things you used to build yourself. So the political calculus is unfortunately one-sided, and people come to believe that outsourcing is a bad thing. Some people even think automation is bad for job creation. President Obama, for example, seems to think that ATM machines are a factor in holding back job creation. ---
**Author:** ![bldysabba](https://avatars.discourse-cdn.com/v4/letter/b/ecccb3/32.png) [@bldysabba](https://boards.straightdope.com/u/bldysabba)\ **Post date:** [July 18, 2012, 9:04am UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/66 "2012-07-18T09:04:53Z")
> [@RickJay](#): > > What ALMOST everyone is talking about when they say “outsourcing” is “offshoring”, \* importing things from other countries.\* Even Krugman, who should know better, is guilty of this sloppy usage of the term. Actually, in the article I’ve quoted, Krugman makes an explicit distinction between the two terms. ---
**Author:** ![Fiddle\_Peghead](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fiddle_peghead/32/3506_2.png) [@Fiddle\_Peghead](https://boards.straightdope.com/u/Fiddle_Peghead)\ **Post date:** [July 18, 2012, 10:48pm UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/67 "2012-07-18T22:48:11Z")
First off, the posts by you and **RickJay** were informative and interesting. Thanks. > [@Sam\_Stone](#): > > Some people even think automation is bad for job creation. President Obama, for example, seems to think that ATM machines are a factor in holding back job creation. Are you referring to [this](http://mediamatters.org/video/2011/06/16/kilmeade-says-obamas-accurate-atm-remarks-are-t/180629) nonsense, from among others, FOX News? > [@Obama](#): > > The other thing that happened, though, and this goes to the point you were just making, is there are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM; you don’t go to a bank teller. Or you go to the airport, and you’re using a kiosk instead of checking in at the gate. So all these things have created changes in the economy, and what we have to do now – and that’s what this job council is all about – is identifying where the jobs for the future are going to be; how do we make sure that there’s a match between what people are getting trained for and the jobs that exist; how do we make sure that capital is flowing into those places with the greatest opportunity." Is he not saying in so many words, that we shouldn’t be training more people than is necessary to become tellers, and instead train them to make ATMs? I see no attempt to “blame” anything on ATMs _per se_. It’s about allocation of resources. How this became Obama blaming ATMs for holding back job creation is beyond me. ---
**Author:** ![Mosier](https://avatars.discourse-cdn.com/v4/letter/m/7ea924/32.png) [@Mosier](https://boards.straightdope.com/u/Mosier)\ **Post date:** [July 18, 2012, 10:57pm UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/68 "2012-07-18T22:57:18Z")
> [@english\_girl](#): > > something else! why do we have to learn to speak spanish??? they are coming into an english speaking country and OUR language has to be change to accommodate them. i have worked in a post office and there would be 5 and 6 yr old kids translating for the mother who spoke NO english, come on!!! if youre going to let them in then they should be made to learn english as a FIRST language and they should also be made to become citizens if they’re going to live here, i became a citizen and proud of it in 1978!!! Not enough exclamation points imo. ---
**Author:** ![Mosier](https://avatars.discourse-cdn.com/v4/letter/m/7ea924/32.png) [@Mosier](https://boards.straightdope.com/u/Mosier)\ **Post date:** [July 18, 2012, 11:00pm UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/69 "2012-07-18T23:00:05Z")
> [@Sam\_Stone](#): > > President Obama, for example, seems to think that ATM machines are a factor in holding back job creation. CITE?! ---
**Author:** ![Untoward\_Parable](https://avatars.discourse-cdn.com/v4/letter/u/51bf81/32.png) [@Untoward\_Parable](https://boards.straightdope.com/u/Untoward_Parable)\ **Post date:** [July 18, 2012, 11:05pm UTC](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483/70 "2012-07-18T23:05:09Z")
It’s an indirect and short sighted solution to the real problem: concentration of power and reward. Big companies exists because of armies of people, coordination with governernment infrastructure and diplomacy and subsidy and the protection and fertility of US territory. When managerial members of a company make decisions it’s as much to guarantee their leverage over workers and personal compensation as it is for the health of the company, and is certainly absent of loyalty to the US. Executives will steal from retirement accounts and ship factories overseas if they can inflate their own bonuses and stock options by doing so. The problem is power, the leadership of companies must be answerable to the members of the company in addition to stockholders if our economy is to become rational and have a net positive effect on the country. [Previous page](https://boards.straightdope.com/t/should-firms-be-made-to-forego-the-option-of-outsourcing-offshoring/627483.md?page=3)