OFFSHORING: IS THE GRASS GREENER?

Debbie Macomber, an American author of romance novels and contemporary women's fiction, once observed "If the grass is greener on the other side of the fence, you can bet the water bill is higher." 

Many of us would have heard of or been affected by enterprises making decisions to offshore certain activities or processes. The basis (premise) for these decisions include that the cost difference is compelling and the skills are equivalent or better (because the offshore entities have scale). Further, the shift of operations to the other side of the world should mean time-zones can be exploited, thus enabling the business to effectively operate 24 hours a day. 

The costs at home in terms of job losses, lost innovation, added contract management and supervision; unrecognized cultural issues; lost income taxes; increased social welfare costs, and the like, dig an economic abyss at home. 

What is the likely endgame? 

Offshore entities take on the work and become successful. Over time, these economies become more affluent and workers seek their share of increasing prosperity through higher wages. 

The members of the displaced workforce at home either find new jobs or not. The likelihood is that they need to find different types of jobs. To support people through this transition, the cost of this displacement on the public purse is not insignificant. Re-training, social welfare costs, and associated health implications are borne by the ever-reducing pool of taxpayers. Accordingly, the Government is faced with long-term reduced tax receipts from payroll deductions and greater expenditure on human services. This in turn places long-term pressure on government financing, which can only be resolved through a mix of revenue raising initiatives and reductions in the extent and standard of social services. 

So, the offshore country benefits, whilst the home country reaps a bitter harvest of hardship, social unrest and financial difficulties. 

Step forward in time. The costs of operating in the offshore country become higher. Home enterprises seek to move the offshored work to yet another country where costs are lower, due to their relative position on the developing economy ladder. Over an extended period of time, you see a trashing of every economy where the work has crossed international borders. 

Bring the work home you say? 

Well what’s happened on the home front is that the education system has adjusted to no longer producing people with the necessary skills. Those who had the skills are working somewhere else (if they are lucky), retired or deceased. 

The government at home has little or no money for the retro-education or retraining of people to develop the skills that would otherwise come back, or even to offer inducements or incentives for enterprises to repatriate their activities. 

The enterprises engaged in offshoring are not going to fill that re-training gap either with their own money. They would much rather run in the competitive race to the bottom of the barrel. 

How short sighted are we? Where is the intellectual, the economic, and the social responsibility leadership in academia, in industry, and in the political arena? 

Who is paying the water bill? The water bill is high and getting higher, but it’s not necessarily offshore.

 

Related Posts:

DATA INTEGRITY: WHY SHOULD YOU BE AS MAD AS HELL?

PROCESS AND SYSTEMS DESIGN: HOW DO YOU GET TO DAMASCUS?

STANDARDISATION – IS IT BETTER TO LET PEOPLE RUN THEIR OWN RACE?

POLICY – DO YOU CREATE ROBOTS?

INNOVATION - HAVE YOU CONSIDERED THE COST OF STANDING STILL?

  • 2016-11-04 20:36:14
  • Mark Spicer
  • Cost reduction, Economics, Corporate Social Responsibility, Offshoring