Stop Offshoring
Thursday, November 20, 2003
Imagine if the owner of an NBA basketball team decided to cut costs by replacing some of his players with players from other leagues around the world. These players were starters on teams in their respective leagues but not NBA caliber. Instead of paying the average NBA salary of $5 million, the owner only needs to pay them an average annual salary of $1 million. The owner saves $25 million by replacing half of his roster with foreign players. The team ends the season in the division cellar, with the worst record in the league.
Was it a wise move on the owner's part? In the short term, if fans decide to stick it out to see how the team fares and ticket sales do not decline as significantly as the salary savings, it may seem so. However, if the owner does not add more NBA-quality players to his team, the team will continue its losing ways, and fans will eventually stop watching. Who would want to support a losing team of second rate players when the rest of the league uses NBA players? How soon until having an inferior team catches up to any salary savings? Eventually the NBA would force the owner to change his ways because he is diluting the NBA's product, perhaps by replacing him with new ownership.
While such a scenario may sound absurb, it is already happening as companies blindly offshore American jobs to foreign countries such as India. By replacing American employees with cheaper Indian workers, companies argue that they are wisely saving money. I beg to differ. I believe they are weakening their companies as well as this country in search of questionable short term gains.
Many other articles have discussed the problems with offshoring, so I will post them on this site instead of rehashing their arguments. Meanwhile, supporters of outsourcing praise the practice by pointing to the cost savings and accusing the opposition as xenophobic.
I wouldn't be against offshoring as much if I truly believed that American companies were better off in doing so. However, in my experience, you get what you pay for, and in some cases, you lose more than you gain. Implicit in the NBA analogy is the assumption that NBA players are better as a group than foreign players. There are some foreign players who would succeed in the NBA anyway (e.g., Dirk Nowitzki, Yao Ming), but our hypothetical owner did not select these stars or he would've had to pay more than $1 million to lure them.
It is difficult not to sound biased, but in my experience and the experience of my friends, the Indian workers we've worked with as a group are not at the same level as their American counterparts. It isn't necessarily that they are less intelligent people. Rather, a combination of language, cultural, spatial-temporal, and other differences add up to a lower level of productivity on their part. At the now defunct software company where I previously worked, half of the engineering work was performed by a team in India. The leader of the Indian team was a bright and motivated man who I considered one of the best employees at the company. However, any work that was done by the team took at least twice as long and was much buggier than what we developed in the U.S. As a result, the American team had to spend more time teaching the Indian team, finishing projects that weren't completed by them, and fixing their bugs. And with time to market so important, it meant more work for us if we were to meet our deadlines.
Did we really come out ahead by offshoring our work to India? In my opinion, a resounding NO. We could have spent the same amount of money and gotten as much done in less time and with less headaches by keeping all of the work in the U.S. Although this is just one example, the experiences of myself and my friends have shown that what happened at my previous company is more the rule than the exception.
In the NBA, there is an easy way to measure how a team is doing: the won-less record. Unfortunately, mainstream businesses do not have such a convenient scorecard. How will business leaders learn whether offshoring is a good decision or not? Especially when they can so readily see the black and white figure of lower employee compensation? Even at my previous company, the management team wanted to expand the Indian team, to the consternation of the American workers who would have to bear the consequences.
It could take years or decades before a company notices how offshoring diminished its competitive advantage, especially when so many others are doing it. Imagine if all NBA owners began replacing their rosters with cheaper foreign players. Our original owner's team may fare well against such weakened competition. It wouldn't be until fans left the NBA as a whole or a superior league emerges (the displaced NBA players would undoubtedly look for work elsewhere) that the owners would take notice, but by then, it would be too late.
Let's hope it's not too late for American companies that are offshoring now.
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