by Leslie Wolfe
“All right, I guess.” She agreed hesitantly. These were all measures they were taking to ensure her safety, but she also felt like they didn’t trust she could do the job. She frowned.
“What’s on your mind, Alex?” Steve picked up on her vibes, as he always did.
“Do you have any confidence that I can do the job?” Alex asked.
“If anyone can pull this off, that’s you,” Brian answered. “But there are others in play we don’t trust. These people mean business in a very serious way. They’re cold-blooded, calculated killers. We want to be there for you if anything should happen. We want to make sure you’re safe.”
She nodded slightly, deep in thought. Yeah, they do have a point, she thought.
“Speaking of danger,” Steve said, “how do you feel about this venture? Still wanna do it?”
“Steve, if it’s the last thing I do, I still wanna do this. One hundred percent. At first I was just curious, curious and driven to solve the puzzle, unravel the mystery. Now I’m angry, just like you are, because whatever they’re planning to do, it’s huge. It’s beyond anything that we could live with ourselves if we decided to shrug it off and leave it in someone else’s hands. This is our future we’re talking about.
“If whatever they’re planning to do should succeed, because it targets such a core element of our values, it will create a permanent scar in our identity as a nation. It won’t just be a random terrorist attack, big or small, that people could forget in a few years. This will alter our history, will impact the entire American people. It could be another 9/11, or worse. We just can’t let that happen. I just can’t let that happen. So yes, I still very much wanna do this.”
“All right, then, let’s move on to the business section of our meeting,” Brian said. “Steve wanted to sit in and get educated about the principles of outsourcing, offshoring, globalization, and vendor management.”
“Good, I have lots of questions,” Alex said. She replenished her coffee with a new brew of French vanilla. The flavor filled the room.
“We could spend months and not get to everything there is to say, know, or consider about globalization. So I will keep it very simple, structuring what you’ll need to know for this assignment.” He stood up, stretched a little, and continued. “I will start with my favorite definition. Globalization is ‘the processes by which the peoples of the world are incorporated in a single world society.’ This definition was crafted by Martin Albrow, a sociologist. I like this definition because it’s simple. Globalization is the overall process through which we become a single nation, if you’d like.” He stopped for a long sip of coffee. “A very long and increasingly painful process that has stirred up controversy and has hordes of supporters and opponents, equally passionate.”
“Which one are you?” Alex asked. “Are you pro or con?”
“That’s not a quick, simple answer. There are several components to globalization. I am absolutely in favor of free trade and the free dissemination of knowledge transcending borders. But I am definitely not a fan of other aspects, like pollution, accelerated resource depletion, and some of the current practices regarding outsourcing of labor. I’ll explain more in a little while. Let’s go back to our vendors for now. Why do companies outsource?” He looked at his audience, waiting for an answer.
“That’s easy,” Alex ventured, “to get things done cheaper.”
“Precisely so. Our economy is cost-driven, and a corporation’s main allegiance is not to its employees, as one might think. Not even to its customers. A corporation’s single focus is to make more money. It’s that simple. One way to do this is by cutting costs: labor cost, supply chain cost, product cost, any type of cost. That’s why, in the past twenty-some years, we have seen manufacturing slowly but surely moving to China and other Asian destinations, such as Taiwan. We’ve seen services, including software development, moving to India, Pakistan, Latin America, and other emerging markets. Popular brand names have been associated with the labor offshoring controversy as early as the 1970s.
“These companies have struggled for years to shed the sweatshop reputation brought by allegations of forced overtime, child labor, and minimum wage violations in manufacturing plants in Vietnam, Mexico, and China, among others. But they were not the only ones adopting these practices. Even today, the majority of offshore manufacturing practices still leaves much to be desired, despite the public’s attention and countless whistle-blowers, Maybe you’ve heard on the news or read in the papers about the suicides at Chinese electronic assembly facilities in Shenzhen,” he said, waiting to see if they knew anything about that.
“I think I remember seeing something,” Steve said. “They installed netting, right? To catch the jumpers? I remember struggling with the idea. That’s not how you prevent suicide, how you heal people. It can seem helpful at first, but it can’t be the only thing you do for the long term.”
Alex shuddered. How awful it must be to want to kill yourself rather than go to work another day.
“Correct. So the question is why would such corporations risk bad PR about this? The answer is very simple: for money. Let’s use a random example. Let’s say Company A used to make TVs in New Hampshire. The cost to make a TV in the United States with US parts and US labor was, say, $80. I’m just making these numbers up, you know. The company then sells the TVs at $100, with a 20 percent margin. The competition is fierce, and the consumers’ purchasing decisions are, unfortunately yet predominantly, price-driven. Now Company A has no choice but to take labor offshore, because the competition, an Asian brand, can afford to bring the TVs in at $90 per unit.
“Company A takes its manufacturing offshore, fires the American workers, and suddenly, the cost is only $45 to make one TV. Two things happen at this point. One: Company A will sell the TV for $89, just barely under its competitor’s price, and, by doing so, it drives the margins from the 20 percent in the initial phase, to almost 100 percent after offshoring. By doing so, the company accumulates a lot of money that, in many cases, will end up invested offshore as well, in additional manufacturing facilities, instead of injected back into the local economy.
“The pricing wars will continue though, and the margins will erode somewhat over time. The second aspect is that Company A lost a few customers, because the employees who lost their jobs and their families won’t be able to afford new TVs anymore. Those employees won’t be able to afford many other things, such as cars, furniture, clothing, appliances, and so on. One by one, all these companies, the furniture store and manufacturers, clothing companies, everyone in the community will suffer because those TV manufacturing employees got laid off, and their jobs were sent to China. The local economy is shrinking. Then what happens?”
“More pressure on cost to compete in price-driven purchasing?” Alex ventured.
“Precisely. Soon enough, even if they wouldn’t have originally considered it, other manufacturers will be forced to drop their prices further, and the only way to do this will be to outsource some more.”
“But wouldn’t that ruin the local economy even more?” Alex asked. “It’s counterintuitive, and somehow it’s the only way they can compete.”
“That is exactly what happens. The companies’ immediate survivals dictate that more and more of the labor is to be moved offshore, yet this labor export spirals the standard of living further into the ground, taking employment opportunities away from the American labor market. But here’s where it gets really interesting. You’ll hear reports every quarter stating that the economy had grown one, maybe two percent. The economy is not shrinking. The standard of living is dropping, while the economy still grows, albeit at a very moderate pace.”
“Why? How is this possible?” Alex asked.
“Do you remember Pascal’s principle of communicating vessels? Early school science class?”
“Yeah, I do,” she answered. “What’s it got to do with the labor market?”
“Well, you can think of all these countries, i
ncluding ours, as vessels filled with fluid. The fluid levels in them represent the standard of living, or the purchasing power, if you’d like to call it that. It’s the ability to purchase goods and services for the average individual working an average job. Obviously, before the age of outsourcing started, the United States had one of the highest fluid levels in all the world’s vessels. Do you agree?”
“Yes, absolutely.”
“Then we put our vessel in direct communication with other countries’ vessels, like China, India, the Philippines, and now our fluid levels are dropping, and theirs are rising. The fluid leaving our vessel and going into theirs is our wealth, our standard of living, our purchasing power, and our financial security as individuals.”
“In Pascal’s principle, this drain will not stop until all connected vessels reach the same level.”
“Correct. But here’s a thought for you: how can the American labor market hope to survive when we are just a hundred million workers or so, and we are seeping resources toward a global market two billion strong? If you look at things strictly from the physics perspective, we will be drained dry, as a people and an economic system, before we manage to raise the levels in those countries to a high enough level to stop draining us. Additionally, in most of these countries, population growth is also a concern, so it’s not getting any better with time.”
“I still don’t think I completely understand. I get that taking jobs offshore is bad for the labor force here, at home. I understand that we are no longer building wealth in our communities. I have lived through it, and I am still living it. But at a larger scale, isn’t offshoring good for the economy?” Alex asked.
“You tell me,” Brian said, pulling all the devices he had brought into a pile in front of him and adding the dry-erase markers and knitting yarns. “Let’s imagine this is our money. Every month we get services and labor provided offshore; we bring consumables in,” he said, bringing his coffee mug to the pile, “and we pay for them,” he continued, taking away from the pile one of the encryption devices and a marker. “Then we consume the services; we use what we have bought,” he added, drinking his coffee, “and next month we need to buy some more.”
He moved more objects from his pile and scattered them around the table. “See how our cash flows away? What do we bring back instead? What do we buy? Labor, consumables, services, things that add value but do not last. But our money goes away permanently. What do we sell offshore to bring some of this money back? Do you know?”
“I know we’re exporting grain, food products, mostly,” Alex said.
“And weapons, we sell a lot of military equipment,” Steve added.
“Yeah, all correct. We also export oil, aircraft, equipment, chemicals, and pharmaceuticals.”
“So it should balance out, I’d think?”
“Well, ideally it should, but it doesn’t,” Brian said, bringing back from the scattered objects a yellow marker and placing it in the pile in front of him. “We bring some money back, but only a small percentage of what we send out. This is called a balance of trade deficit, or trade deficit for short, and it has fueled the American national debt to unprecedented levels.”
“So why doesn’t it stop? This resource and wealth drain?”
“I’d have to say there’s no real interest in protecting it. Most corporations prefer to go offshore, because they get more for less, and they think it’s the only way to stay competitive. This is a shortsighted point of view, focused on making the next quarter financial results look good and discarding any long-term vision that involves the community or the wealth of the people. People and their purchasing decisions are also a part of this. When we go to Target we normally buy the TV that has the best value, not the Made-in-the-USA TV. Patriotism means sacrifice, and the vast majority of customers would rather not sacrifice whatever they have left of their disappearing standard of living. Even those who strongly believe in this form of patriotism and who would be willing to make the sacrifice are discouraged by how little difference their sacrifice would make.”
“I agree, “ Steve said. “How many Made-in-the-USA products can you find on the shelves at the store? Almost zero, after thirty years of offshoring.”
“Yes, they’re all gone,” Brian confirmed. “They were eliminated by the fierce cost competition brought by the offshore labor, product, or service.”
“So we’re doomed?” Alex asked. “As a nation, we’re heading into poverty? That’s what you’re saying?”
“We’re already in poverty. More than 20 percent of our people live under the poverty line, and millions have given up on their hope to ever get a job. We’re definitely heading in the wrong direction, but there is some hope. BMW, for example, manufactures the SUVs for their entire world market in the United States. Other manufacturers have realized the value of having manufacturing done here rather than offshore, here where standards are respected and products have a very high level of quality. Cost-wise, onshore manufacturing has started becoming competitive again, due to wages rising in the offshore markets and a higher cost of transportation. Here and there, the jobs are coming back. It’s a start, and a weak one at best, but it’s a start.”
“The one thing I see as a positive in all this,” Steve said, “is the overall benefit that offshoring brings to those markets, to the people living there. I remember reading that offshoring has extended the life expectancy in those areas and has improved the health and mortality rates in those populations. Do you think this is what drives America’s commitment to globalization?”
“In my entire business career, sitting in countless board meetings, I promise you I have never heard someone say, ‘Let’s outsource our manufacturing to China because people are dying or starving.’ Instead I have heard numerous times how outsourcing saves the corporation money and how much it saves, all demonstrated in colorful charts and plump cash-flow forecasts. For corporations this is a cost-driven decision.
“However, you do have a point, Steve, and I agree with it. It is important that we actively work, as a nation, to improve the standard of living in other countries, but not beyond the point where we stop being able to maintain our own. If we continue to do that, we will soon lose the ability to help anyone, including ourselves. However, we can improve the standard of living in those areas in many different ways. We could share knowledge, innovation, healthcare advances, and best practices. We could make targeted infusions of capital and investment to the local economies.”
“What do you think will happen, long term, with our economy?” Alex asked.
“It’s hard to say. A lot is riding on who’s going to win the election. The Republican presidential candidate, Krassner, seems to have a good grasp of what could be done to stimulate the recovery of our standard of living. There are many things that could be done, by the government and by the consumers. The government, if it decides to take this path, could deploy taxes and duties to prevent the labor drain. It could also give tax incentives to create homegrown expertise. You see, part of the problem is that now, after more than thirty years of offshoring, you can’t even find skilled manufacturing workers anymore. People have abandoned this career path due to obvious reasons.”
Brian paused a little, scratching his head. “As for the consumers, well, we’d have to decide that it might be worth it for everyone if we buy fewer quantities but higher quality products. Germany has such a culture, for example. People there do not buy seven pots and pans at a time; they only buy one when they need it. If the product is imported from outside the European Union, that product carries a significant customs duty tax that the government uses to fund development programs for the German workforce. In Germany and other places, offshoring funds their labor development, not ruins it, because it carries significant levels of tax. By having such a high tax applied to any outsourced work, offshoring also loses its low-cost appeal and stops being the Holy Grail of all corporations. It’s not worth pursuing anymore, so companies become invested in the local communitie
s. In Germany, unemployment is low, GDP is high, and the country doesn’t have that much debt, either. So yes, there are ways to fix our economy; it just needs to become a priority for our political leaders.”
“So, going back to our unofficial client, DCBI, offshoring these two contracts was a cost-driven decision, I understand?” Alex asked.
“Robert Wilton’s team uses a points system to award contracts, with cost being a key component of their scale. They also look at the financial health of the vendor company, the experience, the clientele, the processes, quality standards, and many other aspects, but cost has a high impact in DCBI scoring.”
“I remember he said he didn’t have to do anything to promote the selected vendor, that the vendor surfaced as a prime candidate on the points system without his help,” Alex said. “That means the vendor is good, right?”
“Yes, that’s precisely what that means,” Brian confirmed. “The fact that the UNSUB decided to execute such an elaborate plan to ensure that the vendor would be awarded the software contract speaks to the determination and preparedness. It also speaks to the UNSUB’s reach; it knew everything about the competitors and filed an aggressive offer.”
“OK. What else do I need to know?”
“You’ll need to know how to interact with the company employees culturally and how to get ready for your trips.”
“This is where I come in,” Steve said.
Alex turned in her chair to face Steve.
“All right, let’s start with Taiwan.” He consulted his tablet. “Taiwan is quite simple. Stay away from large gatherings, don’t fall for any advance fees or inheritance scams; this is their local flavor of the Nigerian scam, and they love to try it on Westerners who are new to the country. If you’re invited to a meal, wait to be invited to eat, as opposed to just diving in when food is served. Be careful not to lose face and not to cause anyone else to lose face. Losing face is any form of blemishing someone’s public image. Criticizing someone will cause him or her to lose face, especially if it’s in public. Getting angry and losing your temper in public will cause you to lose face. Umm...what else?...Ah, here. Always travel with your best friend, toilet paper.”
