01 May 2007

Lou Dobbs is Right -- and Wrong

Lou Dobbs, everyone's favorite offshoring gadfly, is right: Jobs are lost as a result of offshoring. The recently published Duke University, Pratt School of Engineering report titled Industry Trends in Engineering Offshoring supports Dobbs' claims. As noted in my last column, Americans view offshoring-related job loss as their greatest U.S. foreign policy concern, so discounting Lou Dobbs out of hand isn't appropriate: His brand of Populism may not be popular in a Libertarian enclave like Silicon Valley, Populism being the opposite of Libertarianism, but it has legs on Main Street, U.S.A.

But Lou Dobbs is also wrong: Companies that are multinationals with corporate headquarters in the States, regardless of size, have no moral or ethical obligation to do what's best for America or Americans – unless directed to do so by their shareholders. MNC executives only have one obligation: To increase shareholder value. That's it. It's that simple.

If offshoring will improve a Company's bottom line, then so be it. If a U.S.-headquartered firm's American shareholders don't approve of a decision to offshore, then they can raise their concerns in a host of ways. One timely example: Disgust over Intel's decision to open a fab line in Dalian as a prominently featured “Comment” in EE Times with the appropriately provocative title “Is Intel evil?,” proof that one does not have to wait for a shareholders meeting or take legal action in order to bring a concern into the limelight. (BTW, I agree with the comment, although more for national security reasons than the reasons noted in the EE Times piece. Fortunately, it's not a state-of-the-art facility.) Bottom line: Executives with multinationals based in the States need to do whatever is necessary to increase shareholder value and this often entails offshoring to China, India, Israel, Mexico, Ireland, pick your preferred offshore destination(s).

Although it's hardly desirable, job loss that may result is irrelevant; executives need to act responsibly and this means choosing among the best shoring and sourcing options. For the record, a recent working paper published by the Stanford (University) Center for International Development notes “that trade with China is, on average, raising the wages of developed world workers and will continue to do so.” (My recent Tech China blog posting analyzes this paper in further detail.) And adding the other three BRIC countries + Mexico, Indonesia and Turkey (the BRIC + 3) into the mix may very well make for an even stronger case for higher wages in developed countries. Yes, offshoring does create job loss, but from a broader, strategic perspective – a global trading perspective – the benefits appear to outweigh the costs.

Taking this a step further from an operational perspective, the smartest and best American executives will pit China and India against each other. And they should. I know that a lot of Chinese and Indians don't like to hear this, but once again, it's a best practice if a firm is trying to optimize their bottom line. To put it bluntly, have China and India grab each other by the throat and go for each other's jugular. Profit from the spoils of war. That's what a responsible executive should do ... needs to do ... alas, must do. Sun Tsu would be proud.

Remember, it's these same American executives who are offshoring jobs and creating job loss back in their home country. Why in the world should they show any mercy whatsoever to China or India? Fact is, they shouldn't. They must not. They must take control of the situation, pit each country against each other as best as they can.

When it comes to manufacturing, look for alternatives to China. Maybe Vietnam. Maybe India (when India can learn to build decent infrastructure). Maybe Thailand. Obviously Malaysia. And don't forget the maquiladoras. Anyway, look for an alternative to China. And when it comes to ITO, look for alternatives to India. Maybe China (actually, probably China). Maybe Israel. Put pressure on China in the manufacturing sector; put pressure on India in the IT outsourcing sector (and BPO, too; don't forget the Philippines). Have no mercy: You've already implicitly approved of job loss in your own home country; to show mercy to China or India would be a sign not just of weakness, but poor executive decision making skills – and to some, it might even be considered an act of treason. Remember, you're not a Christian missionary trying to help Chinese or Indians; you're an executive with the single, laser-focused goal of doing your part in increasing shareholder value.

So now I've said it. I suspect that a lot of American executives feel exactly what I've expressed, but haven't had the courage or platform to make their case. (Yeah, I guess they could write a blog post.) In some ways it's not politically correct. But is creating job loss in your own country politically correct? And who is really, truly stupid enough to believe the nonsense produced by the likes of McKinsey stating that there is minimal or no job loss in the home country (re: United States). We all know in our gut that this is wrong, that McKinsey is being deceptive, trying to make a case that offshoring isn't such a bad thing after all. It's like saying that it was a great thing that your wife had an affair. After all, maybe she learned a thing or two. This is McKinsey's warped sense of reasoning. We all know that this is a pack of lies.

Personally, I'm delighted that RDO (R&D offshoring) is the only highly-skilled business function that results in a net gain of onshore jobs (see the
Duke University/Booz Allen Offshoring Research Network 2006 Survey, Exhibit 2). What I'm doing soothes my mind (as a business person) and soul (as a human being): I'm delighted that Startech – due to our unique relationship with Tsinghua University – is focused on RDO and ESO (engineering services outsourcing/offshoring), and on high-end software development for ISVs that is often merely transferring jobs not from the States to China, but from India to China (again, often in a decision pitting China against India). Given a choice, everyone would prefer to partake in an endeavor that results in job creation in their home country and optimizes shareholder value. But in the final analysis, if my soul is truly the driving force in my professional life, then I should go work for a humanitarian cause. (And some people choose this route. Good for them: The world needs humanitarians, not just business executives and engineers.) Yet, the "cake," so to speak, is business; niceties gained by doing something good for my soul is merely the “icing.”

We've all heard the phrase, "God & country." But it should really be "God & company" (assuming you believe in God). And if "God & country" is more to your liking, well, you can always get a job as a civil servant. Multinationals need executives with vision – a futures-driven global perspective – not executives biased by any sense of Nationalism. McLuhan was right: We're in a global village. Act accordingly.

Based in China, David Scott Lewis is SVP with Startech Global Corporation, the outsourcing hub for Tsinghua University (China's MIT). In addition to his bizdev/GAM responsibilities, he authors their Tech China and ADM blogs.

Originally published on Apr. 16, 2007

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