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October 12, 2009

Outsourcing the Recession: Home-Baked Protectionism Makes No Business Sense

Like politics, business seems to have joined the growing ranks of protectionists as the economic revival in America and Europe shows signs of sustained weakness. But in doing so, to my mind and that of many others at least, this makes no sense whatsoever when companies are looking at ways to reduce their costs. Online, the cheapest and potentially the most effective method of all marketing/PR models, should be left intact and strengthened during this recession.

Indeed, in “Economic vandalism: A protectionist move that is bad politics, bad economics, bad diplomacy and hurts America. Did we miss anything?“, the Economist this week pointed to Barack Obama’s decision to “break a commitment he, along with other G20 leaders, reaffirmed last April: to avoid protectionist measures at a time of great economic peril” citing the president’s decision to slap a 35% tariff on imported Chinese tires. Obama is not alone; what is on the menu in many American-led editorials regarding outsourcing is equally obstructive to free
trade.

Five years ago we set up a new company in Thailand offering web design services. At first we thought our work would come from the capital, Bangkok, but how wrong we were: most of our web design and SEO services are for companies overseas, from Europe to the US and in almost all developed countries in Asia. What we offer is an equally professional service at a quarter of the
rates being offered in the West.

Indulge me for a moment but during the aftermath of the dot.com crash at the beginning of the millennium, many companies decided that the “bottom line” needed to be cut, and that is exactly where the internet stood at the time: online services were slashed – but somehow not burned. As of now, with the world’s economies picking up slightly from the devastating effects of the credit crunch, 2009 for us also witnessed a short four-month downturn in enquiries.

However, according to Search Engine Watch, under the sub-head Buy American: “Just as many businesses, however, find it fundamentally wrong. Sure, the labor is cheap and can help keep a company profitable, but it takes a job away from someone here. That just doesn’t sit right. And cultural differences make this conversation even harder.

Well, protectionism is not the answer. I am English; I worked in a web design agency for five years in London before moving to Thailand; I also worked in journalism there for ten years. So yes, while it is true to say that labour is far cheaper over here and perhaps is “taking a job away” from someone in the US or the UK, it doesn’t quite “sit right” with me either, especially when you consider that London-New York pricing models are up to four to five times more expensive.

And while protectionism may ring true with home-grown American businesses and outsourcing is seen by many to be a dirty word, according to Bloomberg world leaders made this commitment following the recent G20 meeting: “Global leaders pledged to avoid protectionism, repeating a promise made at earlier summits of the Group of 20…At the conclusion of a two-day meeting in
Pittsburgh, the leaders said…they would also redouble efforts to reach by next year a new agreement to cut tariffs and subsidies in the World Trade Organization as part of the so-called Doha Round. ‘We will fight protectionism,’ the leaders said. ‘Continuing the revival in world trade and investment is essential to restoring global growth.
‘”

So, let’s leave the thoughts of SEW alone for a moment and concentrate on the empirical issues, taken from the experience of running a web design company in Bangkok for the past five years: SEM has changed dramatically over that period; the requirement now is for writers rather than data entry clerks who used to find and build up links on directories and other related websites. While this practice has not ceased entirely, SEM work now has a much higher emphasis on social networking and article writing, so the Google Caffeine update has led us to believe. So outsourcing to an English native in this area is not such a bad experiment.

There is a caveat, though: cutting costs and delivering quality work is key but there are projects where outsourcing is inherently dangerous. If I asked my developers to produce a top-grade design template, there’s not much difference between their work and that of a graphic designer in London, except maybe for the time spent on it (I remember a few years ago a design template taking three months to refine in London).

However, when the bar is raised to design and produce large, complicated websites, it has been my experience that outsourcing is not the answer. SEW is right; there are conceptual issues here, and in many cases modules are often scraped together with existing, non-compliant code (not my developers, but jobs I have been asked to oversee). My recommendation, for example, in developing a Facebook look-alike, would not be to outsource it to Asia but to give it to our English/NZ developers in France.

The SEW article talked of these “cultural issues”. They have a point, but the issue is easily sidestepped when discussing general site builds in that correspondence with clients is undertaken by a European, namely me, and I make sure that dialogue is comprehensible to both parties. As SEW commented in conclusion: “you can’t offshore morale or vision“. I entirely
agree.

It would make sense that, depending on the level of services required from outsourcers, it should be the way to go. More importantly and economically speaking, if a company can reduce costs by outsourcing, they can then pass savings on to their clients and outpace the competition on price; that is, if the quality of service is on a level playing field.

We are living in economically challenged times, where the share of the pie is diminishing fast and companies need to refocus to become ever-more competitive. In addition, money saved from outsourcing can be directed into online marketing efforts. I believe that as the tough times get tougher, companies that resist changes to working practices will be left behind: they simply cannot afford to be nationalistic protectionists.

In an article titled, “No Easy Answers on Offshoring” by IT the question was asked: “Is offshoring good or bad for America? It may be a moot point. In this highly charged debate, many experts conclude that broad business trends will make it extremely difficult for US companies to reverse the flow of jobs going offshore, even if they want to.

They go on to say that in an interview with Forbes, Robert Kennedy, director of the Global Initiative at the University of Michigan’s Ross School of Business, outlined several of the broad business trends leading to an increase in “offshoring”. Kennedy said that while “offshoring” will be “disruptive” in the short term, he believes the United States will benefit in the long term.

In the same article, the Hackett Group’s Michel Janssen and Erik Dorr predicted that by 2010, about one in four jobs in IT will be located offshore, with more than $16 million in annual savings by “offshoring” back-office operations, more than half of which is money saved on IT. They said it is likely that number will grow to nearly $30 million by 2010.

So while the protectionists rally to keep US jobs at home, perhaps it is the smart business operators who will seriously look at outsourcing their web design and SEO to competent companies overseas. This would help them with competitive cost savings and to bring prices down so that they are able to take advantage of gaining a larger slice of a diminishing pie.


John Sylvester is the media director of V9 Design & Build and an expert in search engine optimization and web marketing strategies.

4 Responses to “Outsourcing the Recession: Home-Baked Protectionism Makes No Business Sense

    As much as I respect you John I have to disagree with you on this one. I think America should adopt a ” If you sell it here, you make it her ” model of governance.

    I have seen workers in the South lose their homes and vehicles and their entire life savings because the entire textile industry up and left.

    Many of these workers were leftovers from a generation where education was not as valued as it is today and don’t even have a high school diploma, must less the chance to go to college.

    Telling people in their fifties they are going to have to change their lives totally after living in an environment that you need a numb brain to survive in without going crazy is not working well here and we have a growing unemployment rate with a large number that are basically unemployable in the jobs the states are offering today.

    Job training is helping some, but many of these people are just past the point of being able to change so drastically after working at the same place for their entire lives.

    No commitment a government where all power is derived from the will of the people should be making decisions where minorities suffer from those decisions.

    This country and its corporations needs to focus less on profit taking and more on job creation. if you deliver goods and services at a price people can afford and that they actually need and want they will buy from you if they have sustainable and reasonable income.

    Income has stagnated for many industries for over a decade while inflation overall has increased 3-5% each year with many services and goods increasing 10-15% per year resulting in a loss of quality of life for many people who for the life of them cannot figure out why.

    One of those reasons has been the outsourcing of so many of our high paying jobs to foreign workers who not only are willing to work for much less, but actually are being paid a premium compared to the average worker in their economy.

    If we expect the average American worker to work for less then goods and services are going to have to come down to a comparable level that will give the American workers a lifestyle he is comfortable and familiar with or we will end up like many other parts of the world….ie…SCREWED!

    These goods and services include: Housing, transportation, health care, utilities, food, and entertainment among other things.

    All prices are going to have to come down if you want American workers to work for less. How can you ask your average factory worker to work for minimum wage when he knows he will need 2k a year for health insurance, 20k to send each child to college, 20k for a decent vehicle, 5-7k for healthy food and entertainment for a family?

    The answer is you can’t! I’ve said my peace, but really you should think twice before putting your name to such beliefs when the people of this country are suffering the greatest economic downturn in the history of the country barring the Great Depression and this downturn is not finished yet, we still have two more stages to go through yet!

    When you say “…but really you should think twice before putting your name to such beliefs when the people of this country are suffering the greatest economic downturn in the history of the country barring the Great Depression and this downturn is not finished yet, we still have two more stages to go through yet!”, I understand where you sympathies lie.

    But with all due respect, this is a global recession that affects all countries in the world and the US and Britain are largely responsible for this mess due to their casino capitalism economic theories.

    If you read the Economist’s article, it says: “…but the extraordinary burst of growth that globalisation has triggered has also lifted hundreds of millions out of poverty over the past few decades and brought lower prices to consumers everywhere”.

    I do believe they have a point and am not afraid to stand behind it, even though I acknowledge the repercussions of this crisis on the American people are very harsh.

    As much as I respect you John I have to disagree with you on this one. I think America should adopt a ” If you sell it here, you make it her ” model of governance.

    I have seen workers in the South lose their homes and vehicles and their entire life savings because the entire textile industry up and left.

    Many of these workers were leftovers from a generation where education was not as valued as it is today and don’t even have a high school diploma, must less the chance to go to college.

    Telling people in their fifties they are going to have to change their lives totally after living in an environment that you need a numb brain to survive in without going crazy is not working well here and we have a growing unemployment rate with a large number that are basically unemployable in the jobs the states are offering today.

    Job training is helping some, but many of these people are just past the point of being able to change so drastically after working at the same place for their entire lives.

    No commitment a government where all power is derived from the will of the people should be making decisions where minorities suffer from those decisions.

    This country and its corporations needs to focus less on profit taking and more on job creation. if you deliver goods and services at a price people can afford and that they actually need and want they will buy from you if they have sustainable and reasonable income.

    Income has stagnated for many industries for over a decade while inflation overall has increased 3-5% each year with many services and goods increasing 10-15% per year resulting in a loss of quality of life for many people who for the life of them cannot figure out why.

    One of those reasons has been the outsourcing of so many of our high paying jobs to foreign workers who not only are willing to work for much less, but actually are being paid a premium compared to the average worker in their economy.

    If we expect the average American worker to work for less then goods and services are going to have to come down to a comparable level that will give the American workers a lifestyle he is comfortable and familiar with or we will end up like many other parts of the world….ie…SCREWED!

    These goods and services include: Housing, transportation, health care, utilities, food, and entertainment among other things.

    All prices are going to have to come down if you want American workers to work for less. How can you ask your average factory worker to work for minimum wage when he knows he will need 2k a year for health insurance, 20k to send each child to college, 20k for a decent vehicle, 5-7k for healthy food and entertainment for a family?

    The answer is you can’t! I’ve said my peace, but really you should think twice before putting your name to such beliefs when the people of this country are suffering the greatest economic downturn in the history of the country barring the Great Depression and this downturn is not finished yet, we still have two more stages to go through yet!
    OH! You’re my new favorite blogger fyi

    I have to apologize for the grammatical and spelling errors in the above comment of mine. It was very late when I wrote that comment.

    I am also not the most perfect writer either. However when something has to be said, let not a rule of grammar prevent you from taking in the information presented to you.

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