Globalization, Offshoring, and Managerial Attitude

What if I suggested that your sense of economics typifies the best thinking of the 17^th century but no better?

I said that just to get your attention. I'm not accusing you of anything yet, but let's investigate how you feel about a few things, and go from there. Let me first propose a scenario, with you in it. What if you and about six other people were very, very hungry, and were all offered a choice between two strategies concerning how to get something to eat?

In the first strategy the group could accept one large pie, but each of you would have to compete with all others for your respective share of pie. Dividing up the pie evenly, or dividing it in any agreed-to manner, would result in minimal and unsatisfactory sustenance for most players. Any portion of the pie that you won, obviously would be a portion that someone else could never enjoy, and vice versa. Somebody had to win, and all others had to lose, every morsel of that finite pie.

In the other strategy, you could all work cooperatively with the collective goal of getting rewarded with an infinitely bigger pie that will easily provide enough for all players. As goes your level of cooperation, so goes the growth of the pie. But you must cooperate. If anyone starts to cheat on or compete with the others, the whole scheme may collapse, and if so you will get at best the portions you would have gotten under the first strategy, at great waste of energy otherwise.

Which strategy would you choose?

If you chose the first strategy, your instincts are mercantilist or maybe neo-mercantilist. Mercantilism was the "economics" theory that dominated the policies of nations before Adam Smith wrote the Wealthof Nations in 1776 (which had nothing at all to do with the American revolution, but I digress.) The essence of mercantilism was the idea that nations competed with others economically in a win-lose game of commerce -- mostly for gold when push came to shove, a relatively finite commodity and static measure of wealth. One nation's gain was to be had at others' expense and vice versa. Wars were fought over this, especially during the colonial era.

Adam Smith's revolutionary thinking, however, started the idea that if individual nations concentrated on doing what their respective resources naturally endowed them to do most efficiently, providing each nation with a surplus of home-grown/made things and then trading the surplus for the surplus of other nations producing different goods and services, then the total wealth of the economic system would expand and everybody would have plenty. In other words, cooperation is a win-win strategy. It exploits a phenomenon called "comparative advantage" and is the essence of free trade economics.

The only problem is that trade is not always free. Even in these days of efficient transportation and communication, trade can complicated by wars and cartels and trade barriers and political paranoia and unenlightened elected officials - and managers who don't understand what's going on in the world. The purpose of this essay is to suggest how these issues are relevant to the new manager. It is one thing to speak about economic policy as a private citizen, a bit of another thing to understand what's going on in the global context of your job. I'll try to be current.

One of the newest buzzwords in management is "offshoring." It is related to the now commonplace terms "outsourcing" and "globalization." Offshoring refers to the practice of outsourcing a business function normally performed internally by an organization, to workers in a foreign land, sometimes employed by a subsidiary of the same organization and sometimes not. One of the most obvious examples is the everyday consumer experience of calling a company's service representative to get help on a billing error or something, and realizing that the person you are talking to is actually in another country.

Talking to a phone representative is a relatively small thing, but as the trend continues, more and more truly value-adding functions are being offshored, such as the writing of software code. This is in addition to the massive amount of foreign content that already exists in our automobiles, electronics, airplanes, and seemingly everything else. Does that bother you?

It shouldn't. Offshoring, like outsourcing to firms in other countries, is a manifestation of an ever-expanding pie in a win-win, free trade global economy. It is just not a matter of whether or not some part is manufactured in the United States. It is just not as simple as whether or not somebody who answers the phone speaks intelligible English. If that foreign manufacturer or customer service rep is the most efficient combination of skill and cost, then it opens the opportunity for some US company or US worker to advance to the next higher level of skill, performance, and value-added -- not to sit idle!

Managers that seek these economies aren't unpatriotic or unsympathetic to the plight of the people on the payroll. In the long run, they will foster healthier companies and employ not just more phone reps at modest wages, but more high-price labor and professional, educated talent. Managers that do not understand global economies and free trade are going to languish, paying Americans disproportionately high wages for low-skill jobs, retarding the prosperity of the company as a whole and possibly taking the company under completely in the long run.

This is not new, and I'm not just guessing. I positioned this little essay on globalization immediately after the one on diversity because in my opinion, the invisible hand of free trade in global markets is not an argument against nationalism, patriotism or jobs for Americans first. It is an attitude that sees the steamroller of globalization now being at the point of being an exercise of diversity without borders.