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The Outsourcing Trend is a Trap, This Is the Time to Bring in College Interns and Hire Local

By: Steve Johnson

10/19/2009 - 52 Comments

Like every business, the company that I work for is looking for way to cut costs.

Despite the fact that we have only had success with about half the projects that we have outsourced over the last several years, which means that we have probably broken even, outsourcing seems to remain a popular executive decision.

Outsourcing has a place in the global economy, but with a falling dollar and high unemployment, the time to outsource is gone. 

The executives and managers of the next fortune 500 companies are not going to get there by outsourcing.

CEO’s need to recognize the global economic trends and envision what the future cost of labor will look like.   

The primary reason CEO’s continue to outsource is because the numbers look good on paper and there is little resistance to the trend, resulting in happy owners that hand out bonuses.

The down side is that morale sinks and turnover increases (at least in a normal economy).  The recession is helping to minimize these down side risks, which makes outsourcing even more attractive, but I tell you it’s a trap.

It’s a Trap

As the recession continues to deepen and unemployment remains high, a wave of new business is inevitably coming.  The wave of small businesses that are coming are going to be competing with the big business CEO’s that have moved to the outsourcing model. 

Startup business’s that are born in a deep recession have a lot of will and vision, two of the most important elements of any new business.  They will be proud to be locally owned and staffed, and that means they will be able to operate at lower costs and with higher morale, which will give them higher productivity.

The current outsourcing trend in going to backfire, as low morale will eventually lead many of the best employees out the door and to work for new competitors.

The Dollar Story

Most CEO’s are not paying attention to the global economic trends and international bank polities and the reason I know this is because I talked to some that run very large international company just the other day.

The dollar is going to crush many of their plans.  They have not considered the impact of the weakening dollar on the long term costs of outsourcing.

When the dollar sinks against other currencies, outsourcing contracts will need to be re-negotiated to account for the weakening dollar so that the foreign workers are still paid a fair wage in their own currency. 

That means that companies that have replaced knowledge workers with foreign contractors will see huge increases in their costs of labor. Their businesses are not expecting the double-digit increases they will be forced to pay. 

This increase in cost will force businesses to increase their prices.  But competitors who are less dependence on foreign workers will be able to keep their prices low, allowing them to gain market share and punish their outsourcing competitors. 

Even if you don't have outsourcing contracts directly with foreign workers, your business may still be at risk because your suppliers may have outsourced their work. I also expect that local outsourcing will drastically increase as the demand for local resources increases when companies try to find ways to reduce their foreign outsourcing contracts. 

Therefore the best way to control your labor costs, will be to maintain local employees with wages based in dollars.

College Students

Right now the U.S. has hundreds of thousands of educated college student that have over paid for their education, yet cannot find work.  Their college debts force them to find a job, any job for any pay. Their only other option is to go back to college.  

College interns can be scooped up by the handful. College career services also allow businesses use a stipend’s to pay a student for x hours.  For example, your business could pay $1000 for a part-time intern of one semester of say 300 hours of work.  That comes to a little more than $3 per hour.  Minimum wage is $7.25 per hour.  

This is a great time to take advantage of local educated students and at the same time give them the needed experience they need to find a place in the global economy.   Many of these students will be the one’s that create new businesses, which means either you hire them to work for you today or compete against them in a few years.

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