Bloomberg Businessweek
Go To Businessweek.com
During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Posted on Harvard Business Review: February 22, 2012 10:44 AM
Let’s get real — and back to basics.
In an era of high unemployment, and especially in this political season of economic nationalism, both parties outdo themselves with promises to “rebuild America.” Yet, the imperatives of offshore facilities and employees are — and will remain — central to American companies’ international competitiveness. A company’s foreign sales can approach or exceed 50 percent; its non-U.S. employees can be 25 percent or greater of total workforce; its supply chain of third parties is vital.
Yes, everyone would agree that we have serious economic policy issues at home about creating jobs, stimulating growth, increasing exports, improving education, investing in R&D, encouraging high-tech manufacturing — and about reconciling the cost of any governmental initiatives with significant debt reduction. However, given partisan divisions about proper public/private roles, these issues will stay in flux — and will be distorted or obfuscated as the campaigns jockey for position — until after the election.
What is not in flux is this fundamental reality: American companies will, for a wide variety of reasons relating to global dynamism, continue to participate in this transformative era of global economic change by increasing activities and hiring workers outside the U.S., especially in fast-growing foreign markets. (They may also, on a limited basis, move some jobs back to the U.S. for certain domestic markets due to rising costs abroad and labor productivity at home.) Yet, politicians oppose — or at least do not defend, and certainly do not fairly explain — this most fundamental international dimension of global business reality. In the State of the Union, President Obama declaimed: “No, we will not go back to an economy weakened by outsourcing…” The Republican candidates largely stand mute on off-shoring because of jobless pain at home and the difficulty of explaining that trade is only one factor causing unemployment. Offshoring and outsourcing today are like sex in the Victorian era: repressed or criticized in public discussion, much practiced in private behavior.
It is therefore vital for global businesses, which may be subject to exacting scrutiny, to defend offshoring with clear positions and clear actions regarding purpose, global standards and assistance for displaced workers. These have always been “must do’s” in the long debate about labor markets in globalization, but clarity on these issues is especially necessary this year. So here, in brief compass, are my views on the responsible, competitive basics of offshoring and outsourcing which global companies must be prepared to embrace forcefully — and to articulate clearly in their communities, with their stakeholders and, as necessary, in the political maelstrom.
Business Purpose. Companies must step up and honestly explain why they offshore business functions and employment in a broad array of product and service activities to compete in a truly global economy. Among the strong (and standard) reasons that non-business people could understand, if properly explained (and if supported by the facts), are:
The need to stay cost-competitive with companies headquartered elsewhere, either through reduced finished product/service cost or through supply chain efficiencies;
The need to manufacture, assemble, provide services, and do R&D in order to understand and sell in a local market, and to attract great local talent for jobs that would not ever be offered in the U.S.;
The need to have a significant employment or plant/equipment presence in a local market because host governments demand it;
Because such a presence can also pull a company’s high-end exports from the U.S.;
Because a presence can strengthen that market’s economy and thus increase U.S. exports over time;
Because any products imported back to the U.S. can benefit consumers and the economy with lower cost (although foreign operations often sell in foreign markets).
