Somebody said we were allowed to think out loud. Pardon the mess.

Saturday, July 17, 2004

Why does marketing often fail?

Because we don't like what we see or understand about an event, situation or product.

Because we expect others to believe our pretensions to perfection despite the fact that others know their own lives, work and efforts are imperfect.

So, do we stop "marketing"?

No. We continue to tell the varnished, flattering semi-truth.


Wednesday, July 14, 2004

America and Outsourcing: Eagle? Cuckoo? Ostrich?

Anonymous Industrialist: " factory is run by machines, no employees."
Henry Ford: "That's very interesting. Where do you find your customers?" [link]

washington post
Implored to 'Offshore' More
U.S. Firms Are Too Reluctant to Outsource Jobs, Report Says

A report by an influential consulting firm is exhorting U.S. companies to speed up "offshoring" operations to China and India, including high-powered functions such as research and development...

Particularly troubling is the report's information about confidential discussions with executives at Boston Consulting's client companies, many of whom conveyed low opinions of their American employees compared with labor available abroad. Not only are factory workers in low-cost countries much cheaper -- well below $1 per hour in China, compared with $15 to $30 per hour in the United States and Europe -- but they quickly achieve quality levels that are "equivalent to or even higher than . . . [the] best plants in the West," according to the report.

"More than 40 percent of the companies we talked with expressed significant concerns about the erosion of skills in the work force," the report states. "They cited machine operators who are unable to handle specialized equipment properly or to make the transition to new work materials. In contrast, LCC's provide large pools of skilled workers who are eager to apply their 'craftsman' talents."

Midlevel engineers in low-cost countries, the report adds, "tend to be more motivated than midlevel engineers in the West." It cites General Electric Co., Motorola Inc., Alcatel and Siemens AG as examples of companies that have set up research and development centers in both India and China "to leverage the substantial pools of engineering talent that are based in the two countries."

Indeed, the report undercuts the view that R&D jobs in Western countries will increase even as low-skill jobs migrate to nations like China and India. Among companies with large operations in low-cost nations, "One of the most intriguing advantages we have come across is faster [and lower-cost] R&D," the report states....
One could reasonably paraphrase that to say: The problem with American business isn't outsourcing, it's lazy or indifferent or disengaged American workers. Not some drone, mind you, monitoring some mindless machine process somewhere in Ohio or Minnesota. Not at all. Senior and C-level client-executives of Boston Consuting Group tell them, confidentially of course, that YOU, dear reader, are dead weight. Bachelors- and Masters-level educated engineers and professionals are obstacles to American commercial progress in this 21st Century marketplace. Up the foodchain we go, as I noted here and here, last year. Question is, where is the ceiling? Or the floor, depending on how you look at it...

More, this time from Boston Consulting Group's web publications
In terms of capital requirements, Western companies operating in China are finding they can reduce their investments compared with their home countries. For example: Western companies often pay up to 50 percent less to purchase machines and tooling in China than at home.

Moreover, companies operating in China can cut capital costs by replacing expensive machinery with inexpensive labor. One leading manufacturer of large kitchen appliances has stopped using conveyors in its Chinese factories in favor of manual material handling. The firm achieves quality comparable to that at home, but at lower cost.

China also offers other incentives to Western companies: low-cost land, low import duties and tax breaks. One major corporation claims to have received so many incentives for one of its factories that its construction was virtually cost-free.
Be careful what you wish for

For me, the irrefutable truth of the above is that "the kids are growing up." The Chinas, the Indias, the previously Second and Third Worlds are hitting adolescence. And, like parents, we're finding that they don't need us as much as we'd hoped. But, in what is perhaps a perverse analogy, Dad (American management) wants to trade Mom (American labor) in for the sleeker, lower maintainance, less worldly, easier to impress and infinitely cheaper-to-please Daughter (Chinese, Indian and elsewhere labor).

Yeah, that's harsh, I know, but there is a large issue of social taboo and cultural compact being broken here as well. The balance of producer/purchaser economics is what powers the cycle of America's success. Wages derived from production which is derived from invention allow the washing machine-maker to sell to the employees of the computer-maker and the restauranteur, and vice versa, ad infinitum. In a way, you earned your keep in the system by keeping faith in the system. As we modernized, a social agreement evolved that living wages, workplace safety and environmental caution were prudent and good for business. We were taught by institutional authority that skill, borne of experience and commitment to a trade was an economic competitive advantage and an insurance policy for your family's economic security. Similarly, the thing that anchored business to society was the implicit quid pro quo that jobs generate social stability and owner-like equity, and therefore, shared interest and burden sharing. This is what community was defined as, whether local, state or national.

Adding "Global" into that mix tends to muck up the works a bit. Global Business is a reality, but Global Community is a mirage. Perhaps, more accurately, "Global Community" is a goulash of incompatibilities, save one--money--each society being asked to cohabit and collaborate but to not concern itself with the strange screams and noises emanating from this neighbor or that as long as the grand goal of EBITDA is climbing up and to the right.

The taboo being broken by outsourcing, absent a real conversaton about its implications and tradeoffs, is that business is abstracting itself from the communities it calls home. Companies have traditionally incorporated in Delaware, Nevada or some Caribbean Idyll for more favorable civil law conditions or for more advantageous tax rules. But that was often just a paper reality. They kept operations largely close to their employment and resource bases and distribution hubs for hard and soft reasons. Some even defiantly remained where they were out of founding principle and loyalty to who brung 'em and built 'em--definitely a social compact motivation there. That was then. This is now. Some art:

USA Gross Domestic
  Billions_ Real year
2000 US dollars


2002 10068.111 1.50
2001 9849.395 2.80
2000 9824.650 3.40
1999 9469.269 2.20
1998 9095.129 1.50
1997 8721.603 2.30
1996 8351.417 2.90
1995 8063.564 2.80
1994 7853.953 2.60
1993 7549.238 3.00
1992 7354.111 3.00
1991 7136.403 4.20
1990 7170.047 5.40

(OECD Excel)

What we can see evolving is a reverse colonialism, with the U.S. potentially and paradoxically adopting the traditional Banana Republic, hourglass economic model. Lots of financial mass and focused influence at the top, yet not many people; lots of people mass pooled around the the bottom, yet not much financial wherewhithal and, therefore, not much leverage. The middle? They'll be your neighbors in Banagalore and Guangdong.

Neighbors? Sure, metaphorically speaking. They'll be plugged into the system technologically, virtually contributing to American growth by broadband while breathing Indian or Chinese air. They'll particpate in the success of American companies and learn from those efforts and then charge off and start their own enterprises which in turn will have cheaper versions of the remaining essentials that American Business leadership can't virtualize: Land, resources, infrastructure and, yes, lower management and CEO salaries due to lower costs of living.

Gee, I can't decide what this is analogous to--I'm spoiled for choice.

Is it a Trojan Horse, designed, built and proofed by America, and then, leased to China and India and others to ride over us and into the victory circle? Maybe it's the virtual and stealth equivalent of the thing America's Pat Buchanan's and others rail against: An immigration-wave of lower wage workers, except, without the visas? An invisible invasion that magically reports to work, puts in its time and takes home its paycheck without ever passing an American Starbucks® or grocery store or BestBuy™--a workforce never breathing American air, yet siphoning off other valuable resources.

I imagine farmers, for instance, can clearly see the parallels between business' turbocharged EBITDA, inertia-driven approach and the balls-out overfarming of land that led to dustbowls and worthless fields squeezed of any life-giving potential 3/4 of a century ago.

Farmed out. Outsourcing. Same thing. CRP, [A]SCS (alert: pdf) and land stewardship and 4-H taught farmers that finesse and understanding of the properties of land yielded sustainability and greater aggregate gain. Natural resources = Human Resources. I suppose a folksy, barnyard way of looking at this is: You don't starve the horse that's going to carry you home, nor do you kick the dog that's going to guard your baby.

Business people know this, they're not dummies. They are however, victims of learned helpness.

"But what can I do?"
"Hey, everybody's doing it."
"So what's the alternative?"
"It's not in my job description."
"Isn't this a political issue?"

Implicit in this managerial worldview is that in order for lesser countries to become more like us, we must begin to look more like them. The sad fact is that there are plenty of indicators that this has already happened in production terms as noted above. Technology has given them the leg up we never had: And, now, they're capable of doing first world-quality work while still living in cities and homes that would would make first-worlders like ourselves blanch and recoil in horror.

But the seed has been laid. And well. They'll grow up and out of this incongruous poor quality-of-life versus superior quality-of-work conundrum. Like every human who gets a taste of the "good life" that technological springboards offer, they'll begin to want more. They'll have the income and leisure to ask the larger questions about qualitative measures of existence. According to Goldman Sachs and OECD, they'll be doing it in short order:

In just 50 years.

From 1950 to 2000 America went from draft horse to racehorse, economically speaking, and blew the world away. Information Tech fed efficiency advance and led to broad social benefit. These surface or low-hanging-fruit improvements were just the feed, and now that feed has lost its boost. Information flow is parity. Automation is parity. Process is price of entry.

We're now back to square one--finding people advantage:
Why does America matter?

Why should it?
Prove it.


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