It seems that companies aren’t alone in noticing that people in other countries are willing to do the same amount of work for smaller salaries. The practice of “outsourcing” or “off shoring” has cost large numbers of U.S. employees their jobs. Now there is a evidence at least one, U.S. employee found a way to benefit from the practice. A Los Angeles Times article by Alana Semuels describes how one Verizon employee relaxed and enjoyed his day watching cat videos and dealing on EBay while someone in China did his work. The Chinese person was paid a salary of $50,000 a year while the U.S. employee enjoying his “work day” was being paid much more than that. Continue reading
Category Archives: Outsourcing
Health Care Outsourcing
I recently posted a blog about indications some of the technology and call center jobs that had been outsourced to India are being pulled back because of quality problems related to communication problems. Don Lee of the Los Angeles Times has an article describing how some healthcare companies have begun to shift clinical services and even decision-making on medical care to primarily India and the Philippines. The practice is not new, but the health care law commonly called “Obamacare” is encouraging more jobs to leave the U.S. The new law requires that 80-85 percent of insurance premiums to be spent on medical care. That requirement, which I understand was put into the law to control insurance company profits, will have the unintended consequence of insurance companies reducing as many jobs as possible with outsourcing.
Jobs that had been previously outsourced involved medical activities such as reading X-rays and other diagnostic tests. Task now being outsourced include “pre-service nursing” to evaluate patient needs and to determine treatment methods. WellPoint, owner of Anthem Blue Cross, has formed Radian Services as a separate business unit to set up the outsourcing. A WellPoint spokesperson said there had been 925 jobs outsourced. The explanation why the outsourcing was being done through a separate business unit is that “…it has the technical expertise and can ensure compliance with laws.” My reaction to that quote is that the real reason is to protect WellPoint from lawsuits that might or are likely to be filed when someone has problems with their medical care.
The article says that companies can save 30 percent of labor costs by outsourcing jobs to the Philippines. However, having medical treatment decisions made overseas sounds risky considering that companies are returning call center and computer work for quality reasons. It isn’t surprising that nursing organizations are cautious. Patient privacy is also a concern because people’s medical information is being sent to other countries. I didn’t find the quote that “…nearly all countries have laws for protecting patient privacy…” to be all that reassuring.
One person who had processed medical claims for WellPoint was laid off after a colleague went to the Philippines to do training on how she did her job. I doubt that person would be too impressed that the part of a new law designed to control insurance company profits contributed to the decision to have the work done more cheaply in the Philippines.
The Elephant and the Dragon
This book by Robyn Meredith, with has the subtitle, “The Rise of India and China and What it Means for All of Us,” is fascinating. I keep notes as I read a book I intend to review, and my list of interesting facts was too lengthy to be able to include many of them in this review. The description of how China has become the world’s factory and India has become the knowledge and call center and how that is affecting the U.S. is important reading. One flaw that is not the fault of the book is that it was published in 2007. Some companies have taken back call centers and computer development work. Quality of product produced in India suffered from communication problems, and sometimes the cost of workers making a fifth of what was paid to American workers came to a higher final cost because of continual requirements for corrections and rework. That is the subject of a blog post on that link of this web site.
The book begins with the description of the Prime Minister of India visiting China in 2003 and being astonished at the ultramodern Beijing airport, the new highways with new cars, and countless construction sites with hundreds of cranes looming over the city. China had opened its doors to the world in 1978 and India did not. The outcome was that foreign companies had poured $600 billion dollars into China by 2003, which eclipsed the amount the U.S. spent on the Marshall plan in Europe after World War II. India remained stranded in the past with crumbling infrastructure and oppressing poverty while China was marching toward being a world economic (and military) power.
The book has fascinating summaries of recent Chinese and Indian histories. Gandhi and latter Nehru had frozen development in India. Gandhi had been so committed to his policies that his wife died from an infection when he deemed that an injection with an antibiotic was a violation of his “non-violence policy.” The Socialist policies combined with refusal to join the global economy made Indian companies lazy and uncompetitive and locked millions of Indians into poverty. Oppressive bureaucracies controlled everything to the point of absurdity. Procter and Gamble was worried they would be punished for breaking antimonopoly rules if they made too much Vicks VapoRub during a flu epidemic.
Mao destroyed China’s capacity to produce enough food to prevent famine with the Communist Great Leap Forward. Collectivized farming imposed in1955 and caused a 40 percent reduction in food production. People resorted to trading children so that they did not have to cannibalize their own child. Everything steel was taken from the peasants. Even cooking pots and bicycle frames were melted down for the purpose of meeting Mao’s steel production goals. Grain rotted in the fields because the peasants were told to focus on operating backyard furnaces to produce steel. The universities were closed, and the only education allowed was study of Communist propaganda and Mao’s Little Red Book.
The recent changes in both China and India have lifted millions of people out of the poverty that Socialism and Communism had produced. “We got more done for the poor by pursuing the competitive agenda for a few years than we got done by pursuing a poverty agenda for decades.” “Capitalists from corporate America and elsewhere surely did not set out to help Asia’s downtrodden, but they did.” Highly “…paid U.S. and European workers now face long-distant completion for jobs: India and China each added more college graduates to their workforces annually than are produced by the United States and Europe combined.”
There is an interesting story that may or may not be factual that villagers of Xiaogang broke China’s collective farming rules to illegally divide the collective into individual plots and production increased by 35 percent. China now celebrates Xiaogang as the birthplace of rural reforms. Deng Xiaoping came to power when Mao died, and he immediately shifted from the planned economy to a market economy. That was the beginning of successful capitalism under authoritarian control. Deng visited Singapore in 1978 for three days and was impressed with the results of a free market. The People’s Daily stopped referring to Singapore’s leaders as lackeys of the west and touted the achievements in affordable housing. Deng sent four hundred delegations to Singapore in just the year 1992. Deng also had new roads built, a quadrupled electric power generation, and modernized the power grid. China is also committing to nuclear power, and intends to triple the amount of energy produced by 2020. State-owned enterprises have dropped significantly to be replaced by private companies.
Building China into the world’s factory did not come without challenges. Workers who were supposed to build billfolds had never needed one and no idea what they were supposed to look like. The workers also did not understand that they were expected to continue to work after the boss left the factory floor. However, China one billion people experienced rising prosperity without a shot being fired. Political stability is demanded by the State at a cost to individuals who protest or are caught in the rampant corruption that results in execution. The Tiananmen Square protests in 1989 and the young people who disappeared afterward remain fresh in the minds of the free world. There also continue to be coerced abortions and sterilizations to meet the population control requirements.
The recent history of India is just as fascinating as that of China. In 1991 after the Socialism of Gandhi and Nehru India was broke. Forty percent of Indians were below the poverty line. Planeloads of Indian gold were being delivered to the west to meet financial obligations. P.V. Narasimha Rao was the prime minister dealing with the crisis, and he turned to the “…utterly uncharismatic economist Manmohan Singh.” Singh began the economic transformation of India by lowering income taxes, cutting bureaucratic red tape and licensing, and allowing investors to buy shares in Indian companies. The economy began to grow.
There are several interesting stories of individuals who developed successful businesses in both India and China. Most of the American business powerhouses have large operations in both countries. China is currently more successful than India thanks to the authoritarian control maintained by the Communist central government. Indian businesses have to deal with less stability since the poor people in that country vote while the middle class doesn’t. The result is relatively frequent changes in government. Some but not all of the bureaucracies that had suppressed economic growth have been discarded. An example of how the country lurches forward a bit and then stops is the beginning of construction of new highways toward in Bangalore. “The new overpasses stop in midair, as if waiting for Infosys (the Indian version of Microsoft) to invent technology that allows cars to fly.” Indians recognize that the control by the Chinese government gives that country an advantage. They tell a joke that the Chinese premier is being driven and the driver stops at a sign that says turn left for communism or right for capitalism. When the driver inquires what to do he is told, “Just signal left and turn right.”
There are interesting discussions of outsourcing that are pertinent to the political dialogue still prevalent today. There have been U.S. jobs lost from outsourcing, but it is difficult to count because the rise of China and India has created jobs. The concern is that the jobs being outsourced are now including the white collar jobs instead of mostly factory jobs. There is a hidden warning to American politicians. It is mentioned that John Kerry’s frequent berating CEOs who had sent jobs overseas during his presidential campaign inspired more American companies to outsource.
Outsourcing
I just finished reading and reviewing a fascinating book “The Elephant and the Dragon” by Robyn Meredith that describes the growth of the Chinese and Indian economies. The Chinese are characterized as becoming the world’s factory while India is becoming the knowledge center. The Chinese are building what Wal-Mart sells and the Indians are providing the call centers and computer development work. The problem with the book is that it was copyrighted in 2007, and a relative who is very savvy about computer work tells me things are changing. He said it is true that Indian companies theoretically could develop programs much less expensively than American companies because they pay their people a fraction of what is required in the U.S. However, he has direct experience about the often poor results. He said that deliverables often did not meet requirements despite numerous and lengthy conference calls to describe what was wanted. The work would eventually be revised by Americans who were able to communicate sufficiently to understand the requirements and develop the desired products.
I searched and found a source called the “Ashbourne College’s Business Studies Blog.” It refers to one company bringing all of its call center work back to Britain from India because of complaints about a center in Mumbai, India. “The reason for placing back the call centres to UK is that India has low quality of staffs (which) would lead to worse services…”
Another site that offers some insight into the problems with outsourcing to a foreign country is a blog by “Programmer for Hire.” The warning flags go up with the source, who I would guess would prefer to be hired to do programming. However, the content seems appropriate. Friends had hired an Indian company to do programming based on the lure of $12-14/hour rates compared to typical rates of $125/hr for a U.S. company. The author admits he wasn’t the correct choice for a project that had high hopes and a small budget. However, the project did not have a usable product after they had “…paid for something between 600-700 hours of development with a firm in India, and they should have launched 6 weeks ago.” The client asked whether they were available, since to fix the problems they decided it would take the correct person 10 hours, instead of 50 or more with these guys.”
The book “The Elephant and the Dragon” mentions that more companies began to outsource as the result of John Kerry berating CEOs of companies that had already gone that route during his presidential campaign. Politicians sometimes actually are able to inspire. The book observes that the best way for the U.S. to come out ahead is to do a better job of educating its citizens to compete in the world economy and to get our deficits under control.