Thursday, June 28, 2012

The End of Outsourcing?

Folks in India are making so much money in the outsourcing business that today, this is what a "starter home" looks like in India!

I get phone calls, e-mails and even letters from India, asking me to outsource my work there.   And until fairly recently, I have been doing this, for simple things like Patent Drawings and Searches.

I had U.S. contractors who did this work for me in the past, but they started to get so much work, their prices shot way up, the quality went way down, and the turnaround time went from days to weeks, sometimes even a month.  It simply wasn't affordable.

Like many professionals, I end up getting caught in the squeeze these days - people insisting on lower prices (and getting them, due to competition in the field) while costs remain flat, if not increase.    If a client asks for a simple Prior Art search, they might be willing to pay $500 or so for it.

I can hire a searcher to find the references, and then I have to go through them, analyze them, and prepare a search report.   When the searcher charges costs $150, I have plenty of time and headroom to charge for my time.   When they charge $300, it becomes a marginal business, if not a loss-leader.   When they want $350 and up, well, I might as well do it myself and pocket the entire $500.

And increasingly, I am finding this is what I am doing, particularly in simpler cases.   There is really nothing to be gained by farming out such searches.

And recently, my searcher has been bumping his prices from $300 a search to $325.   The numerous people who contact me want $350 or more - sometimes far more.   The quality of the work has started to falter as well.   As they get more and more cases, sometimes they overlook some points in the search - or search the wrong invention.

And in the past, my Indian friends would perform a search in a day or two.  Today, it is taking them a week or two.

This does not bode well - for them.   But it illustrates how Boyle's Law works, with regard to outsourcing.   Just as gas expands to fill an empty space, money does as well.   Starting in the 1980s and accelerating through the 1990's, companies started outsourcing work to India, China, and other overseas companies.   Like gas expanding from a deflating balloon, these jobs hissed out across the ocean to eager and underpaid overseas workers.   It seemed, according to some folks, that there would be no jobs left in the USA within a few years.

But funny things started to happen.  Well, not funny - predictable.   The high cost structure of Union Labor started to unravel, as more and more union shops went bankrupt, or the unions accepted cut after cut in pay, benefits, and work rules.   People out of work finally buckled down and went back to work - at lower wages - after each successive recession, when they realized that the high-paying factory jobs weren't coming back.

But another predictable thing happened - prosperity came to two of the most un-prosperous countries in the world - India and China (and Vietnam, etc. etc.).   Suddenly in China, we are seeing a car buying boom that is like nothing else on the planet.  A new middle-class is emerging in China, and they are spending all the money they are making.   The standard of living is going up.   And people are demanding more in terms of wages, as they end up with multiple job offers.

And the same is true in India.  Tata motors has actually introduced a car with four wheels on it.   Well, actually they have always offered four-wheel cars.   But they have a new car, the nano which is designed for the entry-level motor-scooter buyer, with that all important fourth wheel.   People can afford more in India, and increasingly, they are charging more as well.

As a result, you are starting to read stories in the paper about "in-sourcing" of work.  Companies are bringing jobs back to America, because wages are finally more rational (for basic labor and unskilled workers, in particular).   While wages in India and China remain dirt cheap, the inherent costs in running an operation overseas, the travel, the shipping, and the difficulty of management and control mean that there is a huge cost delta when you outsource.

When labor is $10 a day, that cost delta is wiped out.  When overseas labor wants a raise, suddenly, paying $10 an hour in the USA makes more sense.   But still not $20, or $30, or $50.   Not for unskilled labor, anyway.

My Indian friends are offering to do things like write Patents and responses to Office Actions.  I have never taken them up on this, as this is my bread and butter.  Moreover, it is the skill part of my job - it would be like farming out a portrait and then claiming you painted it.   There is no "one way" of doing these things, and what people are paying me for is my special insight and talent, not to merely review someone else's work.

Does this mean outsourcing is dead?  Hardly.   But it would appear we are reaching an equilibrium point, where the gas is escaping from our balloon more slowly.   While this recession has been harsh for many people, it has been akin to pruning a bush or shrub - it may be painful for the plant, but it will grow back, stronger than before.

People may have to accept lower-paying jobs, but at least there will be jobs to accept.  And once this trend starts, and more people go back to work, the economy will improve, and our workers will realize they have options and are in demand, and they in turn will demand higher wages, and.....

....and the whole damn thing starts over again.

It is an organic process.

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