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This blog is in response to many readers comments about jobs moving overseas.

Example 1: A friend losing his job.
We have a friend here in Colorado who works for a services company. He has been asked by his American management to train his replacement in the Philippines and when that is completed he will be laid off. The conventional perspective is that many jobs are moving to India & China, but in this example my friend’s job is moving to the Philippines.

Lesson 1: The problem is with us. This example illustrates that the real problem is not the BRIC or other countries. It is that many American managers have found it easier to remain profitable by procuring cheaper overseas talent than expensive local talent.

Example 2: ICL in the 1970s.
Let me give another example. In the 70s, ICL was a very big computer company in the UK. They were losing money and brought in someone from Texas Instruments to turnaround the company. I forget his name. He did a good job and increased the profitability of the company, but in doing so he dropped ICL’s internally developed chip and replaced it with a Fujitsu chip.

After completion of the turnaround ICL shareholders wanted to sell the company. They found that even though the company was very profitable nobody but Fujitsu would consider buying the company. Why? Because ICL was dependent on Fujitsu chips, and from the perspective of value creation it was no long an independent company but an extension of Fujitsu.

Lesson 2: We are handicapping the value of our business: So all this outsourcing of talent is in reality working against the long term advantage of the shareholders, because who wants to buy a company with many expensive senior managers, many technology boxes and most of the talent 6,000 miles away? This in my opinion is short sightedness. But people have the right to make mistakes. Unfortunately these mistakes can be very expensive for other people, their employees.

Lesson 3: We cannot legislate good business decisions.

Example 3: Texas Instruments (TI) Daily Factory Starts (DFS) team in the 1990s.
I was the architect of Texas Instruments’ Daily Factory Starts (DFS) factory scheduling system. This program was TI’s worldwide top ranked project for 1991 and 1992. This system, built from scratch on a theoretical basis not found in other ERP systems, revolutionized capacity allocation in a 3,000 SKU factory capable of producing up to 6,000 SKUs. It reduced work-in-progress from 5 day to 3 days or a savings of $8.2 million for TI Malaysia and TI Philippines.

What happened? The only three people who designed, developed and implemented this project left within 12 months of completion. Imagine that! All 3 of us left. Needless to say even TI made some mistakes. TI did not sufficiently recognize any of us for the ingenuity & work we had put in. And because we reported to a third country management team, corporate had little say in the matter. I am told that the project was folded in 1994.

Lesson 4: Program discontinuity risk: One very substantially increases the risk of program discontinuity when talent is procured from third party companies, and even more so when procured from overseas. Unless you are a big company like Microsoft, GE, or IBM who can have multiple teams concurrently working on similar programs, procuring talent from outside the company is something you have to think through very carefully.

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.

Contact: Ben Solomon, Managing Principal, QuantumRisk

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