Outsourcing and the Dollar
The latest fad among those economics types is discussing the state of the American Dollar. As it stands, The U.S. is importing way more than it’s exporting — around 5% of GDP. We call that the current account balance. In order for us to have a negative current account balance, which means basically buying much more than we sell, we need to take on loans from other countries.
Much of our current account deficit is financed by Asian countries, which intervene in the currency markets to keep the American dollar artificially strong and their currencies artificially weak. From the American consumer’s standpoint, this process makes Asian goods artificially cheap. From the Asian consumer’s standpoint, American goods then become artificially expensive. The American producer likewise has a hard time selling to Asian markets, but the Asian producer has an easy time selling to American markets.
American “overconsumption” is financed by foreign countries, and at some point, they will begin to cash out. As countries shy away from American investment, the dollar will weaken against foreign currencies. As the dollar weakens, American products will cost less for foreigners, while foreign products will cost more for Americans. That’s how the current account deficit begins to correct itself. Which brings us to outsourcing.
An artificially strong dollar does not just make American goods unattractive to foreigners — it also makes American workers unattractive to foreign businesses. American workers seem more expensive when the dollar is artificially strong. The reverse is true as well: the strong dollar makes foreign workers seem more attractive to American businesses. As it stands, American companies have been moving parts of their operations to foreign countries, taking advantage of cheaper labor abroad. A weakening dollar could stem, stop, or completely reverse the flow of jobs overseas (if such a flow even exists).
Let’s pretend that foreign countries stop intervening to keep the dollar strong. We start:
US$1 = 50 Indian Rupees
American worker: $50,000/yr salary (R2,500,000)
Indian worker: R500,000/yr salary ($10,000)
American pay:Indian pay = 5:1
Panic! Panic! Massive dollar selloffs. Now the American currency depreciates by a factor of 2:
US$1 = 25 Indian Rupees
American worker: $50,000/yr salary (R1,250,000)
Indian worker: R500,000/yr salary ($20,000)
American pay:Indian pay = 2.5:1
Suddenly foreign labor becomes twice as expensive, and American labor becomes two times cheaper. Outsourcing looks like a much less attractive option to the CEO, and the jobs never leave the shores. Could a weakening dollar make outsourcing irrelevant?
May 11th, 2007 at 2:57 pm
Hong Nguyen
English 126-0138
May 10, 2007
The Truth Behind Outsourcing
The United States has always been a country with many opportunities and a lot of wide range jobs available. However, as the time passes by these opportunities seem to be diminishing with the constant hiring of oversea workers. The outsourcing market is growing tremendously and expected to grow even more in the next couple of years. Companies are planning to outsource both low end and high end jobs in the United States and offshore. This new cheaper workforce seems to be a far better advantage for employers and companies seem to be taking advantage of the situation. The increase in oversea hiring means a lot of change for the economy, for the better or the worse it remains a mystery. While outsourcing provides companies with lots of benefits for some it’s considered to be a hazardous threat. Only the truth can settle this matter and by analyzing evidence we can come to the right conclusion.
Though outsourcing seems to have its advantages it may possibly be lies to cover up the truth. Outsourcing jobs is used by companies mainly to cut the cost of operations. Companies outsource in order to compete with other companies and at the same time make a profit (Otterman,2007).Profit and money is everything and there is no denying it. Some may argue that outsourcing is good because it creates cheaper goods but it only provides producers with the choice to sell cheaper goods. Given the opportunity companies don’t do what’s best for the consumer; they do what’s best for them, making profit. Though jobs are outsourced and goods are made for less money, products still remain relatively high because companies can. Outsourcing jobs can also mean lost of jobs for many Americans especially for those in the high-tech field. (Cyber Futuristics, 2007). According to Denise Dubie reporter for Network World, one of the biggest challenges employers face is finding qualified employees. Since this is such a difficult task they have to turn to oversea workers. Not only do oversea workers provide a bigger employment pond for companies they are cheaper too (Dubie, 2007). This however seems to be merely one of the excuses given by companies to excuse themselves for acting on their own behalf. Edwin J. Feulner, Ph.d says “The United States has the best educated, most productive, most adaptive workforce in the world.” If the United States provide educated, productive, and talented people, what more can companies ask for? Companies claim to outsource due to a small workforce available but here they are laying off people who are well- qualified for these jobs and ignoring the many others to outsource to foreign counties where education is a minimum and skills are lacking (Gollsby, 2007).According to Dubie 500 of the fastest growing North American companies turned to offshore services and 55% intend to move their work overseas (2007). This possibly could be due to the cut in cost rather then the search for talented workers. Though corporations seem to be thinking their getting a deal by hiring these offshore workers some companies who have tried regretted their decision. A company who outsourced many operations to India found how hard and costly it was to communicate with their workers. They also concluded that Indians are not productive and at times took 2 weeks to get a job done when it could’ve been done in 2 days in the United States by a skilled worker (Bartlett, 2006).
Business people, companies, corporations factories are driven by money, achievement, and fear. They fear failure, lost of power, and appearing weak. They are competing with one another and by being in competition they ignore the rest. They don’t care about employees, or consumers. They make quick decisions without considering all the details which result in long run failure, what they feared. Outsourcing at first glance seems the way to go due to smaller wages but the long run effects can be damaging. Companies who plan inefficiently risk heavy loses and customer dissatisfaction (Goolsby, 2007). Customer dissatisfaction can mean lost in sales, and profit which can destroy the whole concept of outsourcing jobs to begin with
Edwin J Feulner in an article titled “The Truth about Outsourcing “ asserts that even though employees are losing their jobs due to outsourcing they can easily find another one, often times at a higher salary. After doing research this seems very vague because
July 18th, 2008 at 2:32 pm
Dear whom I am writing into…, Iam very worry about America is going down from the world. Used to be 360 yen to the dollar now 107 yen to the dollar. Even to any other countries Foreign moneys. Dollar goes down (weaker) and Gasoline and oil prices rises…Who do I tell things to controll America so we won’t get worser than it is right now. Who might be a President of United States but I always wonder. Obama or McCain. Even either one might not the one to solve all the foreign exchange or make stronger dollar, stronger America. Lot of things getting expensive this country. Something is wrong going on. Who can fix this situation? I just wonder. We do discuss but, who can really talk and start to fix this country???If some one can do to fix it I really want to know who??? We just talk talk talk…none of things done after all. I’ll hope some one can come up and say, ” I will fix the problem!!!”. I don’t know whom I am talking to…but we people of United States want change some how…I don’t care it is Bush administration or what…do something. Just making comment is I am just worry living here in the United States right now. I’ll hope lot of people are worry about where America going??? Is Asian buy out America or what??? China getting stronger…we really need job this country. We really need company here. We really need systems…we really need foreign company can come and give us job or make us job. How we can expect things…I’ll hope some one can give us advice for America can go on!!! Well, more to say but I go for now. Mike Miyake