How Outsourcing to China will "Bring it Home"

Mei (name changed) is a Chinese factory worker who makes toys sold overseas. She works 12 hours except on Saturday when she is permitted to only work six hours. She lives in a small flat with her husband and one child. She was pregnant with a second but the local authorities forced her to have an abortion. For two years she managed raising their living child alone, because her husband was being detained under suspicion of having ties to a certain religion. This is not Hollywood, this is nothing remarkable, this is common people's life.. in mainland China.

The phenomenon of outsourcing to China took on a complete new dimension in the USA, with the sudden success of what some consider the single largest retail scandal in American history - Wal*Mart. According to the PBS documentary STORE WARS: When Wal-Mart Comes to Town:

Made in the U.S.A? Despite a well-publicized "Made in the U.S.A." campaign, 85 percent of the stores' items are made overseas, often in Third World sweatshops. In fact, only after Wal-Mart's "Buy American" ad campaign was in full swing did the company become the country's largest importer of Chinese goods in any industry. By taking its orders abroad, Wal-Mart has forced many U.S. manufacturers out of business.

(note the above recording of Wal-Mart's 1992 television ad "Bring it Home to the USA" was removed from YouTube several weeks after this article was published)

Most Americans never saw past the red-white-and-blue logo of this seemingly phony patriotism. Wal*Mart stock price skyrocketed with its success. Wal*Mart would ultimately get away with "selling the American economy" to Chinese elite on an unprecedented scale. Other retailers - by choice or by necessity - also increased Chinese imports. The Chinese elite came to understand that a great weakness of their western counterparts was the overwhelming self-centeredness of some. And as Wal*Mart showed everyone, you only need some. Convince one to outsource - two more follow. Others resist, but as their own products loose markets to cheaper competition, they too are soon forced to follow suit in a massive avalanche of outsourcing. This flood of new low-cost, low-quality product to store shelves also fostered a new "use up and throw away" mentality in people, which produces more waste and garbage.

But it gets worse. In early 2009 Secretary of State Hillary Clinton signed a collateral agreement in Beijing which grants China the right to claim Eminent Domain of LAND within the USA as security for all the debt this has helped cause. America has now quite literally - and quietly - mortgaged itself to China, and most people living there don't even know. Americans can partly thank their local Wal-Mart - after all - "They Care", as their carts say. All of this for the everyday low price of cheap tube socks and $2 a day paid in sweat shops that nobody else had to look at. So, for those who want to move to China, there is good news. We just keep outsourcing to China, and China will be brought to us.

Outsourcing Disasters Put Consumers at Risk

Outsourcing manufacturing and even development to overseas companies became a fact of life with international agreements and the economic globalization which quickly followed. Foreign export subsidies abroad and lowered import tariffs at home offer a powerful case for simply sourcing what we want from somewhere else. The benefit to consumers are cheaper display prices. However, the products themselves can have hidden costs which total much higher than the display price. Here are just three costs not on the price tag:

Safety: September 2009 saw the latest chapter in a long string of expensive and time-consuming product recalls of items manufactured in China. Just the other day one of our staff found themselves face to face with this reality in their own home, having narrowly avoided possible injury when the powder metal blade retainer for their new, one-day-old imported lawn mower cracked a large chunk off after just ten minutes of operation. This safety-critical part was stamped from powder metal and probably given insufficient oven time to bake - which means there are hundreds - thousands somewhere just like it. Back at the store our colleague watched as the entire model line seemed to have a similar flaw and started immediately getting pulled from the floor. How much could that have cost someone?

Economic: Training overseas personnel has opened the door to a flood of skillful black-market copycats, counterfeiters, patent and trademark pirates who apply inside knowledge to cleverly reproduce almost any product illegally, which becomes expensive and difficult to police. Local jobs and skills are lost overseas forever. Eventually, the local economy finds itself borrowing from China to buy from China.

Human Rights: Those employed overseas in the manufacture of low cost goods for export often discover their original expectations wrong, working in appalling conditions, with no way back out. Middlemen, business brokers and investors receive the entire net profit from the supply-demand relationship.

The real differential in the final consumer's decision is actually not cost, but timing. When presented a choice between "pay now or pay later", MBA 101 states that credit-based consumerism such as what is encouraged in the USA will pick "pay later" - even if it means paying more. Darwinism 101 responds that if cutting out fierce business competition could therefore be timed early, it technically justifies almost any other consequence in quality, ethics or community interest. Darwin knows that consumers will still have opportunity to pay their fare share of it all, just a bit "later".

Uncontrolled serial product outsourcing can be a disaster. Not surprisingly, there is growing understanding about the importance of highly selective outsourcing, supplier evaluation, certification and inspection by qualified local staff and agency, while maintaining tight product control, domestic R&D, and a healthy ratio of credible domestic suppliers and know-how at home.

$5000 Reward! Report Crack or Pirate Software in Australia

Mick (name changed) is $10,000 richer. Several months ago he alerted the Australian Business Software Alliance to a local business which was running several illegal copies of AutoCAD on workstations without proper licenses or support. Management ignored the problem until they were officially served notice by the software authority. And in 2006 the BSA doubled their bounty on illegal users from $5000 to $10,0000.

This story could be just one of many. Pirate software costs the Australian economy half a billion dollars every year. Up to half (50 percent) of all CAD software in Australia could be illegal. Still, many users feel somehow clever, cool - even cocky - about finding illegal versions of software to use without registration or proper support.

Nothing could be further from the truth.

Business owners and users alike have recently become more alert to problems caused by crack software for another reason. Much pirate software used today is actually bait for opening business data and infrastructure to organized cybercrime - much of it going undetected until it's too late. Here's how:

Today's warez industry is a complex business where organized crime plays at stakes much higher than making a few dollars on illegal software sales. Hackers begin with the latest off-the-shelf virus. "For as little as US$250, you can buy off-the-shelf malware, not detectable by major AV vendors and, for an extra US$25 a month, you can subscribe to updates that will ensure your malware remains undetectable," according to Kerrie-Anne Turner in Australia's Voice and Data eZine.

These stock viruses and trojans are embedded within crack software downloads. Once installed, the system is often irreversably compromised - even unbootable. More often, however, the infected PC becomes part of a botnet - a network of computers remotely controlled by someone else. As a botnet peer, a host PC can be asked to perform almost any task - from uploading confidential files to granting network access to outsiders and participating in illegal (and sometimes traceable) activities.

Since most complex CAD software requires local administrator rights to be installed, it is ideal for cloaking botnet clients which can run with unlimited system access. Botnets have developed into one of the internet's largest illegal sources of income. Botnets are commonly used to host illegal web content such as child pornography, to send out spam or to launch distributed denial of service (DDoS) attacks. And all of this often without the computer's owner noticing anything really amiss.

In 2005 a botnet was foiled which turned out to be 15 times larger than police initially thought. A full investigation revealed 1.5 million infected PCs worldwide to be part of their illegal network. Many of the infected PCs were running up-to-date antivirus software. To date, hackers continue to rival each other in building larger and larger botnets.

Businesses who outsource to companies using cracked software also risk compromising sensitive IP and customer data. "What sounds too good to be true usually is" - especially when someone seems just too eager to share a copy of AutoCAD for $20 (or even free). In final analysis, the twenty-first century is a far more dangerous place for product design and manufacturing companies to be risking their reputation to run illegal or unsupported platforms.

CAD Designers: Are Your Jobs Still Going Overseas?

Businesses in Beijing and Bangalore believe they have discovered a gold mine. But the same experience for many of their foreign investors has exposed land mines in return. Aside from the obvious local employment concerns, companies often discover outsourcing to be far more expensive than originally estimated. Businesses which were first enticed with seemingly low hourly wages find themselves committed to paying more than they ever bargained for.

As one example United Technologies, an acknowledged leader in developing offshore best practices, was saving just over 20 percent by outsourcing to India in 2003 (and wages are higher there now). That's still substantial savings, to be sure. But it takes years of effort and a huge up-front investment. For many companies, it simply may not be worth it. "Someone working for $10,000 a year in Hyderabad can end up costing an American company four to eight times that amount," says Hank Zupnick, CIO of GE Real Estate.

Google metrics for outsourcing searches have dropped 50% since then. According to the Black Book of Outsourcing, western firms such as CENIT, IBM Global and Infosdys still sell as many PLM outsourcing services to the world as do Indian firms Larsen & Toubro, Siri Technologies and Satyam. This is bad news for a country carrying perhaps the world's largest surplus in manpower. Such regions, through poor management and cultural barriers, are often too slow with creating domestic markets of their own. China faces similar problems.

A backlash trend to outsource to Europe or the USA is actually emerging now. Many investors, once burned, are looking for better long-term partnerships with contractors and suppliers. This is good news for engineering and design companies in the more developed nations. Stay alert. Opportunities exist for skilled designers in developed countries to demonstrate their value added. Suggestions for remaining competitive: keep resources, skills and training certifications updated, invest in innovation and R&D.

If you have a recent experience about your company's design work being outsourced (or not) feel free to post it HERE.