Here is another trend that will help speed up the impending collapse of the US dollar. Outsourcing in the United States is like a runaway train completely out of control heading to the edge of a cliff. The American economy has been outsourcing jobs to other countries for a long time; there is nothing new about that. But lately too many things started changing at the same time at a very fast rate.
I started doing research about outsourcing in August of 2003. At that time there were few articles about outsourcing, the alarm bells not yet ringing. I was doing a lot of reading about outsourcing to figure out the impact that outsourcing would have on the US and Brazilian economies.
The article that I wanted to write was about how the new technologies — faster computers, new Internet telephony, broadband technology and so on are revolutionizing everything around us. The book by Jeremy Rifkin “The End of Work” came to mind. With these new technologies companies would be able to export over 50 percent of the American jobs to the rest of the world; where costs are much lower, the populations are well educated and capable of taking these jobs from the US economy.
I had realized that something extraordinary was going on, but when I read a long article in the Financial Times in October of 2003 about IBM and outsourcing — I realized immediately that the United States economy was in big trouble. The only people I know that have grasped the implications and importance of what is happening in the global economy and the outsourcing jobs out of the US economy are the economists from the University of California, at Berkeley, as well as the economist Stephen S. Roach — (chief economist and director of Global Economic Analysis at Morgan Stanley’s Global Economics Team.)
That Financial Times article felt like a sledgehammer hitting me in the forehead. The first thing that came to mind was that IBM has clout and the connections to all the major corporations in the US. With this vast army of outsourcing consultants they could outsource at the speed of light a large amount of good paying American jobs to cheaper places such as India, and China; before the fools in Washington realized and grasped what was going on.
This particular case of “IBM and Outsourcing on Steroids” has a major implication for the US economy, because of IBM’s unique position and connections to the US major corporations. The same can be said for IBM’s clout and connections to corporations in Brazil.
IBM is in the position to outsource, and at a very fast rate, a large number of good paying jobs out of the United States and out of Brazil into China, India and other lower cost countries. IBM and the other major outsourcing companies can outsource American and Brazilian jobs faster than the United States and Brazilian economies can create new ones.
Today, 18 months later I know that the situation is a lot worse than I originally thought in October of 2003. Not only large corporations are outsourcing good paying American jobs, but companies of all sizes realized that they also could play the outsourcing game.
The US economy is following the same path, as the Titanic and the American population, just like the passengers on that doomed ship, was having a good time and had no idea of the calamity that lay just ahead.
Another result of this massive outsourcing effort is that the US economy is exporting a large number of good paying jobs and replacing it with part-time jobs, with no benefits in companies such as Wal-Mart and Target.
The future of information technology can be found in central Cincinnati, Ohio, where Procter & Gamble has its headquarters. The 166-year-old maker of soaps and snacks has this year outsourced not only management of its IT infrastructure but also business processes including relocation services and employee benefits administration.
The scope of Big Blue’s ambition is breathtaking. Executives admit that IBM now sees itself as competing not only for the $1 trillion that companies spend each year on IT but also for the billions spent on processes of the kind outsourced by P&G — which last month signed a $400 million, 10-year contract with IBM.
“IBM made a big bet on the 360 series (of mainframe computers) in the 1960’s and by the end of it people were talking about ‘IBM and the seven dwarfs’. If they get this right, we could have the same thing all over again.”
When Palmisano took the top job last year from Lou Gerstner, he wasted no time in putting his stamp on the company he had joined in 1973. He disbanded the 12-strong management committee that had ruled IBM for close to 100 years. Early in his tenure, however, it was unclear in which direction the 51-year old insider would take the company. The answer came a year ago with two high-profile moves.
First, Palmisano paid $3.5 billion for the management consulting business of PwC, the professional services firm. The deal brought 30,000 consultants on to IBM’s payroll and took it into the nascent market for “business process outsourcing.”
Second, in a speech given razzmatazz billing as The Sam Palmisano Event, he laid out his vision for computer systems that are self-healing or “autonomic”, linked in giant “grids” and available “on demand”, like water or electric utilities. This, he declared, was IBM’s future.
At first blush, the two events seemed barely related. But IBM-ers say the combination of consulting skills and technology leadership is the essence of Palmisano’s strategy.
(Ricardo C. Amaral, [email protected], is a writer, author and columnist with an extensive investment and international business background.)
