Do US Companies Own Anything Anymore

Do US Companies Own Anything Anymore

By Tim Holland

It seems to me that the concept of outsourcing has gone a lot farther than most of us have realized. The focus of most news and economic analysis has been primarily on the movement of jobs overseas but a good deal of the way US corporations do business has changed dramatically over the past twenty years.

We all seem to have run into the customer service center located in India but if you=ve been around for a while you see a good many more instances of subtle but definitive change. Think about bank guards, cleaning staffs, cafeteria employees - they don=t work for your company anymore - the positions have all been outsourced. Now admittedly, the jobs haven=t gone offshore but they=re certainly not in-house any longer.

In reality, this sort of outsourcing makes a good deal of sense and has been around for a long time: why should a bank be in the food preparation and serving business? There are a good many companies out there that specialize in the field so let them do what they do best and let the bank get back to focusing on banking. The same goes for running a building. Why get involved with carpenters, electricians, plumbers, etc. when there are companies out there that can do the job better? It makes a lot of sense and it’s economical as well.

The question arises as to when does outsourcing go too far? The bottom line has to be, well... the bottom line. When the company determines that it is more expensive to have someone else perform a function rather than do it your self, its time to think about bringing the production or function back inside. The trick is to look at not just the dollars and cents expense effect but also the image the outsourcing may project and if, in the long term, it will erode the earnings gains. One must always remember that customers vote with their feet. If you are projecting a negative image, a certain segment of the population of one=s customer base will react to that image.

Consider the recent dog food disaster. If you at least own a controlling interest in the subsidiary that supplies the key ingredients of a product, you have access to a lot of information you would not see as a customer. However, if you have decided to enter a business product line that is related but out of your mainstream, such as a dry feed company deciding to enter the canned or wet food business, there is a large start up cost especially if there are no companies available to purchase. Hence, we are back to the issue of outsourcing. With outsourcing, as opposed to just purchasing from a supplier, all of the work is performed by the outsider: acquisition of raw material, mixing, sizing, packaging and shipping. When it works right, it=s a great money maker. The problem arises when the outsourcing becomes too centralized with a single company, which is what happened with both the dog food and prepared salad industries. An even bigger problem for the company when something goes wrong is the one of branding.

Consider how many customers, who were paying premium prices for a premium brand, suddenly learned that the product they purchased, at a premium price, was manufactured by the same company that made the local store generic brand. That wasn=t bad enough but it was produced on the same equipment in the same plant from commonly sourced raw material. This is, of course a branding nightmare for a company.

Most good, publicly traded companies do their best to balance the requirement of short term earnings growth with long term strategy. Outsourcing is a good way to meet part of that goal. However, there comes a point when a manufacturing company suddenly finds itself evolving into merely a brand and no longer owns the manufacturing process, although it still projects that image. Not letting the customer know of the change sets up the kind of public reaction that recently occurred. When a company makes the decision to hide, or in corporate-speak, downplay, the way it does business then all of its policies and procedures open themselves to scrutiny.

The most important thing to remember is that no amount of government regulation will completely eliminate stupidity or greed and the people in congress have demonstrated that they are no where near as smart as the lawyers and accountants not in congress. The key to focus on is information. The more information a customer has the better they are able to make an informed decision, which is to their advantage, and the more likely they will continue to be a customer, which is to the company=s advantage. Sunshine is usually appreciated more than clouds.

Note:

This opinion/essay is the property of the author. It is offered for use by individuals who are also free to copy and make it available to other individuals as they wish. Anyone wishing to make use of the material for commercial purposes must seek permission of the author, who can be reached at Impressions@Tim-Holland.com. Such permission will not be unreasonably refused.