Subscribe Now!

Get your FREE subscription
to the Trump University
newsletter Inside Trump Tower.


Recent Postings

Archived Posts

RSS Feeds



Outsourcing Creates Jobs in the Long Run

by Donald J. Trump
Chairman, Trump University

We hear terrible things about outsourcing jobs--how sending work outside of our companies is contributing to the demise of American businesses. But in this instance I have to take the unpopular stance that it is not always a terrible thing.

I understand that outsourcing means that employees lose jobs. Because work is often outsourced to other countries, it means Americans lose jobs. In other cases, nonunion employees get the work. Losing jobs is never a good thing, but we have to look at the bigger picture.

Last year, Nobel Prize-winning economist Dr. Lawrence R. Klein, the founder of Wharton Econometric Forecasting Associates, co-authored a study that showed how global outsourcing actually creates more jobs and increases wages, at least for IT workers. The study found that outsourcing helped companies be more competitive and more productive. That means they make more money, which means they funnel more into the economy, thereby, creating more jobs.

I know that doesn't make it any easier for people whose jobs have been outsourced overseas, but if a company's only means of survival is by farming jobs outside its walls, then sometimes it's a necessary step. The other option might be to close its doors for good.

TrackBack URL:
Comments | Add Comment
Posted By: kj (10/14/2005 3:14:40 PM)
Comment: You are right on target Mr. Trump. In the next ten years, a total of 3 million service jobs would be offshored. This would mean that US economy would be leveraging the strength of 143 million workers as opposed to 140 million with a competitive cost base for servies. Cheaper IT services make is easier for all buisinesses, including those who donot offshore, to automate and increase productivity and be more competitive globally. This helps assure prosperity of US businesses and thier employees. People in China and India are smart and are now getting educated. Would you not want them to work for enhancing US competitiveness, rather than starting thier own banks, insurance companies, and other enterprises that would beat US companies globally due to lower cost base. With higher costs a company like IBM may go out of business and jepordize 300,000 jobs. However, by offshoring 10% of these jobs the company can save the jobs of the other 90% and also get access to global talent pool to enhance its products and services. Those who lose thier jobs will suffer for some time. Though, despite outshoring the US economy is running at near full employment. With any restirctions it will become uncompetitve. How can GM and Ford compete against say Korean companies if they are using cheaper offshore parts and services, if US companies are stuck with higher US cost services.
Posted By: Ken (10/13/2005 4:06:58 PM)
Comment: Understanding the need for outsourcing does not preclude someone from disagreeing with it. First, it is true that without outsourcing, some companies would not survive, but that doesn't mean that the work needs to be outsourced to another country, as the US has many skilled subcontractors that could provide competitive rates (though maybe not as low as some Asian countries). In addition, if the companies didn't outsource, and as a result, went out of business, then many more people would be out of work. However this is not a consolation to the people who have lost their jobs. Second, there are many factors involved in deciding to go overseas, and I think the indirect costs (travel expenses, training, mistakes due to inadequate communication, the cost of a layoff, etc.), are often overlooked, and can sometimes far outweigh the direct cost savings. I feel that a responsible management team would explain and justify their reasons for letting go of skilled employees just to save some money. There is the issue of loyalty, and how little of it there seems to be in today’s workplace. Lastly, but most importantly, the issue as I see it is not just companies outsourcing, rather it is that companies often get tax breaks for outsourcing, which in addition to the lower expenses, drives the net income up, which in turn drives the stock price up, which in turn often results in bigger bonuses for management. So basically, upper management has nothing to lose, except sleep, over handing over jobs to other countries, and I don’t think they lose much of that, either. If the reason is to keep the company afloat, then it can be reasonably well justified, but if the purpose is just to reduce expenses and make more money for management and the shareholders without any regard for the employees, then I don’t think that is a valid reason for outsourcing. And I understand that the whole purpose for companies to exist is to make money for the shareholders, but if this pattern is extrapolated out, then the only way to make a living will be to trade shares of companies that don’t actually do any work.
Posted By: Michele (10/9/2005 11:42:46 PM)
Comment: I always find it interesting when the topic of outsourcing comes up. My chosen field was IT. After earning an MS degree in that field and many years of professional work experience, I am planning on leaving the field - if for no other reason than survival. One of the previous posters mentioned "the Whiners are Not the Winners." When outsourcing takes the jobs of the most highly talented and educated and gives them to another country, purely because of hourly rate; everyone loses. When highly trained professionals are forced to leave a field in the numbers that IT outsourcing is causing, the future of that field becomes bleak. Many of the greatest advancements in IT have come from professionals who were looking for a better way and future growth. The folks in Asia are only working on maintaining today. IBM and others are complaining that enough American students are not earning degrees in these fields. Is it any wonder when they see shrinking salaries and numerous layoffs for a possible career path? Are the employees in the companies with outsourced IT departments able to approach their IT support staff with an idea to improve production? I can't imagine that the folks in India or China are going to be able to walk through the production department of an American company, observe a situation and begin working on a solution BEFORE the production department asks for one. One thought rarely mentioned in conversations on outsourcing is information security. Companies are giving their confidential data to people in another country. Worse yet, these countries do not always, for lack of a better way to put it, play nice with the rest of the world. You might think, so what if another country has a major corporation's confidential data. You should care as your bank, credit card, utility, and many of the others you do business with send your personal financial information overseas. How much havoc could a country cause by having their outsourcing teams cause financial data to suddenly become unavailable; even if only for a day or two? I enjoy the Apprentice and am fascinated by the whys of who gets fired each week and consider each episode a course on business. But, as someone directly affected by IT outsourcing, I have to disagree with both you, Mr. Trump, and these economists who claim it is increasing wages. I have only seen where this is creating a climate where talented folks are having to either take positions with responsibilities once covered by several professionals for less compensation than any of the original positions paid or leave the field entirely. I remain optimistic that my new path will lead to all the things that Dr. Klein and others keep telling me will be a benefit of having been told 'Get out, we don't need you, we're going to send your jobs to India.'
Posted By: Panu Hämäri (10/1/2005 4:32:05 AM)
Comment: I must say that this is an interesting forum! To give you another point of view to this discussion: I am from Finland, Europe, which is considered to be the Japan of Europe with a lot of high tech industry (Nokia, f.ex. is a Finnish company, not Japanese, as many people think....). We are forced to outsorce to other countries, since our economy is doing fine, and we are already experiencing a shortage of labour in some areas! To keep the competetive advantage the companies like Nokia have outsourced much of production, but kept tings like R
Posted By: Zolb (9/20/2005 6:41:20 AM)
Comment: Remember pro outsourcing is an unpopular opinion because it creates so much problems like unemployement, underpay, and low quality services in the short run. In the long run, outsourcing is probably the only way western countries retrain their labor force at higher education level in order to keep their economic and superpower. Just to make my point clear about higher education level; what if the United State trains only the CEOs of MNCs, scientists, and all the other low end jobs done by the other countries.
Posted By: Debasis (9/13/2005 11:32:57 PM)
Comment: That's a very good point Charles. It's not easy to guestimate a time frame for the equilibrium. Additionally, I feel the dynamics of the outsourcing would be a lot more complicated equilibrium process (rather a packet of a few small equilibria which will be progressively smaller in nature). For example, now the western world is concerned about mostly India and China. In a few years (let's say 10 and I am blindly guessing that) these two countries will be worried about the similar outsourcing problem towards other countries (my guess would be African nations and South Eastern Asia, Vietnam, Phillipines, e.t.c.). But I think that second phase of outsourcing would have a lot smaller volume than the one we are experiencing now. I would say it will exponentially decay. So if my "10 year" guess is correct I would say 15-17 years will be a total figure. However, I believe macroscopically economy will start seeing a positive direction once the first phase is over. So in another 5-6 years I would expect to see the slowdown of job transfer and slight staticness in the equilibrium (which right now is very active). To answer to your overall thought, I exactly know what you mean. Will we be able to see the dawn in our economy? My answer is hard working western citizens in 1930's never enjoyed WI-FI with their computers, but they seeded the economy well to make what we enjoy now.
Posted By: Charles Leo (9/12/2005 4:53:29 PM)
Comment: Quote Debasis: "Outsourcing, at least to me, is a microscopic equlibrium needed to stabilize global market for a better, bolder future." I agree. But how long is that going to take? On to the next country then on to a completely different continent altogether. It'll be a long time to come - probably well when we're all dead unless governments step in to impose some restrictions on our higher level technical jobs such as heavier taxes.
Posted By: Thomas J Supri (9/9/2005 4:47:15 AM)
Comment: All the HOT topics are here! The WHINERS are NOT the WINNERS. Where is the TOUGHNESS that it takes for success???? Like the Marines say... Adapt and Overcome! I just would like to have outsourced workers speak better,clearer ENGLISH! Let's all RISE to the TOP rather than settle for the middle or remain bottom-feeders!!!
Posted By: Debasis (9/8/2005 5:27:00 PM)
Comment: Outsourcing is, for sure, a new dimension in this economy that, just like any other ground-breaking ideas, breeds scepticism. However, there is a positive direction. When you outsourse a job to a cheaper country you get the job done because the person doing the job can afford many things with that salary in his country. Then you roll in bigger models of cars, widers screen TV's in that country. The people in that country push themseleves to afford them and wages for so called "popular outsourcing destinations" go up. And then an economic equilibrium strikes in. For MNC's it becomes an equal deal to do in-house or outsource. But it gives them a broader range of work power. For western world, MNC's, by that time, will make enough profit out of the market globalization and the whole global population will gain. But during this equilibrium process, some has to suffer (and I don't mean this to be heartless, but it's a reality). I would rather like to say "some has to "sacrifice" now for his future generations. Outsourcing, at least to me, is a microscopic equlibrium needed to stabilize global market for a better, bolder future.
Posted By: Darrell (9/6/2005 7:46:59 PM)
Comment: Mr. Trump sir, you said: "That means they make more money, which means they funnel more into the economy, thereby, creating more jobs." Respectfully, that's a nice wishful theory but do you remember back when Ronald Reagan spoke enthusiastically about his "trickle down" economics, where the corporations would create more jobs . . .? Well, I remember it first hand and I don't recall any trickle coming down to me or many other employeess at that time. The Corporations KEPT the tax advantages then as they are doing so now. As a direct result though of that observation, what did trickle down was a stark realization that if I was going to become financially secure, I had to shift my employee minded thinking to entreprenuer minded thinking and have done so since. I say: It's a dog eat dog world out there, so take charge of YOURSELF.
Posted By: John (9/5/2005 6:12:17 PM)
Comment: I strongly disagree with this! Outsourcing not only causes lost jobs, but it also keeps wages artificially low! I work in electronics and can tell you from experience that this field is grossly underpaid when compared to other fields. Why? Because employers can get cheaper labor by using H1-B visas and outsourcing jobs to India, Mexico, and China--among other countries...As long as outsourcing and H1-B visas exist, people in the electronics and IT fields will continue to be underpaid.
Posted By: Gary Knopp (9/3/2005 7:13:00 PM)
Comment: In some cases outsourcing can make a difference. For examplem the small software company I started needed to do some development to survive. I bootstrapped the company without funding. If it had not been done in China for $18 it would never have been possible to keep the company in the game. On the other hand, when large multi-nationals outsource to India (for example) using the excuse that this opens a market for goods, I take exception. If the market opened buys good from a US multinational that are made in China the only one who benefits is the US multinational. No one can tell me this is good for America. I do believe, however, that this would add to the GNP. So politicians benefit.
Posted By: Charles Leo (9/2/2005 9:45:06 AM)
Comment: Quote Troy Mann: "By hiring licensed managers the company actually spends less and makes more of a profit." Yes. This makes sense to upper management positions and company owners as it benefits them. It undoubtedly makes sense that his is what needs to be done in a competitive environment to continue providing services. I am not going to argue that. However, the underlying 'workerbees' which fuel our economy in a reciprocal relationship are left with fewer resources in the long-run. This can lead to a recession much like the one Japan has experienced in the past decade. With wealthier individuals/corporations, they are unlikely to distribute their resources to the underlying econmic brackets (unless it makes them look good or is some sort of tax-write-off.) To put it bluntly, 'the wealthier you are, generally the more frugal you are. That's how you got there in the first place unless you parents fed you with a golden spoon or you've had some enormous stroke of luck.'
Posted By: Troy Mann (9/2/2005 2:41:43 AM)
Comment: I agree 100% that outsourcing is a good thing. My company almost went bankrupt when a property manager employee embezzled funds. By hiring licensed managers the company actually spends less and makes more of a profit. The real killer of jobs is not outsourcing but the entitlement attitude of workers who just want to put in some face time without actually adding any value.
Posted By: Charles Leo (9/1/2005 9:11:46 AM)
Comment: I agree to a point. What you haven't stated is that outcourcing primarily helps buisness owners and management to progress while your typical IT person (and other technically related positions) struggles with having to offer up lower wages to compete with someone making $3.50/hour. It's great if you're in a position to be the middleman or the person calling the shots. I speak from my own experience - having to have considered outsourcing as an only option in certain circumstances.
Posted By: Janesh (9/1/2005 2:28:18 AM)
Comment: From a company point of view - Couldn't agree with you more. I know, I do it too. But the logic is no assurance to the Americans who lost their jobs until the cycle completes itself and alternative employment or job security becomes a practical reality. For the struggling company, outsourcing is a lifeline. No business is a charity. So, for the well-to-do companies, outsourcing is merely a way to multiply their profits and cut their costs down. What could be even more interesting is that developing economies - who are now elevating themselves to the standards (in work output and worker salaries) of relatively developed nations - will soon be demanding higher charges for their work - hence making outsourcing a not-so-attractive option for companies (unless ofcourse the quality of work output is appreciably better). Let me assure you. India and China are not gonna always gonna clean the dirt that US IT companies throw at them. Those giants are waking up. Dont be surprised if they outsource jobs to US because it is cheaper to do it in US than to hire and Indian or a Chinese. So wont jobs in the US increase once again because of this? Maybe. But this will take upto a decade or longer. Till then? Good Luck America.
Posted By: Jose "Joey" Hernandez (8/31/2005 11:57:15 AM)
Comment: The problem with outsourcing specifically in the IT sector is that with all the mergers and acquisitions of companies most IT divisions eventually have to back source. Hiring back of the IT folks to fix and bring together both companies systems. This leads to a low morale in the IT areas. In a recent trip to Thailand I was able to see why the US loses out when we outsource. There is a different work ethic in other parts of the world. I believe outsourcing is great for the Global Economy and great from the Business stand point. However, in a country where our poverty level has risen for the 4th year in a row… this is a bad deal. This outsourcing has been and will continue to affect all levels of employees to include management. Jose “Joey” Hernandez MBA Computer Resource and Information Management 2005’ 210-389-4163
Posted By: Jonathan (8/31/2005 11:54:30 AM)
Comment: I firmly believe that we should seek to retain our jobs within our own country, however, in the real world, we are faced with analyzing the opportunities to grow and establish increases in our NOI and it appears that if alternatives to reach these added increases are identified ie: seeking to obtain services overseas, then from a business persective, it would be negligence to ones own compnay growth an the growth of the investors, stockholders etc. We al want to see year after year increased profits and seeking added alternatives must be a option. If levels of service and quality can be duplicated from a foreign resource, then it makes sense to consider implementing.
Posted By: Annamaria (8/31/2005 10:52:45 AM)
Comment: Reduction in staff is usually due to competition or advancements in technology. A streamline business usually means a healther bottom line resulting in more money flowing into local and global economies. The cost of business in the states is becoming so high most employers need to minimize the costs to ensure their survival. Payroll cost being one of the highest cost for any business will be the first to be reduced. Frankly, the government taxes employers to the point of desparation. What option does a busines person have to survive? Outsourcing work is one of the option available to desparte employers. Maybe the focus nees to be on the culprits that force employers into outsourcing. For every action there is a equal reaction. Reaction to high costs placed on the employer whether it be payroll taxes, taxes, insurance or costly benefit packages eventually forces an employer to streamline or close the doors. The strong will survive - the weak will perish.
Posted By: Julian (8/31/2005 2:36:35 AM)
Comment: Surely this is about skills distribution in the workforce. It is innevitable that outsourcing will drive jobs overseas where a country has a comparitive advantage when competing on a global level, especially in costs of labour and production. But where does this leave Americans and other western countries. Have they sufficiently skilled up their workforces to take the new positions that the improved economy will generate or will these new jobs also be outsourced to countries with the right skills. The problem is not outsourcing, the problem is the country's ability to redistribute the skills in the workforce, what is the government doing about reskilling, about education?
Posted By: Karen Scott (8/30/2005 3:50:13 PM)
Comment: I'm not so sure I agree with your comments actually. Here in England we've seen a lot of our major companies pack up sticks and move operations to countries like India. Of course it affects the domestic situation, how can it not? We may be creating more prosperity for those outside of the country, but surely we need to make sure our own people are sufficiently looked after first? How on earth does putting 1000+ people out of work, benefit the country?
Posted By: Christopher (8/30/2005 3:09:53 PM)
Comment: I couldn't believe a 100% preo-Trump hit rate until I saw that he is the filter between what is and is not posted. As an IT worker in America that has had to deal personally with Indian 'outsourced' counterparts, I can tell you that the supposed savings are illusory. What isn't taken into consideration is that this phenomena is fairly new and not yet thoroughly tested, and companies have yet to see the truth behind the one-dimensional incompetence of many of these '$3 wonders'. In this industry, you generally DO get what you pay for (if you are a competent hiring manager), and that includes the impossibility of thorough communication of design specs, lack of imagination and problem solving (these folks are not generally well educated outside of their core skill, usually one programming language such as C++), and strict adherence to blueprints so common in IT outsourcing. My organization is already beginning to see the light and the pilot outsourcing program is being backed out as we speak.
Posted By: Mark C. (8/30/2005 2:47:32 PM)
Comment: Hi all: Outsourcing can be a very good thing when approached in a manner that does not change the landscape. Seeing as India time frame makes for a nice 24x7 support, does not make their training better than ours, for example their universities offer concentration in Technical courses and exclude the core courses, then call those 'Master Degrees', where they are actually 'Master in Computer Programming', but not a true Masters degree, even from IIT. My advice to all: Make sure you nail down each perspective new hire from India or offshore resource with exact questions about the technology your hiring them for. This might sound normal, but these offsource resources are conditioned and coached for many weeks before any interview. SO even though they may sounds good, you need to have on your end, a extremely good system guru to nail down the offsources exact expertise, or you will get surprised. Sure, that's sort of true anywhere, but take for example your face to face meetings in the Apprentice: you do not ge that in a phone interview. Last thought: Either Video conference them or make sure they do the interview on hard line, because I would never do cell phone interviews, which is common occurance there. -Mark
Posted By: Virgil Bierschwale (8/30/2005 2:40:46 PM)
Comment: One thing I think that EVERYBODY is NOT considering is that we need to get the IT people out of designing the systems and get the Business StakeHolders to start designing the systems. A lot of the failure and high expense of systems comes from people without a business background trying to implement new systems without fully understanding the consequences of their actions. I would be happy to discuss this further with anybody else that wants too as I don't know how many systems I've worked on that have not succeeded for various reasons. Thanks, Virgil
Posted By: Michael (8/30/2005 11:30:24 AM)
Comment: I agreed with the bigger picture opinion, but I think most companies rush into outsourcing because that's what other companies are doing without assessing what its true needs are.
Posted By: Dave Starr (8/30/2005 10:29:34 AM)
Comment: One aspect of outsourcing that seems ripe for further exploration is increased productivity, with only a possible side benefit of economy. I think at times too much emphasis is placed on cost savings to the exclusion of other benefits. Outsourcing allows better utilization of skills. A good example is a fellow who has started outsourcing fats food restaurant drive-thru customer service. At any given restaurant operating in the traditional model, the "window order taker" is often idling, waiting for an order to come in. In addition, this is frequently the least popular job on the restaurant crew. By connecting multiple drive thru kiosks to a professional call center the restaurant owner gains the benefit of professional response, multiple order takers to handle overflow, and save most of entire 'body' per shift. Cost savings to the restaurant owner may bot always accrue, but sales often increase substantially ... win-win
Posted By: Justin Thorp (8/30/2005 10:17:53 AM)
Comment: Donald, I completely agree with you. It is an unpopular opinion but outsourcing will help our economy in the long run. I am glad that you took the step to voice your opinion.
Posted By: Risto (8/30/2005 4:06:08 AM)
Comment: You're absolutely right. If you have the luxury of stepping back and looking at the big picture, outsourcing makes companies function in a more effective way - which is good. But like you, too, said "that doesn't make it any easier for people whose jobs have been outsourced overseas." However, people have survived through all kinds of revolutions in the past, and outsourcing will be just another challenge .
Posted By: Nathan Enns (8/29/2005 6:47:01 PM)
Comment: People do hear terrible things about corporations outsourcing jobs. Most of the people I know are employees of large companies and are not too happy with them outsourcing oversees. After owning my own business for over a year, I see that there could be reasons to do so. It would still be hard for me to outsource a job overseas if my company had enough money to pay an employee in the US. If it were a choice between outsourcing and shutting the business down, outsourcing would be a required step. Outsourcing can help the US economy as you described. However, I think many people, specifically employees, have a hard time seeing the benefits of outsourcing because the benefits are less obvious from their perspective. They can easily see their jobs and their friend’s jobs being given to people outside the country they live in. Anyway, those are my thoughts. It is great to see you have a blog now. I will be visiting often.
Posted By: Sushubh (8/29/2005 6:45:19 PM)
Comment: Rightly said Mr. Trump! If companies outsource, it is because of the increased competition. Most of it is done to survive the competitive markets. And if they do not even do that, everyone lose jobs...
Posted By: Steve Beaudry (8/29/2005 6:34:49 PM)
Comment: I agree that some outsourcing can provide a lower cost of operations for a company and that if work of comparable quality is achieved at a significant savings then it should be seriously considered. The types of outsourcing jobs to other countries however, should be limited. Your example of a back office job like IT work being outsourced would benefit a company's bottom line without sacrificing customer satisfaction. Companies that try to outsource customer service oriented jobs though, (i.e. Call Centers) run the risk of losing customers and money because of language miscommunications. The frustrations of trying to understand a representative can lead to intangible loses like spreading a word-of-mouth bad experience, or tangible losses like having to re-ship a product due to an incorrect address or product option. Knowledge of a customer's geographical location and cultural needs also lends to more profitable cross-sell and up-sell opportunities. I just hope a company would heed your advise and look at the bigger picture in order to realize outsourcing will not work in every situation, because ultimately, with out the customer's 100% satisfaction, then profits and operational efficiencies quickly become irrelevant.
Email this post  Print this post