Global Direct Investment Solutions

Corporate Development for a Networked World

OnTheShortList.com     SurgeUSA.org

ShortListNews.com

Dissenting View : CNN Lou Dobbs Tonight, "Exporting America"

Bruce Donnelly   bruce@gdi-solutions.com    (Biography)

Whether one agrees with all of his analysis and conclusions or not, Lou Dobbs' programs and book have been an important contribution to the need for a more informed debate on the public policy and long-term social and economic impacts of outsourcing, trade, and globalization in general.  He has challenged executives to think about the local impact of their decisions in their role as multinational corporate leaders with business and social responsibilities in US communities.  Of course, this is also an issue in other countries.

This goes beyond popular notions such as the "triple bottom line", CSR (corporate social responsibility), and other topics about business ethics and governance or the benefits of a business process outsourcing (BPO) strategy.  The larger question here is nationalism and the divergence of government and business responsibilities to society.

The impact is not only on "middle class" workers or others at all levels and across many industries who may feel more insecure about their careers at this time.  It isn't just on individual corporate performance in an increasingly competitive global market, either.  It is rather the future economic security and prosperity of the country as a whole, and how US trade and investment policies and private business decisions today are shaping our future.

Send us your suggestions for other books which we should add to our Bookshelf feature.

This book also attracted many very thoughtful Amazon.com reviewer comments.  These are also worth reading, but few seem to focus on the question of what can or should actually be done about these issues.

That is consistent with what he already reported from viewer and business editor reactions to his programs.

Congress has recently (December 2004) appropriated $2 million for a study by the National Academy of Public Administration, with the support of the Department of Commerce Economics and Statistics Administration (Census). 

Of course, that is what Congress does.  When in doubt on a politically-sensitive topic, fund a research study or set up a special commission to make recommendations, thereby being perceived as actually doing something while actually deferring any real decision for as long as possible.

Yes, it may be useful to gather more reliable facts and independently develop some policy recommendations, but at the end of the day, actions count far more than all consulting reports and debate rhetoric or political posturing.

It is still very much an open question whether US government policies in this area can, or should, be changed.  Now that the US election is past, perhaps a more reasonable dialogue can be achieved.  This issue did not start in the first Bush administration.  Like other changes with major consequences for our national interests and the future shape of the world economic and political environment in which we will all live, this has been a developing issue for many years.  It is just finally starting to get noticed seriously..

As for business policies, it is up to each company and their executives to decide what to do.  They don't have to wait for the government to reach some conclusion about what national interests are truly at stake, and how best to protect or advance them, including whether any new legal or regulatory measures or trade policies are needed.

They are not instruments of national economic policy, any more than the media.  They are free to make their own choices, which is demonstrably better and more agile than state planning and control.  Executives have to make their tough choices in this area every day, and despite a similar short-term focus and motivation, they are generally conscious of the direct short and long-term consequences of their choices.  They aren't systematically firing everybody they can here to move everything they can to the cheapest countries in the world.  They are trying to figure out how to succeed in a very different and fast-changing world.  Most businesses were never configured to anticipate the global market forces and opportunities they face today, and they are trying to adapt quickly to some  very real needs for change to survive.

It is not some sort of national treason for executives to make tough choices which others may dislike because of the impact on their personal careers or national economic indictors at this time.  The market imposes consequences for their choices, because they have to compete in the real world as it exists today, rather than an idealistic view of what would best serve our national self-interests in isolation.  The same is true in government - our policies exist in a global rather than just national context.  This is not new - it is just more obvious.  There are practical limits to what government leaders can really do in this area.

Despite respect for what Lou Dobbs has been trying to do to attract leadership attention in both government and business by stirring up public attention and media reporting for more than a year on the topic of business outsourcing, I think that now the US election is behind us, it is even more important to have a calm and well-reasoned dialogue about the basic public policy and business issues and global changes behind his concerns.

That includes industrial and economic development policies, immigration and worker mobility issues, currency pegs, and other issues.  It also includes the question about the sustainability of our trade and investment imbalance, differences in social costs imposed on business, differences in environmental protection and labor rights, basic human rights, political and economic freedom in general, and many other considerations.  This is a very complex topic of great long-term importance to the future prosperity of this country.

It has been useful that Lou Dobbs has not been timid about expressing his personal opinions quite candidly, rather than hiding behind a veil of journalistic objectivity while focusing on just one side of a very complex story.  He has invited guests with differing views, and has challenged them to defend their views against his own analysis of the situation. 

Unfortunately, even a few minutes of prime time coverage (an eternity in media terms, especially for stories every night for many months) do not do justice to this complex issue.  It isn't a topic for just a few pithy sound bytes and sweeping generalizations, so I respect Lou Dobbs for devoting so much time and attention in depth to a topic which others ignored.  His point of view may be biased, but at least he makes no secret of that, and defends it.

It was convenient political fodder for many candidates and journalists during the campaign, but now that the election is over, the real question remains : What do we actually need to do about this topic as a nation, and as business leaders?

Indeed, is it really the problem that it has been portrayed to be, or has our short-term focus on the latest project announcements or job losses caused us to confuse the reporting of symptoms with the diagnosis and cure of the problem?  Is it a serious problem which requires intervention through national or international policy changes and business leadership, or is it a temporary condition which, no matter how painful it may appear to be at the time, will pass?  It may be a serious problem, but what can and should actually be done about it?  What is the appropriate role for government?

There are leaders who can argue their different positions passionately from many perspectives.  The point is that they should engage in a thoughtful dialogue, rather than just trying to prove that somebody else is wrong. 

This isn't about who wins a debate.  It is about the future economic security and prosperity of our country and, in fact, many other developed countries face the same challenge as we do in the United States.  We are not alone in this issue.

Lou Dobbs is the highly respected anchor and managing editor of CNN's "Lou Dobbs tonight" program, which has run a very popular daily feature during the 2003 and 2004 US election season on "Exporting America".  This was unprecedented coverage of a topic which would usually just attract a few isolated media stories, or local interest as major employers lay off people or reloate.

http://www.cnn.com/CNN/Programs/lou.dobbs.tonight/

His biography can be found through the CNN website.  Some media reports indicated that he was attracting around 500,000 or more viewers per day to his prime-time evening show.  Whatever the actual show ratings may be, clearly this special feature had an impact and resonated with many viewers as a very hot topic during the US election in particular.

His basic premise is that outsourcing jobs to other countries will ultimately be harmful to American interests despite any short-term business cost savings, and that a more balanced US trade policy is needed, as he suggests other countries already follow, rather than advocating either protectionism or absolute free trade as two polar extremes.

Although he has long been recognized as a pro-business Republican, his position on the outsourcing topic has drawn considerable criticism from business media (Financial Times, The Economist, etc.) and corporate executives.  Some of this criticism seems to be quite thoughtful, but some of it is just critical without really responding to his arguments.

He has also been critical of US immigration policies, including the use of H1 visas, which are perceived as asking US workers to train foreign workers who then return home to low-cost countries, taking US jobs with them through outsourcing.  This would seem to confuse outsourcing with the question of worker mobility in a global business environment.

One could argue that student visas have had a far greater impact over the years than H1, because they are easier to obtain and many perceive this to be an easy path to future US jobs and immigration, even if they may eventually return to their own countries - perhaps as workers in a multinational, or as service providers to companies they now understand well.  It is in our interest to not be a closed society, because the people who study and work here become some of our most valuable friends and business connections around the world, which is a great advantage over less diverse and tolerant societies.

Despite the global reach of CNN and the other major networks, they are also not guardians or instruments of the public interest.  They adapt their product to local markets too, because that is what pays the bills for their businesses.  They could certainly do more to look at complex issues like this from a more balanced global perspective on trade and investment flows, and the impact of business decisions in a fast-changing world.

It is a global issue, rather than just a national one.  Presenting the topic from many different local perspectives is no more a solution to cross-cultural misperceptions and differences than simply broadcasting unwelcome local content elsewhere.  It would be helpful to present a more balanced view on the need for "balanced" trade and investment policies.  From a local perspective, nobody wants balance.  They want the terms to be in their favor.

At the heart of the "outsourcing" issue, whether for Americans, Canadians, Mexicans, Europeans, Japanese, Koreans, or others in Asia and elsewhere who have seen jobs migrate to lower-cost markets like China, India, the Philippines, or countries of eastern central Europe is the simple fact that the world has changed radically over the last 25 years.

If I had predicted, as a junior Foreign Service Officer 25 years ago, that US and European companies would be making massive investments in China, India, and eastern Europe by this time, and that the Soviet Union would be history and the European Union and NATO would have expanded to the east, I would probably be locked away in a padded room somewhere.

If I had predicted that countries like Korea would become open to foreign direct investment, and actively promote it, I would have been ridiculed.  If I had predicted that even Libya would be actively seeking foreign investment now, who would have believed me?  The political changes in Central and South America were also stunning and swift in historical terms.  And who would have predicted the defeat of the PRI in a Mexican presidential election?  What about the resumption of western investment in South Africa?

The point is that the business world we face today was unforeseen and probably to a large degree unforeseeable just a few short years ago.  It continues to change rapidly.  Anybody who pretends to be able to project trends 5 or 10 years into the future in this environment is not a student of history.  The world does not follow predictable trends.  There is an almost constant flow of unforeseen events, and many future scenarios do not take into account the fact that these are often "inflection points", as Andy Grove of Intel so famously put it, which suddenly change all the prevailing assumptions about the rules of competition in the future.

It is in this environment that businesses around the world are scrambling to deal with the very disruptive reality of the situation we face today.  Suddenly, places which were of no interest at all to companies a few years ago are major strategic opportunities, while operations which were regarded as very strategic are now perceived as "off strategy" or "non-core" functions.  This is prompting a fairly rapid reconfiguration of the global structure of companies, not only in terms of where certain functions are performed, but also whether the company performs them at all, or perhaps outsources some business processes to focus resources on other priorities.

We did not suddenly wake up in a bewildering and beautiful but also scary land of Oz.  We can see clearly with hindsight how we got to where we are today.  We may never be able to go back to home sweet home, however, because the world will not suddenly change back to the way it was before, and government trade policies aren't going to change that reality.  Most companies were configured many years ago to compete in a world which no longer exists.  They are trying to rapidly adapt to what exists, and is foreseen at this time, but this is not a process which is going to end anytime soon, because the world continues to change rapidly.

We share this information here because despite our US origin, our service is global in nature.  Many visitors to this website do not live in the US, and may never have seen Lou Dobbs program on CNN, nor understand (much less agree with) the positions which he and others have taken on this topic.  We do not advocate investment in particular locations or specific government policies - we just help executives to pursue their strategies in relevant places of interest for their purposes as they choose to invest from anywhere, to anywhere.

One could probably do a similar book, "Exporting Europe", about the impact of outsourcing in Europe.  In Western Europe they bemoan the loss of jobs to the less expensive countries to the east, as well as China and India, in much the same way as people in the US have complained about the impact of NAFTA, China, India, and other countries.

The reality is simply that the world has changed dramatically in the last 20 years or so, and places which were not serious competitors for global business investment are now becoming quite attractive, with more rapid growth potential than developed markets.  Few major companies are actually configured today as they would have been if anyone could have foreseen these sweeping changes in the global markets in which they compete.

The recipient countries which benefit from outsourcing would have different views.  The point is that, in a global economy, national policies must fit into a global context, like it or not, because market forces are not constrained by national political boundaries.  They weren't in the past, either - but poor government policies toward business in much of the world made it less obvious, because they constrained their own development potential.  They weren't victims of economic neo-colonialism as in the old North-South arguments about a "new world order".  They were largely victims of their own economic and political policy choices and actions.

There is considerable perception that the US and Europe or other developed countries are  now hypocritical by only wanting terms of trade which are favorable from our perspective, rather than supportive of the development aspirations of free people in other countries who may have different cultural values and political views.

It might be more fair to say that we never expected to see so many other countries become more competitive all at once, and it is creating a very difficult transition period.  This is really a global topic for more informed dialogue - not just a national one.  It is not a zero sum game.

The whole world will benefit as this process moves forward, but from a local perspective there will be winners and losers during the transition, and societies will need to make choices about how best to cope with the impact of market forces which may seem like a Pandora's Box to us now while perceived as a great opportunity for development aspirations elsewhere.

The flow of investment into China is not something new.  It has been developing for more than twenty years in response to very long-term policies which even preceded the collapse of the Soviet Union.  The transformation of Taiwan and other countries in Asia through aggressive industrial development, investment attraction, and export promotion policies clearly did not go unnoticed in China.  It became obvious that China needed to be a great power economically, not just militarily, and that failure to achieve economic progress would not be politically sustainable.  For the political regime to survive, it needed to change economic policies and take advantage of the potential to attract modern technology and capital investment.

While Taiwan focused relentlessly on one target industry ( semiconductors and related electronics such as computers and peripheral, later including other types of products), China seems to have adopted similar policies aimed at attracting a wide range of industries.  It may be fair to assume that Taiwan's leadership basically wanted to no longer run a third world economy, and followed a strategy aimed at rapid development as in other "Asian Tigers".

China, on the other hand, clearly expects to be the dominant economic force in the region, and indeed an economic superpower, as it was historically.  This is not about bringing democratic values or ending economic deprivation in China, nor about creating a middle class of comparatively affluent consumers who may push for additional "reforms" and freedoms.

As companies race to invest in China because of the short-term and long-term potential they foresee, and bring their latest technologies and product development skills with them, it is worth keeping in mind that the political and economic goals of China are not to enhance the return on investment of foreign investors or to have "balanced trade" which will serve mutual interests.  China clearly wants the balance to be tilted in their favor for now, because they have a lot of catching up to do economically. 

Strategically, corporate leaders rather than just government officials should be concerned about the long-term impact of the choices they are making, and the potential risks of putting so many "eggs in one basket".  For example, if policies in China become less favorable over time, what happens?  Once the jobs and technologies transfer there, who will be in the stronger bargaining position?

In any case, many countries actively promote foreign investment to create jobs, attract capital and technology transfer, increase tax flows, expand trade, and for many other reasons.  China is not unique in this regard.  Indeed, it is far more unique that the United States does so little in this regard, except at the state and local rather than national level.  (see more on this topic) 

In most countries, investment promotion just represents a tactic to achieve greater economic development and prosperity, and FDI projects represent a relatively small level of job creation relative to the growth of local businesses.  FDI projects help through more than job creation and tax flows, since the attraction of world-class companies also has an impact on other companies in an area beyond the direct supply chain linkages.

In China, however, the political motivation to become an economic superpower should not be underestimated as a factor behind the policies to attract foreign investment, unlike most other countries, and the implications of this could be far-reaching.  They have been pursuing their development strategy patiently and methodically for around 25 years.

At the same time, the US does not really have an identifiable industrial development strategy, nor is there any clear consensus among developed countries about how to deal with China so that positive changes can move forward without becoming an unexpected threat to our futures.

Perhaps Ross Perot can be excused for his doom and gloom assessment of the impact of NAFTA on the United States during a presidential election campaign, since good rhetoric often has more value than good policies in such situations.  Besides, as a Texan, Mexico was easy to perceive as a clear and present danger, especially to some companies in Texas, even though others took advantage of the resulting opportunities from increased trade flows.

Curiously, the better business relationship and growth in quality manufacturing in Mexico may actually be helping US companies to deal with the challenges posed by markets like China.  While labor costs in China are obviously lower than Mexico, Mexico has other advantages, such as a much shorter lead time to market in the US, as well as a growing number of bilateral free trade agreements with other parts of the world to reinforce their competitiveness as a manufacturing base not only for North American markets, but for exports elsewhere.

As a simple example, suppose it takes 6 weeks to get products from China to US destinations through ocean freight and ports which are struggling to keep up with the trade growth.  What happens if serious product defects are not discovered until arrival?  In short, six weeks more of defective products may already be en route, and it will be another six weeks before the problem can be corrected in China and the replacement products arrive in the US.

Now, suppose there is no defect at all, but US market demand for a product suddenly drops.  How quickly can a company with a six week lead time react?  What is the cost of that?  What if demand is much better than foreseen?  How quickly can the company exploit this?

These are obviously simplifications, but the point is that there is a big difference between a 6 week lead time and a lead time of a few days to reach almost anywhere in North America from Mexico.  Market agility has a value.

As another example, executive burnout is not a minor consideration.  The challenge of setting up and managing an operation in China is very demanding, not only in terms of long trips but also cross-cultural and language complexities, intellectual property issues, and risks. 

In Mexico, it has become far easier to set up and manage high quality operations, and the travel isn't very different than to oversee other North American interests.  Yes, it isn't easy and there are potential pitfalls, but in general operations in Mexico are probably far less stressful and require far less executive time and effort to develop and manage.  The cost and turnover of managers and executives with strong experience in China can also be a surprise.  In short, people who know how to run high quality operations in China are in demand these days.

The larger point behind all of this is that China isn't that "giant sucking sound" either, even though it certainly looks that way to some, because undeniably many operations have been relocated to China.  Similarly, outsourcing and business growth in India is not necessarily a bad thing, and strategically is perhaps better than excessive reliance on China or any other single country.  There are certainly losses to US jobs in the process, just as workers in western Europe lament the relocation of operations or growth to eastern Europe, or workers in Japan and Korea or other Asian nations lament the relocation of jobs to China or elsewhere.

The problem isn't that executives are indifferent to the plight of their colleagues as these changes occur.  Right or wrong, they are trying to adapt to market forces and opportunities so that their companies will survive and grow, rather than cling to uncompetitive situations.

Rather than attack outsourcing or the relocation of some jobs to other countries, perhaps Lou Dobbs would like to tackle the challenge of arousing interest in US economic development.

We need a national industrial development and investment promotion policy and strategy for the US to compete to attract and retain foreign business as many other developed countries (notably including Canada and the UK) already do.  The argument about the need for more "balanced trade" neglects the fact that government cannot effectively reverse market forces.  The way to reverse trade imbalances is to promote growth here, rather than decry the loss of jobs and lack of growth or the success of industrial development strategies elsewhere.

Instead of complaining about what we are losing, we should focus on what we can win to keep the US as the most competitive market in the world, and focus on what we can retain and grow.  Meanwhile, Europe faces even greater challenges, but is at least trying to adapt to the fact that the world has changed dramatically for their economic interests, too.

An integral part of any such economic development strategy is typically "business retention and expansion", since that creates far more jobs than FDI attraction initiatives.  This should be a national development priority, rather than just a state and local issue.

Although I generally subscribe to the Reagan view that big government is a problem rather than a solution, and that state and local government can often respond more effectively and efficiently to the needs of people than a national bureaucracy, this is clearly a national issue as in most other countries of the world.  Government is poorly suited to try to pick "winners" among emerging technologies or "target industries", but there are things which can be done at the national level to foster an even more favorable environment for investment and growth.

It should be possible at the national level to be more supportive of economic development without creating an inefficient bureaucratic structure to perform work which delivers poor value.  There are vital national interests at stake in our economic development.  We have just taken it for granted for too long, and have become complacent about our success.

There is no God-given right to a high value job in America.  I think Carly Fiorina of HP said something similar, although she may regret the quote as a CEO with valuable employees who may feel that this was insensitive to the importance of their contributions to the company, or suggests that their futures are at risk at such a company.  The point, from my perspective, is that we all compete with clever people around the world today, like it or not.  Low labor cost markets are not the inevitable winners of all jobs, or else far more jobs would have migrated to low cost markets long ago.  The competition is simply getting much better, and we have to deal with that, rather than complain that they are taking "our jobs".  They aren't "ours", as though we had a right of ownership.  We earn them by the value we deliver through our work.

We have to compete with other capable, motivated, and very smart people around the world, including those in low-cost markets as well as in highly developed countries facing similar challenges.  Business and the flow of capital is not easily constrained by national political boundaries or policies.  We need to focus on making the US the most globally competitive market for high-value work.

For those who haven't seen the movie before, or for a long time, I would recommend having a look at the debate between Danny DeVito and Gregory Peck in this movie about the plan to shut down "New England Wire & Cable" at the cost of many jobs and great impact on a small community where the future of the company had seemed quite secure.

It eloquently pits the short-term financial interests of "Larry the Liquidator" (DeVito) against the paternalistic company leader (Peck) in a legal fight about shareholder value and company values, leading up to a debate and shareholder vote about the future of the company.

Although perhaps aimed at the long-term business and community or personal consequences of quick financial deals in the 1980's, "Larry" makes the basic point about the need to redeploy capital to where it will make money, and that having a rising share of a declining market is not necessarily a good strategy, particularly as new technologies emerge.  Despite the apparently devastating short-term local impact of the plant closure, new opportunities are soon found.

That isn't just Hollywood seeking a happy but implausibly convenient ending to a sad story.  Such transitions are painful, but companies, communities, investors, and workers are better off by not clinging to an unsustainable business until it can no longer add value or compete.

It is hard to admit that what was successful in the past may no longer be competitive today, but business takes place in a constantly changing and unsympathetic environment.  We may all feel sympathy for the Gregory Pecks, and less sympathy for Danny DeVito's character Larry, but Larry got it right in his pitch to the shareholders.  He is their friend, and as many learned to their sorrow in recent years, apparently good businesses can quickly destroy shareholder value when they lose sight of fundamental values and neglect market forces.

Nobody likes to see a business operation cut back or close and put people out of work, but the only real solution is to innovatively find ways to deliver higher value than the competitive alternatives, and adapt to the changing world which we all share.

The way forward is not found by a focus on the rear view mirror.

The world we live in has changed radically.  We have to figure out how to deal with that.  There are no easy answers.  It is an important topic for informed debate and public policy choices.  We need to create higher-value jobs faster, because the rest of the world doesn't just want the low-value jobs, and they are capable of innovation too.

In conclusion, "outsourcing" and the relocation of manufacturing operations or services to other countries are largely a red herring.  These choices are taken because, for the most part, they make good business or microeconomic sense despite the adverse impact on communities or our national macroeconomic picture.  The real focus should not be on what we are losing, but on what we can be winning.  This is no time for complacency about competitiveness.  There will be companies which simply cannot survive in the new business environment we face, but we also have competitive advantages which we need to reinforce.