The Diminishing Returns of Outsourcing and the Fallacy of Automation

No clickbait quite compares to a veiled threat like, “These XX Industries are Those Under Greatest Threat of Annihilation by [insert latest technological advance or cheap labor country here].”

It remains in the corporate incentive structure, particularly for public companies, to create systems, processes and wages that significantly reduce costs to bolster bottom-line cash-flow. Unfortunately, this shortsighted approach is not only disingenuous to net-net long term sustainability, it can frequently be simply untrue.

Furthermore, today’s technology prognosticators love to use technological outgrowth to make sweeping and often crazy predictions about future events (robot apocalypse, anyone?). Nowhere is this more prevalent when it comes to the threat of jobs (clickbait) or the promise of massive savings in time and financial resources to business owners.

It is also sometimes used as fodder to justify political ends. Social media went crazy a few years ago when Elon Musk used the automation fallacy to justify the eventual need to implement universal basic income (UBI).  Other AI experts have similarly opined the replacement of 40% of jobs in less than 15 years once artificial intelligence is entrenched.

Automation and Outsourcing are Not Catch-all Solutions

In truth, we are likely farther away from complete workforce obliteration than many experts claim. Additionally, the opportunity for human redundancy removal, at least when it comes to automation and outsourcing, is less-likely felt in some areas over others. Yes, transportation—a massive part of most economies—will be upended in a major way, but what about other traditionally blue collar jobs? I don’t see plumbers, painters and electricians getting replaced by robots anytime soon. Also, highly-technical work, like code and online content consumed by humans is likely still best produced by humans, at least for the somewhat foreseeable future.

While somewhat siloed and myopic, our internal data speaks similarly. For instance, roughly 38% of our link building clients are white label SEO agency partners. This underscores the following apparent needs, at least in the content marketing community:

  • Quality is paramount to price, especially when long-term sustainability is desired. Short-termism frequently breeds a push toward lower quality work to save a penny. This is especially true for highly-technical tasks or tasks where the outcome is critical. One example is the complete outsourcing of raising a child. Daycare can only imbue the outcome you want to an extent.
  • Scale requires resources. If you want to scale any endeavor, you must reach a critical mass in terms of resources and personnel. Companies without resources are more prone to outsource and more likely to automate. Doing so allows them the flexibility of not having to hire full-time, but keep expenses flexible—a perfect beneficial example of the gig-economy.
  • Speed of delivery often requires more resources than what might be immediately available internally. Speed can drive outsourcing.
  • Experts can’t all be housed in a single company. Outsourcing allows smaller companies to tap into the expertise of individual consultants whose services would be far more expensive as full-time staff.

In short, while automation and outsourcing—while beneficial—cannot solve all the issues related to cost, quality and speed. In fact, an organizational assessment of both internal and external costs (to more effectively determine the net-net) will be required in each instance where such solutions may be suggested to replace the status quo.

Outsourcing ≠ Offshoring

But outsourcing and offshoring are not synonyms.

If I were to ask, “what’s the first word that comes to mind when I use the phrase: ‘outsourced manufacturing’?” I’m no mind reader, but I would venture your response would be “China.” What about “outsourced software development”? My next guess: “India.”

Most would argue, the rising tide floating all boats has a much greater net-net impact, the tendency toward corporate greed and profits shifts the investment to other areas. It’s not just the trade war that is moving Chinese manufacturing to places like Vietnam. Thanks to already-rising Chinese wages and manufacturing costs, the writing was already on the wall, the trade war simply acted more like a premature catalyst.

When it comes to outsourcing tasks that are native to a particular culture that may be critical to success, we need to remove the temptation to automate and outsource these functions, especially those that tie most critical to the customer experience. Two viable examples that come to mind are telemarketing outsourcing and online content production.

When I refer to telemarketing, I’m not referring to support staff you might encounter in India or the Philippines when you call Microsoft or American Express. No, I’m referring to outbound callers, who might be selling a particular product or service. In high volumes, even the blind squirrel picks up a nut now and again. However, when it comes to having the greatest impact in the shortest period, someone from the same culture, accent and communication style is often always

Secondly, content production is also an area that can be outsourced, but likely not offshored cheaply. What types of content? Long form blogs, written articles on high authority publications, podcasts and commercial-like YouTube videos are all areas that might be easily outsourced, but should never be offshored. These types of customer-facing content experiences need to reflect the culture and style of the desired country in question. In our case, United States companies are best served by outsourcing their content work, but are more likely to experience a massive customer fail when they attempt to offshore it.

The Present and Future of Outsourcing

As industrialized nations have leveraged less expensive wages overseas, they have seen a highly-diminished return on their initial investment as wages always tend to increase over time. The trend typically continues until the cost to move to the next low wage environment is outstripped by the cost of staying.

Today’s manufacturers of both code and clothes move from one nation to the next. During the industrial revolution in the early 19th century, the United States was the outsourcers mecca. While that has shifted here at home, the fertile “next frontier” for outsourcing opportunities are diminishing as the rising tide of economic growth moves across the world.

This wave of outsourcing is creating more of an economic benefit to emerging economies, but the inexpensive labor opportunities for large corporations looking to outsource will continue to diminish in the years ahead as we run out of proverbial “frontier.”

The Future of Automation

If automation does inevitably take over our workforce, the opportunity to fix and provide support to robotics, blockchain, servers and the ancillary services surrounding them are likely to be vast.

There are also areas that automation and machines are likely going to be difficult to fully touch. Home cleaning services, nannies and other B2C services industries that have a great deal of stock in human-to-human contact will remain existent for many years to come, even if the cars that drive them eventually become autonomous.

I personally side with those who believe automation will produce more jobs, not less.

Conclusion

There will no doubt be winners and losers on the frontier of both automation and outsourcing, but there is no doubt that the promise of automation may have less of a disjointed disruption effect than what prognosticators predict. Outsourcing, in its own turn, will continue to provide outsized returns for companies looking to save on costs. However, over time, there is no doubt such returns will continue to ebb as outsources truly run out of veritable frontier from which to source newer, cheaper labor. But, most compelling on both fronts is the potential for lower prices and greater time spent in leisure.

So, the next time you see an article that shows how video is going to somehow kill the radio star, remember many more video stars were created by video than were ever annihilated in radio.

Nate Nead

Nate Nead is the CEO of SEO.co, a full-service SEO company. For over a decade Nate had provided strategic guidance on scaling organic website traffic for some of the most well-known online brands. He and his team advise Fortune 500 and SMB clients on keyword research, link building, content marketing and paid online promotion. Nate and his team are based in Seattle, Washington and West Palm Beach, Florida.

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