A couple weeks ago I mentioned that Target laid off 475 employees, or nearly 4% of it’s corporate work force. This hit close to home for me as I have a number of friends and family members that work for Target at their corporate headquarters, as well as at various positions at Target stores. Target heavily recruits at colleges in the Twin Cities metro area and has long been known as a great place for finance, operations, and marketing professionals.
Most news stories focused on how lower-than expected holiday sales – caused in part because of the recent security failure – drove the company to take drastic measures to lower overhead, namely layoffs. What was buried in this story was that some of the jobs would be replaced by workers in India as well as some temporary contractor positions.
The same technological advances that allow people to work from anywhere in the world also are making it easier for companies to outsource jobs overseas. A quote I heard recently was “if it can be done from home, it can be done from India.” While this obviously isn’t 100% true, it does have some truth to it. And the worst part of it? Most jobs that are done in a cubicle these days can be done remotely if needed.
A Case Study: Senior Accountant
I’m a senior accountant and I work with people in India on a weekly – and sometimes daily – basis. I know others in business who have had similar experiences. Outsourcing isn’t as easy as giving someone in India a list of tasks, but that typically doesn’t deter companies from pursuing it as a cost-savings method. After you see the below example you might understand why.
According to PayScale.com the median salary for a senior accountant in the United States is $61,821.
Now let’s look at the equivalent in India. According to Payscale.com, the median salary for a senior accountant in India is Rs 247,433. That might not mean much to you, but if you convert it to US Dollars it’s just under $4,000 USD.
That number may be slightly shocking if you haven’t looked into these comparisons before.
In other words, for every senior accountant job that is outsourced from the United States to India a company can expect to save approximately $58,000 USD. Outsource a whole department of accountants, managers and a director or two and you could easily approach a million dollars in savings.
Think accounting is the only area that’s safe? Think again.
I did a similar comparison for an Oracle Database Administrator (DBA). The median pay of an Oracle DBA in the United States is $92,000 while in India it’s Rs 411,741, or $6,600. An outsourced Oracle DBA could save a company $85,400.
What does this mean for the American work force?
While these numbers may be shocking it doesn’t mean we need to panic just yet. The American work force and others that demand high pay relative to their Indian counterparts are generally good at reacting to change. Sure, it may take something major like mass outsourcing to spring people into action, but there are opportunities to thrive in this new economic reality.
As I’ve mentioned in the past, people who do jobs that require them to be physically present are very difficult – if not impossible – to outsource. Whether it’s a trade skill like a plumber or electrician, or a different job like a realtor or psychologist that requires the worker to be physically present, there are jobs that will not be outsourced. These jobs may vary in quality, security, and desirability, but they do exist.
Second, I think there is a huge opportunity for small business owners, sole proprietors, and others to capitalize on outsourcing. For example, I run Young Adult Money as one of my ‘side hustles.’ I work full-time in a corporate finance job and run this website early in the morning, in the evenings, and on the weekends. This has required me to outsource some things, such as writers. While both my writers are from the United States I’ve started to look abroad for a virtual assistant. Why? Because I can get one for around $4 an hour in the Philippines when it would cost me closer to $20 an hour here in the United States.
Having inexpensive options will help me grow my website faster and free up more of my time for other pursuits. While it does mean one less job here, it also will mean more money in my bank account that I will spend on products and services in the United States.
There are also many jobs that can be “done from anywhere” that people would prefer to have done by someone they can physically meet with. I ended up hiring a blog designer who lives in the same city as me and it was nice to be able to sit down for a couple hours at Caribou and go over the things I’m looking for in my redesign. I wasn’t opposed to outsourcing to someone who I will never physically meet, but there is a social capital aspect that creates true value for companies and will keep many jobs in the United States versus abroad.
____________________________
Regardless of what your job currently is or what your career plan is, you have to take into consideration things like outsourcing. The market constantly demands lower prices for products and services, and lowering overhead by employing people in places like India as opposed to the United States is one way they can provide those lower prices.
Additionally I would encourage considering what you will do if your job is downsized and it becomes more competitive for jobs in your career field.
What are your thoughts on outsourcing? Have you seen it in your company or career field? Do you think it will increase over time or are people drawing conclusions without seeing it’s effectiveness?
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Photo by Mark Hillary
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I have seen this over and over again with my job as systems implementation consultant. Each of the three projects I’ve been on thus far have leveraged teams offshore. Currently, we utilize a massive team in the Philippines. Just because a lot of people believe manufacturing jobs are coming back onshore does not mean that other jobs (Accounting, IT, etc.) are not being increasingly outsourced.
decisivedollar Thanks for sharing your insight and experience. I definitely think some people are unaware of the outsourcing that is going on and what types of jobs are being moved overseas.
My husband’s job as mortician is yet another one that would be impossible to outsource. It isn’t a perfect career but it does provide a lot of stability.
Holly at ClubThrifty Great example, Holly! Morticians are 100% safe as far as outsourcing goes.
Technology is definitely a double-edged sword. My dad thinks that our income inequality is largely driven by advances in technology and will only continue to get wider largely because of the efficiencies it provides the people at the top and the way it makes the people at the bottom more dispensable. On the one hand it’s opening up a ton of opportunities for people to do things that were typically out of reach. On the other hand it’s causing a lot of people to see their jobs go away.
Matt @ Mom and Dad Money It would be interesting to read up on some of the research around income inequality and outsourcing. I think there are multiple variables that come into play there. While lower-earning employees become more dispensible or even more so replaceable, there is also the fact that outsourcing has brought down the cost of many products and made them much more affordable than 10, 20, 30 years ago.
Many think that it is difficult to outsource jobs in the legal field, which is for the most part true. You can’t be a trial attorney via Skype or something like that. But I think they’ve tried to outsource some of the document review stuff out to India. I work in government so I don’t think they can outsource to other countries. I do see this trend increasing in the future. That’s just the nature of business…they’re looking at the bottom line and outsourcing often cuts costs.
Andrew LivingRichCheaply Great point about document review, and that makes sense. I think lawyers, compared to other professions, will be safe for decades to come.
Working as an accountant I see a lot of outsourcing as well. At my last job we had two huge operations in India. It was nice because when we were done working at 5pm or 9pm or midnight (aahhh!!!) the employees in India would be starting their mornings and could pick up the work where we left off. Some projects would be worked on for close to 24 hours a day. However, it isn’t a perfect business model. It’s not easy to manage and utilize a global workforce.
BudgetforMore We have offshore support at our work and they often start working a few hours after people in the US leave. This has it’s benefits but also it’s drawbacks. Since the work they are taking is work that used to be done during our business hours, there can be a scramble to get things to them and have them get things done before they leave.
I used to work for corporate America, and I saw a number of people in their early to late 50s get laid off (because they had an operations job that moved abroad) and they had no other marketable skills or prospects. It is scary and one of the reasons I went into business for myself. I would rather have 50 bosses (i.e. my clients) than one who could determine my livelihood.
blonde_finance That’s definitely an advantage of owning your own business. You can capitalize on trends instead of fall victim to them.
So many companies are doing this now. It has become the norm really.
Raquel@Practical Cents With the potential cost savings it’s easy to see why it’s becoming the norm. Employees in the United States need to adjust to these changes and show they can be innovative and provide value that makes their salaries justifiable.
Outsourcing is good and bad. I see it both ways. You should never think your job is safe if you work mainly with computers. That job can be picked up and moved very quickly.
DebtRoundUp As Matt said below, it really is a “double-edged sword.” It can both be beneficial to businesses and the economy as a whole but also can have a negative impact at an individual level.
Trade workers like plumbers and carpenters and pull nearly six figures here. Companies outsource even within America, thus the rise of freelance work. Think writers, programmers and consultants. If there continues to be major data breaches you can see outsourcing reverse back here much like manufacturing.
Charles@gettingarichlife I think it depends on the nature of the data breach. If it’s not directly related to outsourcing I imagine that companies will simply spend more and more on security. That sort of work requires a lot of specialized knowledge, which is difficult to outsource regardless.
Interesting article DC. I once read that American workers are so much more productive and delivers results at such a better rate that they are worth the extra salary. This was a few years ago when I was working towards my MBA, not sure if it did (or still does) hold any weight. Curious if you ran across that aspect of outsourcing when researching this article?
Kyle James Wow I’m shocked they would make that argument, mainly because you could have 15 accountants in India for the price of 1 in the United States. From what I’ve experienced at most it would be a 1 to 2 ratio where it takes two outsourced employees to do the work of one. I’d be curious to see some hard research on the topic.
Wow, the differences are alarming. I didn’t realize HOW low the salaries were abroad. I’ve never been to India, but I did spend two months working in the Philippines. I was making $450 a week and living like a queen. It was kind of awesome.
brokeandbeau Yeah $450 can go a LONG way in the Philippines! But it really is an alarming difference in salaries, which is why it’s probably not talked about that often.
Yes, outsourcing can be a double-edged sword. It’s hard because it some ways we all benefit from it .. until it hurts us with a job less or maybe having to deal with one of those call centers (although in absolute fairness some US based call centers really are no better!). We’ve grown to accept call centers based in India but it will be interesting to see as more white collar jobs get outsourced how we respond then. Technology has truly made us a global community, for good and bad.
I’m fine with outsourcing as a practice and, personally, I am not particularly afraid of a little competition. I have worked at a company that laid off our entire division, made everyone apply for their own (or new) jobs again, and outsourced a large portion of the roles overseas. It was a mini-nightmare. While people overseas are intelligent and very competent, the process of actually outsourcing roles and responsibilities is not as simple as giving a list of tasks to someone abroad. Companies want the savings but, typically, are not savvy enough to properly transition from a US labor force to a foreign one. Many outsourcing endeavors end up being insourced again as a result.
On your topic though, I think the possibility of outsourcing is a great reminder that we need to provide exceptional value to our employers. We are clearly some of the most expensive talent in the world. We have to deliver on that high cost.
When there is that much of a cost savings, you certainly can’t blame a business for outsourcing. I’m not immediately concerned about my own field but it is definitely something to consider especially for younger Americans, like my son. What will the workforce look like when he is entering it in 20 years? It’s hard to say.