Outsourcing is not always beautiful – the WTO column

(later at Chinabiz)

Hamburg, Germany - For decades the gospel of outsourcing has been a mantra for business management especially since international competition, notable from Japan, forced Western companies to rethink their then-outdated business concepts in the 1970s and later. Stubborn conglomerates had to source out non-core business to specialized suppliers and service providers. Some of those conglomerates did so successfully and still flourish; others did not and often went under.

Moving around in the old country I have started to wonder whether the concept of outsourcing – as a solution for many management problems – has the same validity it had three, four decades ago. Let’s go shortly go over three recent examples.

Last week a wildcat strike crippled British Airways, caused by the dismissal of hundreds of catering workers by a privatized company that previously was part of BA. Initially the conflict - trigged off by a cost-cutting operation - was blamed to some old-style solidarity between workers of an old company that was on the way out. But an interesting other relationship between the fired catering workers and the striking BA-workers emerged later from the media. The sacked and striking workers were if not directly related, at least belonging to the same Indian communities in London. Both companies were legally separated, but that did not mean anything for people bonded by other, stronger relationships.

When I moved this week into the five-star Treudelberg Marriot Hotel in Hamburg I could not get online, despite paying a hefty fee for an internet service. Desperate hotel staff told me they had to outsource the online operation to an outside company so customers would get the same service in all Marriot hotels. After half a day of talking to hotel staff and in the end talking to staff of the internet operator directly there was an easy solution for my connection problem: I just had to switch off my firewalls. Local staff agreed with my analysis: their customers would be better off and the hotel would make more money in the long run by offering a free local access service, but then they could not make that kind of decisions that looked so very obvious.

When Ebay bought the successful Chinese internet auction house Eachnet they made a good bet. Eachnet was doing very well. Then they decided to get rid of the local people that had made the company a success in China. They changed a winning name and started to expand Ebay in China American-style using TV-commercials and management techniques. Alibaba’s Taobao from Hangzhou passed Ebay in popularity because they knew how to deal with a domestic audience and build up a good relationship with Chinese customers, different from the American way of addressing anonymous masses with little relations between each other. Now Yahoo has spent one billions US-dollars to buy Taobao. They are of course in the same position: they can destroy a good company by dictating international strategies from their headquarters.

What all three examples have in common is a profound lack of interest in what is happening in the markets on a local level. Global strategies can steamroller people who have a profound insight in local markets for the grace of outsourcing and other large management techniques. Not listening to your customers and your employees is very dangerous in China, but not only there. If China has anything to offer to international business it is a talent of combining different interests, without a centralized command at the top. It does not make an operation efficient, sometimes even close to anarchy, but might in selected cases be more profitable than sticking to business strategies that do not work.

Fons Tuinstra