Outsourcing

On a lazy Sunday afternoon today, I was reading Business week and came across an article titled "Private Equity vs China".
Click on the link below to view the article
Private Equity vs China

It was of definite interest to a person like me. Recently, in the US presidential race, there has been a hue and cry over the H1B quota, allegedly misused by Indian software giants. In the last 5 years, Indian IT companies have grown tremendously when so many H1B visas have been issued. Its election time now and also a time to create some issues and debate about them in a run for presidential post. Its really surprising to see such a thing happening in the US politics too. Till now, I had only seen similar incidents taking place in India.

Now coming back to the article I was referring to in the beginning. This article talks about how US Private Equity investment firms, who have invested in paper manufacturing companies have filed a complaint against Chinese. And, recently US commerce secretary announced the anti subsidy law against such Chinese companies. (I will encourage you to click on the above link and get a better background.)

This article is a classic case of political influence of the US companies to the extent of modifying a trade regulation. A private group owner,who was also a treasurer secretary of the president, claimed that he did not represent the group when lobbying for the trade sanctions. This claim does not only seems to be untrue but also very ridiculous.

Why should the US companies or even people who represent the government worry and care about how Chinese govt encourages low interest loans and has debt forgiveness for Chinese companies. That is completely out of the control of American companies and should not be a matter of debate or concern for them.In fact, Chinese government may go to any extent to boost its country's exports. The claim of a lack of level playing field for American and Chinese companies seems to be meaningless since it is like comparing Apples and Oranges. Even without measures such as debt forgiveness and low interest loans, the US companies may not be able to match the Chinese companies in their profit margins.

The claim of US companies about rising unemployment and their presence in low income geographical areas has some substance (in the article). This is a bigger question which is not only particular to such paper manufacturers but also for all US companies hit by the outsourcing wave. Also this is a long standing question which the US govt needs to address. At one end, the govt wants to keep the costs of the consumer goods low to make them available at cheaper prices to all sections of the society. It also wants to boost the consumer retail market by doing that.And at the other end, it has bigger challenges like rising unemployment and protests by American companies, which it has to face. This trend might have started from the time the Japanese auto manufacturers entered the US markets in eighties. But it seems to have peaked now with Chinese companies showing their presence in almost all types of manufactured retail goods and Indian companies in the services sector. It seems to be a question of balance which the US govt may want to strike, but doesn't seem to have given much of a serious thought till now. Lets assume that the US govt stops outsourcing completely. In that case,wouldn't the American consumer complain about high prices for something which is locally manufactured. And with the ongoing offshoring wave rising high, what happens to the non graduated people of America who are losing their jobs steadily because such (sometimes non intellectual) jobs are getting offshored to India and China. How will the govt strike this balance ? Or maybe a more pertinent question is, will the govt want to strike it at all ?