I wasn’t going to write this article.
I was comfortable with my stance on outsourcing, comfortable enough to recommend it and promote products, and profit from the affiliate commissions, from people who use the catch-call of $2-per-hour labor and the phrase – “they do the work, you get the money“.
I’ve begun the process of outsourcing to the Philippines. We’re currently running tests to find a good graphics person, then next up will be a coder, a VA and so on until I have a solid team of talented people, all of whom will cost under $1600 a month total to employ full time. I can’t even hire ONE Australian full time on that kind of money, let alone an entire team.
I decided to write this article and highlight this issue because it bothers me. The people who emailed me to explain that outsourcing bothered them and that I contributed to the problem by promoting the idea, are to be credited for this article as well. A friend who challenged me, who pushed me to look very closely at my attitude towards outsourcing and the bigger picture, is also due credit for pushing me to shine a light on the issue and change how I outsource.
Sometimes You Need To Challenge Accepted Practices
If you’re considering outsourcing overseas, or you already do, it’s important you read this article.
Over the last few weeks I wrote several articles on the subject of outsourcing. It’s fairly obvious that I recommended outsourcing as a great way to grow your business or even start a business, and enjoy true leverage through help from other people.
The basic premise behind the type of outsourcing we are talking about here, is hiring people from other countries where labor is comparatively cheaper than hiring from your local country. This is only true if you reside in a country with a strong currency and comparably high average salary, like the USA, Canada, Australia or countries in the European Union. People from wealthy countries outsource to people in poorer countries in Asia and Eastern Europe, where there are plenty of skilled individuals willing to work for a fraction of the cost of hiring locally.
When I first heard about this concept many years ago it sounded like a great opportunity for me as an Australian earning money online in US or Australian dollars. Then, as I grew more exposed to the Internet marketing industry, when people promoted outsourcing, using language like “you can hire people for $2 an hour” something bothered me. I didn’t understand how people could be paid only $2 an hour and that not be considered slave labor. I started to wonder if this was a form of exploitation.
During John Reese’s Outsource Force launch campaign, which I promoted in my last few blog posts, John released a video which used the phrase “$2 an hour” as part of the benefit of outsourcing. This, at least to a business person thinking about reducing costs and increasing profits, is a selling point and well worth promoting as a good thing.
My readers are a varied bunch of people who come from all walks of life, with all kinds of opinions, which is wonderful because you provide me with different perspectives on what I write about. In response to some of the emails I sent out promoting John’s launch, I received a handful of messages from people upset that I was supporting what they viewed as exploitation, especially around the concept of $2 an hour labor.
While sometimes I receive negative feedback in response to my writing, it’s not often that I feel a need to write a post to respond to an issue. This time, I do – and it’s because on some level I actually agree with the negative feedback, which tells me that it needs more open discussion.
What Do People Think About Outsourcing?
I’ve interviewed internet marketers many times where the subject of outsourcing has come up. It’s such a common subject, because nearly all successful internet businesses use outsourcing in some way. In fact, outsourcing is often at the heart of the success of online business because of the leverage available from cheap labor, and the ease of access to it thanks to the digital age.
Recall the interview I did with Adam Short from Niche Profit Classroom, where he explained how he uses overseas outsourcers to build his niche websites and earn as much as $90,000 a month in income. During the call I asked Adam to justify his use of outsourcing given the claim that it could be viewed as exploitation. He explained his argument, which I came to see as a reasonable point of view, because it is based on helping people in other countries, not taking advantage of them.
More recently I interviewed John Jonas, who specializes in outsourcing to the Philippines. Due to the negative feedback I had received about the idea of outsourcing in the past, I specifically challenged John during this interview to explain his take on the exploitation issue. He had the same argument as Adam, which as you will hear in the recording with Jonas, I agreed with and supported.
When my business partner Gideon Shalwick recently hired a full time Filipino at around $400 US a month, I had a long discussion with him about why it is okay to do this and why it is not exploitation. Just a couple of days ago as I write this article, I talked to Gideon again and asked him to reiterate his stance once more. We talked for almost an hour about the subject, and agreed that the situation is not ideal, but on an individual basis, we are helping the people we outsource to.
I also asked my assistant Angela for her take, which turned out to be interesting as she had been discussing it with her husband, who had a view that I should hire locally to support Australia.
I spoke to some of my other friends to get their opinion on the issue. I also have the feedback emails I’ve received from people in response to my recent articles and emails about outsourcing, as well as feedback in the form of blog comments, including comments from several Filipinos, who explain what it is like being an outsourcer living in their country.
My conclusion after all of this is that I don’t actually have one that sits comfortably with me 100%.
Clearly the issue is not black and white, however I have decided to make a change, and I’ll explain why now.
When Is Outsourcing Bad? When Is It Good?
Before I talk about what I am going to do differently, it’s a good idea to lay out some of the biggest complaints people have about outsourcing overseas, so we know what we are dealing with and really take a deeper look at this issue.
I’ll also explain the common justification that most marketers use today to reason why outsourcing to cheap labor is okay, which you might explain as the good outcomes as a result of outsourcing.
Let’s begin the with the arguments against it…
- Outsourcing overseas means you are not hiring locally, which results in fewer jobs, or even lost jobs in your country.
- Outsourcing results in a flow of cash out of your country into another, potentially having a detrimental impact on your economy, causing local businesses, who employ locally, to lose business to cheaper overseas groups, and possibly even close up shop completely.
- Paying $2 an hour (or similar) is slave labor, even if workers are happy with their pay. People should be paid a fair wage based on the benefit you gain from them, not what the fair wage is based on the standards in their economy.
- If people work for you at pennies on the dollar, and you reap massive profits because of that – in other words, they do the work and you keep the money – it’s simply not fair. Why should one group do most of the work for enough money to survive, while another group becomes stinking rich?
We have two major issues at play. There is nationalism and the sense of separation of peoples based on geographical borders (the “us” versus “them” mentality). This is a belief that if you give to one nation (in this case hire people overseas), you are causing a loss to another nation (your country, because you don’t hire locally).
The other issue is fair pay for fair work, which is subjective. There are benchmarks and standards prevalent in every country, although that doesn’t mean it’s simple to know exactly what is “fair pay”.
One of the emails I sent out promoting Outsource Force talked about how I am looking to hire two Filipinos at a rate of around $300 to $500 a month for full time work. Later in that same email I wrote that I am offering half hour consultations, which I valued at $500, as a bonus for buying through my affiliate link.
Why is my time worth $500 for 30 minutes and someone in the Philippines worth $300 a MONTH?
You might claim that my time is more valuable because of my knowledge and position. It’s the same argument as to why a CEO of a company gets paid so much more than a mail boy in that same company.
(There’s an argument to say that pay scales are out of whack in Western countries too. Why does a professional athlete in certain sports earn so much more than a nurse or a teacher? But that’s a discussion for another day…)
To put it simply, we “value” certain roles greater than other roles. Sometimes this is justified due to the nature of the role requiring specialized knowledge, which could take years of study and practice to accumulate, or the responsibility for outcomes in that role is perceived as significant, thus due significant remuneration. Other times it’s the value society as a whole has decided to let something have, even if the justification might seem out of whack.
We often accept things, even if we don’t like them, because we don’t have the impetus to change them – there are other things in our lives we choose to focus on instead. It’s much easier to complain about something, than actually do something to change it.
So how can outsourcing overseas, when the pay rate seems so terribly small compared to the amount of time put in by the worker, be considered fair?
Even though $300 USD a month may not seem like much to someone living in a developed country, in Thailand, or Romania, the Philippines, or India, it’s above the average monthly wage. Sometimes as much as three times the average wage in that country, meaning this person is actually very well off when compared to others in their country.
That money affords the worker a quality lifestyle in their homeland. It may even provide enough money for them to support their family, which no one is going to argue is a bad thing. Throw in a few bonuses, some extra incentives for good work, and you have a situation where you feel like you are empowering someone and saving them from a situation where they might otherwise be earning half that money doing something like washing dishes.
That’s great right? You can’t argue against improving the quality of someone’s life, and in exchange you get a hard worker for your company?
In isolation, no, I don’t think you can argue there is anything wrong with helping people in a relationship where everyone benefits. The problem – which could be perceived as a moral one – comes from a situation where the value one person derives from the transaction is so much more than what the other person does. Of course, again we have the challenge of deciding how to “value” value – it’s different to everyone and a completely intrinsic judgment.
If $2 pays for a fantastic meal in Thailand, and the same meal costs $50 in Australia, yet the people who consume the meal all experience the same level of value – the satisfaction from a good meal – what’s the difference?
It’s also important to consider what people value. In Western culture we value “things” and focus on accumulation of material possessions as a means to feel good about ourselves, even if it is only a temporary satisfaction. In other cultures family, or community or faith are more important, and if your basic needs are met, there is no need to earn more money, it won’t result in any more happiness, and thus some people choose not to go after more money simply for the sake of material wealth.
However all of this assumes basic needs are being met, and in most countries where outsourcing takes place it is safe to say they are not – there is work still to be done to bring these countries up to developed standards.
Exploitation Or Just A Better Use Of Resources?
My friend Chris, when I asked for his opinion on outsourcing and whether it is exploitation, agreed with the topic definitely being a very “grey” issue, and came to this conclusion…
He views outsourcing not as exploitation, since the workers feel a benefit from their employment and are happy to do the work for what they are paid, however the business or person who does the outsourcing is taking advantage of a situation – a situation of inequality.
If you ask people who own businesses and outsource, would they pay what is considered an average wage in their country to get the same job done as they currently pay at much cheaper rates to someone overseas, they will probably say no, they won’t. You can’t afford to pay $4,000 a month to a local graphic designer for your business, so you don’t hire anyone, but you can afford $400 a month to an overseas outsourcer, in which case you do employ someone. In this scenario, at least someone gets a full time job, and your company grows quicker, allowing you to employ more people.
Let’s not forget, there’s nothing stopping an entrepreneur from the Philippines also hiring cheap labor from the Philippines (or India, or the Ukraine, etc) and reaping huge profits selling in American dollars on the Internet to a global audience, including Americans. Anyone with access to the Web has the same opportunity, it’s just what you do with it that counts, right?
Well sort of.
For many reasons, very likely due to the education system, values, culture, infrastructure, standards of living, and the economic and political environment, it’s much more likely that a person from a rich western country will start a business and outsource. People in third world countries face greater inherent challenges, and may simply not see entrepreneurship as an option to them. They don’t have the awareness of the opportunity on the same scale as people do in Western cultures and face more barriers to entry.
Here’s How I See The Problem
I look at it like this: On a micro level, outsourcing is helping the individual and those around him or her. It improves their lives, which is great.
On a macro level however, what we are looking at is one group of people who live in a richer country taking advantage of a situation that exists only because another country is poorer. On a macro level, the inequality is obvious – that’s why we have the label “third world country”. This means the standards of living are not the same, and we should be doing everything we can to ensure all human beings on this planet have basic standards like food, shelter and health.
This begs the question – does outsourcing help a country move away from third world status and raise the standards for everyone in that country?
I think the answer is yes it does, but it’s terribly slow.
I like using a projection based on what you might call a utopia of wage equality and financial opportunity, which could arise as a result of movements like outsourcing (others might call this globalization, but I think that label is difficult to interpret – it means different things to different people).
If enough money flows from one country into another, then the country receiving the money becomes wealthier. As it becomes wealthier the value of its currency becomes stronger and wages increase, thus outsourcing becomes less viable because it’s no longer “cheap labor” – it starts to move towards parity with developed countries.
The natural outcome as a result of this is for businesses to look for other countries where labor is still cheap. Eventually, given enough time, and believing in a world of abundance rather than scarcity, it’s possible to conceive that this process will help to equalize all nations, create a global currency of equal value and a global standard of wages regardless of what country you are located in.
This outcome may be a pipe dream, or even if it is not, we are not going to get there quickly.
The big fat reason for why this is?
Greed.
If people and companies prefer to hoard profits, which don’t forget is the purpose of a publicly owned company – to maximize profits for shareholders, most of whom live in developed countries – and this profit is made off the back of transactions based on inequality, like outsourcing to third world countries, then change is slow and one group benefits exceedingly more than the other.
How Can We Speed Up The Process?
The simple solution to this problem is to not be greedy.
That is such an easy statement to write in an article, but such a challenging concept to embrace fully and make part of your life. I’m greedy almost on a daily basis, yet I know I want this to change.
One attitude shift that I think is particularly powerful is to stop looking at the people in other countries as somehow separate from you. An American or Australian is no different from an Indian or a Filipino when it comes to basic human rights.
We are all human, and if the person living next door to you was starving and you have ample food, you’d offer some to them right? So why is this different when it comes to someone living overseas? Does the distance between you and them or the perception of differences based on race or nationality make it easier to discriminate? Yes it does, but it shouldn’t.
If you look at every human being as a member of your family that you care about just as much as you mother or father or sister or brother or daughter or son, then you wouldn’t allow yourself to be greedy while they suffered some kind of basic lack in their lives.
I’m not saying that people in the countries we outsource to are starving (although some are – and developed countries have problems too), but there is certainly an inequality that is not acceptable, especially if you continue to reap massive profits as a result of it, without doing more to give back than just taking advantage of it by paying a “good wage” based on current standards in that economy.
It’s critical that you adopt an attitude of abundance over scarcity. This process is about everyone having enough AND people enjoying wealth in exchange for passionate work. This is viable if you believe there is enough to go around if we learn how to distribute it without greed, or fear of loss.
You have to stop trying to keep up with your peers when it comes to accumulation of material possessions. Stop believing that by having more than what others have you will feel better. Avoid materialism, don’t listen to advertising and never attach your happiness to ownership of products – it’s an illusion that never lasts – you know that already. Understand that giving will make you feel good permanently, not buying things – you can’t fight this, it is part of your nature. Know when enough is enough.
One way to speed up this process is to take it on board as your responsibility to help the third world countries you outsource to, to raise their standards by reinvesting in, and supporting organizations that help people in that country.
The challenge is what proportion of the profits you reap from outsourcing, do you consider fair to return in support when it comes to helping people in other countries?
Some would say that simply choosing to outsource to a specific country is enough help. If a team of three full time outsourcers that cost you $1,000 a month helps you to make $20,000 a month in return, that’s just called good business right? You deserve to keep the profits and of course, your main focus is to make more. Once you make $20,000 a month, you want to get to $50,000, and then a million a year, then ten million and so on. There’s always more money to be made, and thus your profits should be reinvested towards continued growth.
Can you see a problem with this treadmill? There’s no endgame here and eventually the only purpose behind making more money is to make more money. Once you reach a certain amount, adding more millions really doesn’t matter, unless of course you are using it to help those in need.
I know as my truth, if you really drill down to our core motivations, the only real meaning you can derive from your human existence, is through helping and having an impact on others in a positive way.
Ask Yourself This Question
All of this comes down to choice, and your choice is based on your attitude. As you can tell, my own attitude has been in flux in regards to this situation, but deep down I’ve known something hasn’t felt 100% right, which is why I’m writing this article. You may or may not agree with me, that’s okay, but at least discussion is possible – change begins with awareness.
In my case, I’m going to commit to taking a larger chunk of the profits I make in part thanks to outsourcing, to directly support the countries I outsource to. I want to do more than just offer employment to a few people in that country, I want to help the entire population benefit in thanks for the benefits I gain.
The challenge I issue to you is to ask yourself whether, if you are outsourcing to cheap labor, you feel you are doing enough to help others with the profits you make. If you honestly feel good about the situation, that’s fine, keep doing what you are doing. If on the other hand, something is niggling at you, then consider what you are doing to give back.
I realize many reading this might be struggling to get by in the first place, and even finding $300 a month to outsource to just one full time employee is challenging enough. My intention is not to discourage you to outsource. On the contrary, whatever you can do to get yourself more quickly into a situation to help others is a good thing. Outsourcing can help your business grow more quickly, and as we discussed, it does help the people you employ. I haven’t changed my plans to outsource, only how I redistribute what I reap from it.
Just remember when you finally do break through to financial security – and that doesn’t have to mean you are a millionaire – you have the opportunity to support those who support you. If I have helped to plant that seed in you, then writing this article has been worthwhile.
Thanks for reading this to the end, good luck with your outsourcing and your business and don’t forget you always have the option to become part of the solution rather than just complain about the problem.
I value your feedback in particular on this subject, as I am far from in complete knowledge about the situation. If you have something to say, no matter what point of view you have about outsourcing or where you come from, please leave a comment.
Yaro Starak
Deal’n with issues
