The diminishing returns of outsourcing and the error of automation

No clickbait compares to a veiled threat like, "These XX industries are the most threatened with annihilation by [insert latest technological advance or cheap labor country here]. "

It remains in the incentive structure of companies, especially public companies, to create systems, processes and salaries that drastically reduce costs in order to strengthen net cash flow. Unfortunately, this short-sighted approach is not only misleading when it comes to net-net long-term viability, it can often be just plain wrong.

Plus, today's tech prognosticators love to use technological growth 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 for 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 mistake to justify the eventual need to implement Universal Basic Income (UBI). Other AI experts have also expressed their opinion on replacing 40% of jobs in less than 15 years once artificial intelligence takes root.

Automation and Outsourcing are not catch-all solutions

In truth, we are probably further from the complete erasure of the workforce than many experts claim. Also, the ability to remove human redundancy, at least when it comes to automation and outsourcing, is less likely in some areas than in others. Yes, transportation – a massive part of most economies – will be shaken up in a big way, but what about other traditionally blue-collar jobs? I don't see plumbers, painters and electricians being replaced by robots any time soon. In addition, highly technical work, like code and online content consumed by humans, is probably even better produced by humans, at least for the fairly foreseeable future.

Although somewhat siled and short-sighted, our internal data speaks the same way. For example, around 38% of our link building clients are white label SEO agency partners. This highlights the following apparent needs, at least in the content marketing community:

  • Quality is paramount for price, especially when long term durability is desired. Short-termism often spawns a push for substandard work to save a dime. This is especially true for highly technical tasks or tasks where the outcome is critical. An example is the complete outsourcing of a child's education. Daycare can only permeate the outcome you want to an extent.
  • The ladder requires resources. If you want to grow a business, you need to achieve critical mass in terms of resources and people. Businesses without resources are more inclined to outsource and more likely to automate. This gives them the flexibility of not having to hire full time, but to keep expenses flexible – a perfect and beneficial example of the odd job economy.
  • Speed ​​of delivery often requires more resources than could be immediately available in-house. Speed ​​can lead to outsourcing.
  • Experts cannot all be housed in one company. Outsourcing allows small businesses to tap into the expertise of individual consultants whose services would cost significantly more than full-time staff.

In short, if automation and outsourcing, while beneficial, cannot solve all the problems related to cost, quality and speed. In fact, an organizational assessment of internal and external costs (to determine net-net more effectively) will be required in each case where such solutions can 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 not a mind reader, but would dare your answer would be 'China'. What about "outsourced software development"? My next hypothesis: "India".

Most would say that the rising tide floating on all boats has a much larger net impact, the trend towards greed and corporate profits shifts investment to other areas. It’s not just the trade war that is shifting Chinese manufacturing to countries like Vietnam. Thanks to already rising Chinese wages and manufacturing costs, the handwriting was already on the wall, the trade war was simply acting more like a premature catalyst.

When it comes to outsourcing tasks 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 are most essential to the customer experience. Two viable examples that come to mind are telemarketing outsourcing and online content production.

When I say telemarketing, I'm not talking about the support staff you might encounter in India or the Philippines when calling Microsoft or American Express. No, I am referring to outgoing callers, who can sell a particular product or service. In high volumes, even the blind squirrel picks up a nut every now and then. However, when it comes to having the greatest impact in the shortest timeframe, someone with the same culture, accent, and communication style is often still.

Second, content production is also an area that can be outsourced, but probably not offshored cheaply. What types of content? Long-running blogs, articles written on high-authority publications, podcasts, and commercial-style YouTube videos are all areas that can be easily outsourced, but should never be outsourced. These types of customer-oriented content experiences should reflect the culture and style of the desired country in question. In our case, US businesses are best served by outsourcing their content work, but are more likely to experience massive customer default when attempting to outsource them.

The present and future of outsourcing

As industrialized countries got cheaper wages abroad, they saw a greatly diminished initial return on investment, as wages always tend to increase over time. The trend usually continues until the cost of moving to the next low-wage environment is outweighed by the cost of staying.

Today's code and clothing manufacturers are moving from country to country. During the industrial revolution at the beginning of the 19e century, the United States was the Mecca of subcontractors. While that has changed here, with us, the fertile 'next frontier' for outsourcing opportunities diminishes as the rising tide of economic growth moves across the globe.

This wave of outsourcing is creating more economic benefits for emerging economies, but the opportunities for cheap labor for large companies looking to outsource will continue to decline in the years to come. come when we run out of the proverbial “frontier”.

The Future of Automation

If automation inevitably takes over our workforce, the ability to repair and provide support for robotics, blockchain, servers, and ancillary services around them will likely be vast.

There are also areas where automation and machines are likely to be difficult to hit. Home cleaning services, nannies, and other B2C service industries that have a lot of human-to-human contact inventory will remain around for many years to come, even if the cars that drive them eventually become self-sufficient.

Personally, I am on the side of those who think automation will create more jobs, not fewer.


There will undoubtedly be winners and losers on the frontier of automation and outsourcing, but there is no doubt that the promise of automation can have less of a disruptive effect. disjoint than predicted by prognosticators. Outsourcing, in turn, will continue to deliver outsized returns to companies looking to cut costs. However, over time, there is no doubt that these yields will continue to decline, as contractors will really run out of real borders of where to find newer and cheaper labor. But most compelling on both fronts is the potential for lower prices and more time spent on leisure.

So, the next time you see an article that shows how the video will somehow kill the radio star, remember that many more video stars have been video created than ever annihilated on radio.

Nate nead

Nate Nead is CEO and Managing Member of Nead, LLC, a consulting firm that provides strategic consulting services across multiple disciplines including finance, marketing, and software development. For over a decade, Nate has provided strategic advice on mergers and acquisitions, capital purchases, technology, and marketing solutions for some of the most well-known online brands. He and his team advise Fortune 500 and SMB clients. The team is based in Seattle, Washington; El Paso, Texas and West Palm Beach, Florida.