Arnold Kling  

Outsourcing = Economic Activity

PRINT
Higher Education Lobby... Wages Move Toward Equilibrium...

The Economist writes,


SO YOU want to withdraw cash from your bank account? Do it yourself. Want to install a broadband internet connection? Do it yourself. Need a boarding card issued for your flight? Do it yourself...

Many people complain about companies outsourcing work to low-wage economies: but how many notice that firms are increasingly outsourcing work to their own customers?


Thanks to Michael Stastny for the pointer.

On the other hand, Glenn Reynolds quotes Virginia Postrel.


"As incomes go up, Americans spend a greater proportion on intangibles and relatively less on goods. One result is more new jobs in hotels, health clubs and hospitals, and fewer in factories.

"In 1959, Americans spent about 40 percent of their incomes on services, compared with 58 percent in 2000. That figure understates the trend, because in many cases goods and services come bundled together."


The service sector is growing, because consumers are outsourcing some activities (such as meal preparation and cleanup). At the same time, businesses are outsourcing other tasks to their customers.

It is interesting to note that in heavily regulated industries, such as medicine, little outsourcing takes place. Thus, if one of our children has what appears to be strep throat, we cannot self-diagnose and self-prescribe. Meanwhile, I would not hold my breath waiting for a health insurance company to compete for business based on offering consumers a "good experience" dealing with their rules and forms.

In chapter 30 of Learning Economics, I write,


a good way to attain clarity in discussing the issue of outsourcing is to substitute the phrase "economic activity" for outsourcing

For Discussion. Why do computer-related businesses try to outsource technical support to their customers, and what alternatives should they consider?



TRACKBACKS (2 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/122
The author at Mahalanobis in a related article titled Japan takes self-service to a whole new level writes:
    The Economist's Technology Quarterly supplement last week had an article about how more and more companies are "outsourcing" tasks to... their customers. The article caught the attention of Michael as well as others, and I think it's a useful analogy f... [Tracked on October 4, 2004 8:05 PM]
The author at The Raw Prawn in a related article titled Japan takes self-service to a whole new level writes:
    Fast Company Now brings us some great examples of just how far vending machines can go. As is commonly the case, a look at everyone's favorite tech-crazy country (Japan) demonstrates where the rest of us may be in a few years. [Tracked on October 9, 2004 2:08 AM]
COMMENTS (6 to date)
Brad Hutchings writes:

I sense that the club vs. silo hammer sees this as a nail. But this is all about costs that vary greatly from customer to customer. If there were a magic way to have the necessary support staff available to handle the support load at all times and simultaneously, to effectively charge per-incident support and on top of all that, not end up with a situation where support is underutilized to a point where it hurts sales... that would be the answer.

This question really hits close to home this week!!

shamus writes:

Computer-related companies view technical support as an avoidable expense. They should consider making products that are more reliable.

Bill Fellers writes:

Am I an evil job-destroyer for providing tech support for my friends and family for free? If software companies make more reliable programs, many jobs would be lost. Does that make them evil job-destroyers? Are all relatively self-sufficient people destroyers of jobs? Autodidacts must be very anti-social, since they learn without paying teachers and often perform functions that others would have to hire someone else to do.

Without the absurd ideas thought up by my fellow human beings, my life would be much less complicated, but also much more boring.

Mcwop writes:
Why do computer-related businesses try to outsource technical support to their customers, and what alternatives should they consider?

Because many charge extra for that service. Do it yourself, or buy the extra tech support.

Dave Schuler writes:

We need to distinguish between outsourcing and off-shore outsourcing AKA off-shoring. Every company does some outsourcing—it's a good thing, economically efficient. Not all that many companies have their own in-house legal department, for example. They outsource legal services.

Off-shoring technical support services is fine if it leads to equivalent or better technical support services at a lower cost. If not it's very imprudent and that's what happened at Dell, IIRC.

It's even more imprudent when a company like a software company or pretty much any technology company that is dependent on intellectual property for its livelihood off-shores the creation of that intellectual property especially to countries where intellectual property laws are less-protective than ours, poorly enforced, or non-existent. The notion that a company is only off-shoring "junior engineer" positions is intellectually bankrupt. Where do they think "senior engineers" come from? Spring full-grown from the forehead of Zeus?

It is interesting to note that in heavily regulated industries, such as medicine, little outsourcing takes place.

You're conflating outsourcing and off-shoring. Practically all medical services are outsourced. Who has an in-house doctor or nurse these days? Except hospitals or doctors I mean.

My own feeling is that we should very seriously consider relaxing the prohibitions against telemedicine. Retaining the prohibitions on telemedicine could perhaps be exchanged for strict self-imposed wage controls on physicians.

Jeff Evans writes:

Why? Because the profit margin is so low one tech support call eliminates profit, and two calls causes a loss.

Comments for this entry have been closed
Return to top