Why India?

October 2006

A few weeks back, I had the scary experience of hearing a prominent university economist describe the new world order.

He said that within ten years—maybe sooner—salaries would equalize across the globe. For instance, accountants in the US make around $35K and accountants in India make around $7K. Since both do similar, rules-based jobs, corporations will soon offer American accountants $7K. Why should they pay more when they can get the same service for 1/5 the price?

He went on to say that white-collar workers will experience the pain that manufacturing workers have been feeling for a decade. Our jobs are going to be outsourced in order to preserve profits.

Being an accountant and all, I was not happy to hear this. And we aren’t the only ones about to be equalized! Anyone who just follows a set of rules to do their jobs is in danger.

Why is this happening?

Well, I am no economist. And if you didn’t already know, economists don’t like accountants and accountants don’t understand those freaking graphs that economists like to play with. Too many variables!

An economist would tell you that internet technology, software connectivity, and free trade have leveled the playing field and we Americans are about to be confronted with some serious challenges. (I am currently reading a very good book called The World is Flat by Thomas Friedman that does a very nice job of explaining how fast things are changing since the turn of the century—and it doesn’t have any of those pesky graphs or formulas!)

But, from an accounting point of view, outsourcing to foreign countries is almost a no-brainer. If it is cheaper to manufacture something or service something in India, then an accountant is going to be compelled to do it. Yep, even if it means losing their own job.

And it all boils down to this simple formula:

Revenues less expenses equal profit.

   Revenues
-  expenses
= profit

So how do you get profit up?

The main two ways to increase profit are to

• increase revenues per unit
• decrease expenses

Since many of us operate in competitive situations, raising revenues per unit isn’t an option. Many of us sell products and services that any number of other folks can provide. For instance, why would anyone pay $30 for a pizza when so many good places have pizza for $8? Consumers just won’t tolerate ridiculously high prices, unless your product is seriously differentiated from your competitors.

So you have an option left: To decrease expenses. Accountants are constantly looking over every single line of expense and asking, "Are we doing this as cheaply as we can?" Because every little penny that you can save goes right to that bottom line.

Salaries are often an organization’s largest expense. And if you can save 4/5 of your salary cost, that is going to carry mucho dollars to that bottom line, or allow you to lower your prices and sell more stuff.

When you sell more stuff, you gain market share—and gaining market share is the capitalist dream! Capitalists want to take over the world! (Sorry, I get a little carried away.)

Do I agree with this reasoning?

Yes and no. I would like it if everyone in the world could live in a nice house and have great medical care and happy, well-fed, well-educated children. Yep—there is a bit of the socialist in me.

But, hey, that isn’t the way things work. We live in a capitalistic world. Once the Berlin Wall fell, capitalism ruled—rightly or wrongly.

Many Americans don’t "get" capitalism

But one of our major problems as a country is we don’t really understand what capitalism means and what it means to run a business and how super, unbelievably hard it is to make a buck.

For instance, I just moved to a new neighborhood and I went to hang out with all the neighborhood moms. One of the moms was talking trash about a family that lives around the corner from me.

This family around the corner owns a handy-man business and this mom wanted them to come by her house—for free—and give her an estimate on fixing the railing on her porch. This mom was furious that the handy-man service wanted to charge her $65 for the visit.

I asked her if she was friends with the handy-man family, and she said she had never talked to them before her call to schedule an estimate.

Obviously, this woman had never owned a business before. She was under the false impression that a businessman has nothing to do all day but visit curious women at their homes and chat with them about their problems for FREE! How would you ever make any money?

My husband tried being a handy-man for a few months. Notice, please, the past tense of that endeavor. He had a hard time making money at it. He ended up missing dinner several times because he had dropped by a neighbor’s house to give them an estimate on something simple and had ended up advising them on a half-dozen repair jobs for free. Some people will just suck the life out of you if you let them!

My new neighborhood’s handy-man knows his stuff. He knows that he needed to put up a barrier to entry… only the serious need apply. And $65 per half-hour encourages those who ramble and want to share—or want YOU to share—to keep it short and sweet.

If we understood, or had empathy for business owners, we might make different decisions about how to spend our money. In Austin, we have a campaign started by local Austin businesses called "Keep Austin Weird." It all began when Barnes and Noble wanted to move across the street from—and thus seriously threatened—a local bookstore called BookPeople.

Or we could take the simple economic principle that money flows to the most efficient goods and services, and go ahead and shop our hearts out at Wal-Mart.

And that brings me to the topic of China…