National Insecurity On Your Desktop

InsecureCorporate IT has an old saying, “Computer users backup their data twice. Once after they buy a computer, and once after their computer crashes.” Let’s face it unless it’s automatic, we don’t do a lot to protect our data. After a crash, we remember to do backups… for a while. But the massive breakout of “ransomware” in May has reminded us all of how vulnerable our computers can be. Now, we’re all checking that our anti-virus subscription hasn’t run out! But a few of us have started to think, “WAIT A MINUTE… where was my antivirus made?”

Not too many years ago, anti-virus software was pretty much “Made-In-America”. Microsoft offered some software with your operating system, while McAfee and Symantec battled it out for the title of #1 anti-virus software. Today, however, anti-virus software has become diversified and global.

Depending on how you count, Microsoft or Avast is the top Antivirus in the US.  Microsoft is an American product, but Avast comes from Czechoslovakia. The next tier of software comes from America (Malwarebytes), Germany (Avera), and Slovakia (ESET). Russian has a respectable 4% of the US market with Kaspersky’s Anti-Virus. Although Kaspersky insists that it is completely independent of the government.

If Russia was confident enough to tamper with our Presidential elections, why wouldn’t they try to get spyware into Kaspersky? China once made counterfeits of CISCO routers with built-in spyware. A few years ago, a Chinese-made mobile phone had built-in spyware, with traces of tools made by the Chinese People’s Liberation Army.  

Of course, America has its own intelligence operations. We invented the Stuxnet virus, infected HP centrifuges and then delivered them to Iran in 2010. This destroyed several of their labs and set back their nuclear weapons programs by a decade. All intelligence groups seek out a technological advantage.

Today, our documents are electronic, most work involves a computer, and business (banks, hospitals, power plants and critical infrastructure) are all computer based. It’s only natural that intelligence agencies seek out methods to control the digital infrastructure of other nations.

This week, a massive wave of “ransomware” hit Europe. The virus encrypts your hard drive, locking you out of your own files. To add insult to injury, the tools to create the virus were stolen from the NSA (National Security Agency)… an Intelligence group set up to protect us against threats from other countries… by what appears to be foreign hackers.

Why did the NSA create these tools? The NSA and other government “security” agencies look for vulnerabilities in popular software that might be exploited by foreign governments, criminals, and terrorists. Unfortunately, rather than inform the developers of these vulnerabilities they “stockpile” this information in hopes of one day exploiting it against an enemy.  It has been argued that stockpiling creates greater risks, especially if the stockpile is successfully hacked.

Washington on fire with accusations of Russian interference (electronic and traditional) with the elections, stolen email, and hacking of government agencies. There appears to be little that government spies won’t do to achieve their goals. We suspect other governments of pulling dirty tricks and other governments suspect America of the same tricks. After all, Donald Trump, the President of America, has claimed that he is the victim of spying and dirty tricks from the US government. While Trump has not presented a shred of evidence to support his claims, I’m sure that the heads of Russia, North Korea, Terrorist groups and others will remind us of Trump’s accusations, and will ask the world to ignore warnings from US Intelligence the next time we see something threatening in the world.

After all, Donald Trump, the President of America, has claimed that he is the victim of spying and dirty tricks from the US government. While Trump has not presented a shred of evidence to support his claims, the leaders of China, Russia, North Korea, and various Terrorist groups will remind us of Trump’s accusations and tell the world to ignore warnings they hear from US Intelligence.

Government spies be are eager to influence the media. Wouldn’t they be just as eager to influence antivirus manufacturers? Does that mean that a Russian-made product like Kaspersky should be approached with caution?  Maybe. And perhaps we should also be concerned about products from Germany and Slovenia? Maybe.

Is your government spying on you? OF COURSE NOT! That would be wrong, unethical and probably illegal. Instead, your government spends it’s time productively spying on everyone else in the world!  What’s the point of paying billions of dollars for spy agencies if they don’t… SPY!  

The latest ransomware attack may have involved US tools, but the attacks seem to be directed from North Korea. The US, China, and Russia have all complained about the damage to their economies. Not quite the international cooperation between the US and North Korea the world was waiting for!

After this week’s ransomware attack, security software companies and national governments are going to be working more closely than ever before. Whatever their intent, anti-virus makers and the government will need to get much cozier with your data. Good thing we’re all working on the same side. At least, you’d better hope we are!

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Fake News Is Not New News

SupermanPresident trump seems preoccupied with saving America from, stuff. Before the 2016 election, we were told that the greatest threat to America was Hillary Clinton. Having slain the dragon in November, what new villains face America in 2017? The answer, obviously, is the media! President Trump is hell-bent on protecting America from the slavering jaws of a rapacious press!

That’s right, the media is now our enemy, spreading fake news and lies. Thank you, Mr. President, for letting us know that the media can be biased or untruthful. If not for you, the average American would not know…. Wait!… Hold on… BREAKING NEWS… “Inside sources tell us that Americans already know that the news is BIASED!” Well, what do you know! A biased Media is not new NEWS!

In America, we have always had a split image of the “press”, to use that antiquated term for the news, from back when news was primarily on paper. In that age of paper, we came up with the idea of a “crusading reporter”. The reporter who cleaned up bad politics, petty crime, embezzlement and misuse of public funds, and generally worked for the public good. Is this a cartoon image of the press? You bet it was! And at the height of the cartoon good guy newsman, a character called Superman was created.

Why was Superman a news reporter? Mostly because there are problems in the world that can’t be solved by punching it in the face. The nod to the value of the press was when a problem was too big for superman, but it was a job for Clark Kent, Ace reporter. Cartoonish? Absolutely, but it did highlight that by the middle of the 20th century, the world had grown larger than your hometown and too complex to understand without someone who can explain it to you.

Still, when America wasn’t reading cartoon, it was watching movies. Like Citizen Kane (1941), universally regarded as one of the greatest movies of all time. What is it about? It’s a thinly veiled docudrama about William Randolph Hearst, the newspaper baron of the middle 20th century. It shows the King of Newspapers as arbitrary and vindictive, using his power to punish his enemies and bend the world to his will. For students of film and those who want to dig a little deeper, reality does copy art! Hearst did not like his depiction in the movie, and he used the power of his newspaper to stop the release of the film (not a single Hearst paper carried an ad or a review for Citizen Kane).

The unforgettable “NETWORK” (1976) was about media’s fall from grace, as it moved from News to Infotainment. How the Walter Cronkite and Edward E. Morrow type journalists with integrity degenerated into shock jocks and ambush journalists. While the term “alt facts” wasn’t used, NETWORK certainly showed how facts could be twisted. Why? To get more ratings.  

In 1951 there was a brilliant film, “Ace in the Hole”, about the coverage of a man who was stuck underground in a mine cave in. Here, the reporter, played by Burt Lancaster, is the villain. Rather than a heartless news corporation, we see an individual reporter whose career is in freefall and needs “one big story” to get him back to the top. In a foretaste of the Internet, he is exploiting print and broadcast (radio) and has co-opted the public into becoming part of his media circus. In this movie, there is a literal circus… selling popcorn, soda, souvenirs, and tickets on rides… growing on top of the where the miner is buried. A subtle, but powerful image to remind us about how the public works with the media to create the worst of these sideshows.  

By the way, if you can still remember what you just read in the last sentence, the miner dies. Of pneumonia, while waiting for the rescue crew to reach him. Which is a total bummer. For everyone. If they rescued the miner, there would be celebration and more customers at the circus. But with just a dead miner, it was time to pack up and go home.

A lesser known movie is, “Wrong is Right” (1982). Here, the media is a problem, but it is not the main villain. The media is shown as being the equivalent of the ambulance chasing lawyer. Not a lot of ethics, but not overtly evil. Here the ultimate villain ends up being, the White House! In the end, a war is started in the Middle East to prevent a terrorist attack. But the war is started based on intentionally planted “alternative facts” from White House insiders.

Manipulation from the White House? How about that! America not only knows about manipulation from the media, it knows about manipulation from the White House. If we went back to the cartoonish adventures of Superman, for the past couple of decades there has been a running theme of Superman’s arch nemesis, Lex Luthor, becoming president of the United States. Here, Superman can crush Lex’s robots or withstand his death rays, but only Clark Kent (and his girlfriend Lois Lane) have the power of the media to stop President Lex Luthor’s nefarious schemes to take over America!  

America taken over by a hair challenged billionaire who thinks he is smarter than anyone else? (OK, Lex Luthor IS smarter than anyone else.) Who will rescue America if a real villain tries to take over? We might not have Superman, but we do have thousands of Clark Kents and Lois Lanes. Clark and Lois just need guidelines to make sure that they do not stoop to fake news, alternative facts, and manipulation that Lex Luthor’s team is so fond of. Hey! How about this for a new 21st Century code of ethics for all of our Internet bloggers… Truth, Justice and the American way! Nearly a century later, the news might benefit from those six little words!

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The Future of Retail Outsourcing: Amazon vs. Walmart


WoW! Isn’t it amazing how quickly things change? In the early 2000’s, the very pinnacle of outsourcing was Walmart. Walmart didn’t outsource its own operations. Instead, it made history by working with offshore suppliers, introducing American consumers to low-cost Chinese goods. Consumers fell in love with the low prices, and Walmart grew to 14,000 stores, becoming the biggest corporation in America. Only later, Americans asked, “Why can’t I buy an American made hammer?” Walmart benefited individual consumers but wiped out family owned stores, family owned factories, and American jobs.  

Recently, Walmart’s brightly burning star has begun to dim as the Internet replaces brick and mortar shopping. But as Walmart declines, Amazon rises. While Walmart revolutionized the supply chain, Amazon has changed the shopping experience. Amazon has more or less inherited Walmart’s supply chain, which is filled with Chinese products. As a virtual store Amazon can carry an infinite number of products, more than even the largest Walmart. That allows Amazon to sell both Chinese manufactured goods under American brands as well as brands directly from China.

These two different models are headed on a collision course. Already Warren Buffett, considered one of the biggest and best investors in the world, has started to sell off Walmart shares. Other financial analysts are laying their bets that Amazon will win the battle between these retail giants. What will that mean for the future of retail, outsourcing, and employment? Let’s take a look.  

The Walmart megastore is huge… and cheap. Just their food section is easily the match of many local supermarkets and grocery stores. Walmart has taken over in these areas, and if they were to collapse, much of small town America would have few if any remaining stores. In America, and elsewhere in the world, people are moving into cities, where Walmart does not have a strong hold but where Amazon is rapidly expanding. Busy urban shoppers find that a trip to the store is too much effort. On-line orders with home delivery are becoming the preferred method of shopping.

Amazon has mastered how to ship products around the world and is piloting even faster drone-based delivery. Meanwhile, Walmart still struggles with their basic “free” delivery model. If Amazon’s drone service works, it could be the biggest “insourcing” project in history. Just a few years ago, no one would have bet that delivery services in America would be brought back into any major American corporation. If Amazon combines drone delivery with their increasingly robotic warehouses, they can crush Walmart (and similar competitors) while attracting more allies and partners to their merchant services.  

Amazon is also looking into brick and mortar stores, if only on a limited basis. Amazon’s model for a physical store, naturally, has a very different model for staffing these stores. There is no checkout counter and almost no staff. You find what you want, take it, and leave. A combination of artificial intelligence and image recognition tracks you and figures out what you took, and sends the bill to a payment system on your phone. Contrast this to the vast number of workers at Walmart’s 12,000 stores.

Walmart has revenues of $483 billion and employs 2.3 million workers, which yields 4.8 jobs for every million dollars in revenue. That’s our baseline. How does Amazon compare? Amazon’s revenues are just $136 billion, which means that it still has quite a way to go to dethrone Walmart. They have 341 thousand workers or 2.5 workers per million in revenue. That’s nearly half the workers per million in revenue.

As Amazon absorbs Walmart’s customers and their $483 billion in sales, 1.1 MILLION workers will lose their jobs. However, that doesn’t mean that an Amazon job will be the same, or pay the same, as a Walmart job. Walmart has “greeters”, cashiers and people who go out into the parking lot to bring back shopping carts. Amazon has a lot of programmers and marketing people. Very different jobs, but a lot fewer jobs. Consider the following:

Amazon Merchant: Amazon is more than an online department store. As Amazon builds its own services, it repackages those services and sells them to other businesses. Amazon will absorb some customers from competitors, and at the same time, they will make small and medium sized businesses part of Amazon through their Merchant services. Amazon acts as the anchor store in a mall, allowing other businesses to be part of a larger “Marketplace”, under the Amazon identity. A small business no longer needs to set up servers, develop a marketing strategy, etc. Amazon handles all of that. Score another outsourcing service for Amazon!

Amazon Delivery: As customers continue their move their shopping experience from physical stores to virtual shopping, there will be a greater need for delivery services. Between Amazon drones and autonomous cars, the entire package delivery industry will be completely disrupted in the next few years. The post office has already committed to closing nearly half of their post offices and their staff. The Amazon model, and similar models, depend on exceptional delivery services. Hopefully… for Amazon and other new services… the disrupters will build the future faster than they tear apart the past.

Amazon Web Services: AWS is a huge cloud service provider. Move your data, move your servers, move everything to AWS. Merchant services are good for a small business that wants a ready made web presence. AWS is for any company, including some very big companies. A firm of significant size could be run by just a handful of people. AWS outsourcing can make a company a lot more profitable, but it will eliminate jobs…. not because of offshoring or even automation. As technology scales up it becomes a lot more efficient. And AWS has a massive market to scale to.

AliBaba: While Amazon is America’s biggest online merchant, China’s Alibaba had sales of $485 billion in 2016. That’s on par with Walmart and three times the size of Amazon. While Alibaba is focused on China, it will soon compete with US and European merchants, creating stiff competition and driving more efficiencies.

Consolidation: The small store is disappearing, especially in small towns. In big cities, we have the “corner store”, a convenience store just a block or so away. That’s where you go stop on your way home to pick up a magazine, a candy bar, maybe a Red Bull or a packet of tissues.

Time pressured urbanites often just run from their apartment to a taxi or UBER car, go to work and then do a reverse version on the way home. Even going to the corner to pick up a few nicknacks has become too much trouble. Services like FreshDirect are replacing supermarkets and delivering food to your home. Can Amazon replace the corner store? If they can, perhaps with an advanced drone service, will we need all of the remaining drugstores, convenience stores, and Bodegas? Or will they consolidate into a few super corner stores?

Shopping IS moving from the real world to the virtual world. That move means that consumers will have more convenience, more options, more products, 24×7 shopping and lower cost. But it also means that there will be a downside, fewer physical stores, fewer merchants and fewer jobs. Nor does it matter if your virtual store is owned by Walmart, or Amazon or anyone else.

The real conflict is between the consumer and the worker, who is often the same person. As consumers, we want our shopping experiences to be better AND cheaper. Over the last century that shopping experience moved from a small local store with a limited set of products, to the department store, to Walmart’s super-store, to Amazon’s virtual shopping. Each step has improved efficiency, improved the variety of options, lowered cost, but also reduced the amount of labor needed to serve consumers. Whether this is called automation, outsourcing or just plain efficiency, the direction towards less labor is consistent and irreversible.

Will the retail world eventually be workerless? Maybe. The choice is ultimately up to the consumer. Do human workers make your shopping experience better? Do you enjoy having workers help you get what you want, or do you feel that workers are in the way and make shopping more difficult? Consumers need to decide which world they want because the next model for shopping is about to arrive!

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Outsourcing’s Mickey Mouse Future!


Ever since the 2016 elections, America’s outsourced manufacturing has consistently been front-page news. Most of that news has been about manufacturing. Now news stories are shifting towards the larger world of foreign imports, rather than just outsourcing. That means new policies and taxes that will impact, well, just about everything!  That means all consumer goods, cars, electronics and a lot more. But what about… cartoons? Yeah… what about the Saturday morning ghetto, Hanna Barbaric, The Simpsons, and the Cartoon Network?

There was a time where American Cartoons were one of our recognizable products. CocaCola may be America’s most iconic export, but Mickey Mouse is a close second. When not inflicting bodily damage on themselves, Bugs Bunny spoke in official Brooklynese, while Daffy Duck and the rest of the gang at Warner Brothers spread American culture around the world. Even Elmer Fudd, Warner’s double-barreled representative for the 2nd Amendment, is known around the world!

In 1941, just before the start of WW II, Walt Disney landed in South America with a whole animation team, ready to tour South America. Walt’s cover story was that he was collecting material for a new cartoon. While he eventually did release a very successful cartoon about Brazil and South America, President Franklin Roosevelt gave Walt a secret mission. By building cultural bridges with South American, he could foil a plan by the Nazis to build harbors for submarines. Needless to say, Walt (with a little help from Donald Duck and Goofy) foiled the Nazi plans. After all, Adolf Hitler never had a chance in being more popular than Mickey Mouse!

Throughout the 1950s, cartoons continued, but their golden age was behind them. In the early 1960s, something new happened. Television! As television went mainstream, networks struggled to find ways to their empty programming hours… cheaply! Cartoons used to be a part of going to the movies and were funded by your movie ticket. TV had different economics, and couldn’t afford expensive theatrical animation. 

Luckily for Television, a less costly alternative… limited animation… was created. Limited animation is just that. Instead of animating the entire body of a character, just the arms, or legs or head moved. This style, developed by Hanna-Barbera (often nicknamed Hanna Barbaric, for its low-quality work) dominated television in the 1960’s. Soon other studios copied the style. The best of these (Rocky and Bullwinkle, Fractured Fairytales, Yogi Bear), focused on clever banter, rather than animation. Television animation and movie animation became two distinctly different products.

Animation prices continued to rise, leading to a new idea… outsourcing. The original outsourcing location for animation was Japan. Due to the devastation of the Japanese economy after WWII, Television developed a bit later in Japan than it did in the U.S., and it had to fill programming hours with even less funding. Japan also chose cartoons as a solution. However, while the U.S. primarily targeted cartoons for children, Japanese animation was also broadcast in prime-time. Soap operas, historical dramas, adventure, situation comedies, etc. … were all popular themes for animation, and received high ratings.   

In the 1960’s English dubbed Japanese animation (Gigantor, Speed Racer, Kimba The Lion Emperor) was broadcast in the U.S. By the 1970s, American cartoons were less technically sophisticated than Japanese “Anime”. A new generation of American animation studios wrote scripts, hired voice talents, and performed editing, but sent the animation work to Japan. Saturday mornings moved away from “funny animals” to adventure and science fiction themes. Hybrid American/Japanese shows were new, exciting and different!

A lot of that difference was… violence! Gone were the days of dogs and cats hitting each other with frying pans. Animation was now all about giant robots, high-tech weapons, fighter jets, and exploding missiles. Although there was the occasional My Little Pony or Care Bears, it was the Transformers that stole the headlines. Through the 1980s and 1990s Japanese Anime, and Japanese animated cartoons dominated broadcast TV and new cable-based programming, such as the Cartoon Network.

By the 2000’s, the Simpsons became a staple of American TV. Animation’s new home became South Korea. For the next two decades, animation followed two huge trends. First, animation would spread to other lower-cost Asian nations, such as China and Vietnam. Even Japan would send most of their animation to neighboring nations. The second trend was the move from manual to computer animation. The first trend moved work to ever lower-cost locations, while the second trend was neutralizing labor costs.

Not surprisingly, advances in technology eventually overtook labor advantages. Now the hot new country for animation is France. By leveraging strict cost management and the most advanced technology, they have been able to consistently beat the cost of animation from Asia.

Illumination Entertainment is one of the best examples of the new animation. The studio founder, Chris Meledandri is the founder but grew up at 20th Century Fox Animation. Japanese, and later Asian, animation is often recognizable by its depiction of women with impossibly small ankles and wrists, and characters with gigantic star-filled eyes. The look of French animation is… Minions! “Despicable Me” was one a breakthrough  French/America successes. You will see the same style in The Secret Lives of Pets, Hop!, The Lorax, and Sing.

How do these French animations compare to films? Let’s compare two 2013 movies. “Turbo” (from Dreamworks) using “traditional” Asian animation, versus “Despicable Me 2” from Illumination with French animators. Turbo made $283 million and was considered a flop. Despicable Me 2 made $970 million and was the biggest animated movie of the year. This difference may not be due to just animation. Plot, dialogue, music, etc. also matter. Still, it showed that French animation has been accepted by America. Even more importantly, though, Turbo cost $127 million vs. just $76 million for DM2.

That’s not just a fluke. Kung Fu Panda, a competing franchise, generated between $500 and $600 million for each of three movies and cost $150 million each. The original Despicable Me cost $69 million and generated over $500 million in revenue. The French animated “Secret Life Of Pets” cost $75 million and generated $875 million. The rest of the animations created by Illumination Entertainment all came in below $75 million.

There are exceptions, but French animation is consistently turning out blockbuster films at half the price. Any method that cuts the cost of production from $150 million to $75 million is getting a lot of attention. And it raises two questions.

First, is Despicable Me an outsourced American movie or an imported French film? Whichever one it is, does it mean that Trump wants to tax it? In New York, you often have a choice of a standard movie, the movie in 3D, or a 3D plus special audio. This kitchen sink version can cost $25 per ticket. Plus popcorn. With an outsourcing tax, an evening at the movies could cost well over $150 for a family of 4. 

Second, “Does animation inform us about the future of Outsourcing?” I think it does! Animation has gone through repeated moves from higher-cost to lower-cost locations, primarily based on wages. But the use of computers to draw animations may be even more important. Over the past decade or two, the big animated movies are now almost always computer animated. As automation increases, the wage element of a movie becomes less important. The cost of oversight, differences in work hours, cultural barriers, and simplifying the supply chain become more important, and work might be performed more efficiently in higher-cost geographies.

In one or two more outsourcing cycles, perhaps by 2025, we might see animation returning to America in a big way. Once you neutralize the differences in wages, talent, capabilities and other factors become much more powerful elements of a corporation’s location strategy. This same thinking led Adidas to build new athletic shoe factories in Germany and in the US, rather than in low-cost offshore nations.   

Animation is leading a parade of outsourcing away from Asia. Soon we’ll see if the parade keeps marching all the way back to America. Moving high-end trade work back to America could be an important milestone in renewing a segment of our workforce that has been in decline for decades. In the next few years, there may be bigger changes in America’s workforce, but higher wages and reshoring American animation jobs is anything but “Mickey Mouse”!

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Regulating Outsourcing Creates Surprising Vendor Opportunities!


(Published in Outsourcing Magazine, 12/14/2016)

During the election, Trump said that he would stop work from leaving America, and would tax offshored products at 35%. Weeks before Donald Trump is sworn in as President of the United States, he is hard at work wheeling and dealing with American corporations. Will these deals tell us about the “Trump Plan” for outsourcing? Let’s dive right in and see!

The Carrier deal has certainly received a lot of press, yet this deal has nothing to do with the official powers of the President. Carrier was offered $7 million in tax incentives in exchange for two things. First, Carrier will scale back outsourcing to Mexico, retaining 700 to 1,000 (reports vary) of the 2,000 workers scheduled for termination. Second, Carrier will invest $16 million over 2 years to upgrade their factory. Government funding money is from the state of Indiana, rather than the Federal government. VP to be Mike Pense, governor of Indiana sealed the deal.

In the past, this type of co-investment deal would yield more jobs over time. The Trump deal is different. CEO of United Technologies (Carrier’s parent firm), stated that their investment will allow them to automate the facility. Automation? The State of Indiana is subsidizing Carrier’s elimination of Indiana jobs through automation? If Carrier does not invest in automation, Trump will tax offshoring of these jobs.

I suspect this is NOT exactly what Trump had in mind. Likewise, these details have not yet been absorbed by the Washington Bureaucracy. This model has been followed or requested in the past, but usually only by the most liberal of Democrats. Usually, this will get you labeled “socialist” by conservatives. Trump may be able to convince fellow conservatives to accept this new paradigm. Still, much like the UK Brexit, as the financial consequences become understood, Republicans may agree with the goal but resist the mechanism.

To understand those consequences, we need to look at the following five elements that the Trump plan must address. Let’s start with…

Outsourcing: “Outsourcing” is the process of a firm moving its work to another firm. This definition, however, is too broad to translate into a government policy. If a firm outsources its accounting department, to a US accounting firm, is that outsourcing? Or must jobs be moved out of the US? This, however, is called offshoring. Offshoring moves work to another country, but the offshore firm could be your firm’s foreign office, a completely different firm or a co-owned venture. Will they all be taxed?

The last 20 years of offshoring involves every conceivable business arrangement. Look at LG computers. They started off as IBM’s offshore factories for laptops. IBM sold off the factories and the IBM laptop brand name to the Korean firm that would later be called LG. Is LG still an outsourcer today, or is it a foreign company? Do you avoid outsourcing penalties if you sell your offshore facility to a foreign company?

How will corporate America negotiate the new complexities of outsourcing? Who will produce reports and negotiate penalties? Probably HR, but HR has had its resources slashed in the past decade. The outsourcing of outsourcing management and reporting may seem… ironic?… but it may also be a huge and lucrative opportunity.

Incentives: Few jobs are created equal, and each job kept onshore could yield a different government payout. Indiana will pay $7 million, or $700 per worker, per year, for 10 years. Last year, Alcoa Aluminum in New York, cut a deal to save 487 jobs. The deal is for just 3.5 years, but it pays $21 million per year for a total of $73.6 million. That’s over $43,000 annually compared to less than $1,000 for Carrier. Corporations, or a service they hire, needs to ensure that clients receive the highest benefits and the lowest penalties possible from whatever program is put in place.

How big could this program be? The Federal government’s largest job incentive program is probably the US Postal Service. With 500,000 permanent employees, they run a total deficit of $47,000,000,000 over the last 10 years. That’s $95,000 per employee. The USPS continues to lose ground against private delivery services, email and (soon) drones. While the USPS is not about to be offshored, they need to be transformed. And soon. But this does indicate the size of the incentives that may be needed for Trump’s program.

To ensure that clients can fully participate in these programs, outsourcers must “unpack” the free analytics and management that is currently bundled into their offshore pricing. Providing a sophisticated new consulting service that can bridge the knowledge gaps that will come with new outsourcing regulations, will provide outsourcers with a huge revenue opportunity. 

Automation: As stated earlier, Carrier’s $16 million investment will be used to automate. This is not some “Trojan Horse” by Carrier’s management. If you have an old factory that is no longer competitive, what can you do with a $16 investment to change that? Fix the roof?  Build a new cafeteria? No, you will invest in automation or equipment upgrades that increase productivity and reduce the need for workers.

Will US corporations be taxed if they eliminate jobs through offshoring, but given incentives if they automated away the same jobs? Because firms are constantly doing both, who will provide Washington with the documentation that proves that jobs were eliminated by automation (or other approved forms of job reduction) and therefore the firm is exempted from the 35% tax? Once again, more paperwork. A lot of paperwork!

Penalties: Will all US offshored products be taxed at 35% based on their suggested retail price. If parts made in the US but assembled offshore, do we just tax the “additional value” created offshore?  Are we just taxing goods outsourced after 2016, or from the beginning of time? How we define and monitor this could make or break Trump’s program.

Consider products that are no longer made in the US, such as men’s clothing? The vast majority of American men’s clothing … includes Donald Trump’s clothing line… moved offshore in the 1980’s. Are we trying to restart men’s clothing in the US? Or does Washington just exempt these goods from tax penalties? What about other products that the US doesn’t manufacture anymore: smartphones, computers, athletic shoes, solar power cells, light bulbs and (yes) air conditioners?  

Competition: Top of the line mobile phones cost $700. The Apple iPhone is 100% assembled offshore. Offshore assembly costs about $140, but onshore assembly would cost $780. Do we apply the 35% tax to the $700 phone, the $138 of added offshore value for assembly, or do we tax the $780 of work the US lost? If we keep it simple and tax the $700 retail price of the phone, the new cost is $925.

That will certainly send a message to Apple. But not the one you think. The higher cost of onshore assembly would drive the cost to over $1,400. That would lose most of Apple’s US market (and jobs). Or the factory could be automated, which would eliminate most of the reshored jobs. Neither option creates many new jobs.  

There is one other problem. Of the top 10 mobile phone manufacturers, only Apple is American. The rest are all Asian. If the offshore tax makes Apple’s phone go from $700 to $925, won’t it become uncompetitive against foreign phones? If Samsung and LG phones continue to cost $700, won’t that drive Apple out of the market? Taxing outsourced US products will benefit foreign competition. Does that inevitably lead to an across the board 35% tariff on all foreign imports and outright trade war? 

Conclusion: A 35% tax on offshored work and a few incentives to keep jobs in the USA seems like a simple plan, but in the real world it is far harder to implement than it appears. Defining what is and isn’t outsourcing, separating offshore American products from offshore products, and managing what could be a tidal wave of new paperwork will create a significant Federal bureaucracy, which will consume resources that few corporations have. That’s a big opportunity for outsourcers that are willing to create a new billable service.

Outsourcers who look at penalties on outsourcing and see the end of their industry aren’t looking hard enough. Automation, not regulation, is the greatest threat to the current outsourcing model.  Regulation offers a new opportunity to use and expand Intellectual Property that outsourcers already possess.  Remember, not every firm may wish to participate in a government incentive program, but if all outsourcing is penalized, every firm you work with (and more) will at a minimum need to report on their outsourcing activity. Will you be the first vendor to ask your client to manage this opportunity?


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It’s a Circus Out There, But Not For Long


(Previously published in “AndSociety”, January 22, 2017.)

GEEZE… what happened! On Friday I hear that Ringling Brothers Circus has its first female ringmaster in its 146-year history. I’m thinking, “Well, isn’t that interesting? The news has been completely dominated by the changes that come with the Trump election, but there are a lot of other changes happening out there!” And then on Saturday, I see that the Circus will close in May.

At first, I thought that it must have been some other Circus. Sure enough, the Big Apple Circus, a 40-year-old Circus, had declared bankruptcy and was auctioning off its assets in February. The Big Apple Circus is a very big deal. Ringling is the biggest Circus in the world, but Big Apple is very important and well known. OK. Mystery solved! But then I hear it again, “Ringling Brothers to Close!”     

Look, in a hundred years when they look back on the 21st century I doubt that anyone is going to say, “Ah, that was the golden age of the Circus”,  but still. The circus is gone? Last year Ringling gave up its elephants. That was the last straw (do they still use straw?). We still have Cirque Du Soleil, from Canada. And the Blue Man Group. Both of these got started in the last couple of decades of the 20th Century, as “modern” alternatives to the traditional circus. So they still have a few productive years left.

Without the circus, where do parents bring their kids for that once in a lifetime experience with a big animal? Sea world? Not so much. Orcas or dolphins are being phased out in SeaWorld and similar entertainment parks. That just leaves Zoos and aquariums. Without a direct profit motive, and with sponsorship from conservation groups, these are generally the best-managed places to see big animals. Yet, even these organizations are under increasing pressure from animal rights groups to return big animals (and fish) to the wild.

Ringling Brothers has a pretty straightforward view about animal protection groups. Ringling says that once they announced that they were retiring their Elephants, ticket sales went through the floor and was the primary reason for the closure. At Seaworld, it’s harder to say if they will survive without Orcas and Dolphins. Zoos? They are terrified of the next time that they need to put down an animal because a guest wandered into a Gorilla enclosure or precipitated a lion attack.

Some of the world’s biggest animals are in danger of extinction. I knew that. So did you. But did either of us know that when big animals faded away that the circuses and marine parks that displayed them we go first? Sure, we still have the Discovery Channel and National Geographic, endless documentaries, Indie films and YouTube mini-films. But without the ability to see, maybe touch, definitely smell (whoa-yep, definitely smell) these wonders of the wild, do we still care if they are are still alive anywhere at all?

I could also do without creepy clowns, but what happens to the art of clowning? Trapeze, and jugglers and a multitude of other skills, some of which go back thousands of years, may fade away… when the last circus closes. It is the 21st Century, and the Circus in America is mostly a 19th Century art form that managed… just barely… to survive the 20th Century.   

It’s ironic that at the end of this week we will have the inauguration of Donald Trump as the President of the United States. Will it be the start of a new age or the end of an old one? Circuses, Elephants, and Lions may not be part of this new American age, but maybe… just maybe… the animal rights people are right and this is the best way to have the animals is to get rid of these institutions. In any case, we’re about to find out!

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Yahoo Users Hacked


Photo: All Rights – Javad Rajabzade

(Previously published in AndMagazine, January 14th, 2017)

Yahoo keeps hitting the jackpot, in a bad way. Earlier in December, Yahoo had a BILLION ACCOUNTS hacked. That’s the largest number of reported accounts hacked, EVER! To make it even worse, the second largest hack in history happened in September. Who is the poor fool that holds the #2 position? You guessed it, Yahoo! Now, that just can’t be good for business!

And as it turns out, it’s not. Yahoo! is in the middle of being sold to Verizon, with the price set at $5 billion. That’s an insultingly low figure for an Internet firm. Then again, it’s been a long time since Yahoo! was a technology leader. Verizon thought that for $5 billion, it was buying customers and getting a little technology. Now those customers are changing their passwords, or just changing to other providers.

Repeated breaches have undermined confidence in Yahoo!, and the Verizon deal. Verizon is making sounds that the price tag may need to be… discounted. When one corporation buys another, there is a veil of secrecy that makes any operational details fuzzy. Such as, who knew what about the hack, and when. It doesn’t appear that Verizon knew about the September hack until well after it happened, and the deal to sell was already in play.

Sadly, only part of the problem is Yahoo! If your firm has a well-known name and you are in any way connected to the Internet… you’ve been hacked! Oracle and Steam have been hacked. Citi has been hacked. There are many other firms that may have been hacked, but if it was a smaller attack or if the corporation believes that it was not an effective break in, it may never be publically reported. Of course, if the hacker is more skilled than corporate security, does the corporation they really know what happened?

When a story begins with international hacking, we expect it to end with China. China has been identified as the source of the hacking at the New York Times, the FDIC, and the US Office of Personnel Management. Now, after the 2016 elections, we hear that Russia is also hacking in the US. Is there anyone left who isn’t trying to pry into our passwords?

The worst of it, for many average users, is that even if you don’t use Yahoo!, you should still change your passwords, which you probably keep on the back of an envelope somewhere. How many of you have multiple accounts because you’ve lost your id or password, or maybe you never wrote down the answers to those annoying security questions. It’s not a coincidence that there are now so many tools to store your login info. Half of which just might be fake services trying to steal your passwords!

One thing that we can say is that, at least for now, hacking is evolving faster than security. We can all expect to see more stories on hacking, from Yahoo! and from every other big corporation. Banks and financial firms will have new rules in 2017 and will be required to report more small security hacks than in the past. They will need to issue reports to regulators faster. We will learn about hacks that failed or that perhaps weren’t even true hacks, but were instead just glitch. The more that corporate America reports hacking, the more that regulators will create even more new reporting rules. Expect to hear so many stories about security breaches that we start to go a bit numb!

So, remember to change your passwords, and change them often. In fact, I just got an offer in email for a new tool to manage my passwords. Hey, it will also manage my credit card information! For Free! Gee, I wonder how they can make any money? 

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