Economics research aims to gather 'big data' on outsourcing in local businesses
The current worldwide economic downturn has had caused some horrific problems. It can be hard to truly notice these issues as an average Joe, because much of the middle class still has money to feed their families and pay their bills and have a little left over to go see the 27th remake of Spiderman. However, a critical and educated look at the current economy of the world shows that these luxuries stand on ground shakier than the San Andreas Fault on its fifth cup of coffee.
Surely there is a way to work this out. The study of economics has been around for centuries, but it is barely considered a science and can often be proven right or wrong from a multitude of angles. Macroeconomics (the study of how large-scale operations like national GDPs work and interact) has many distinct differences from microeconomics (the study of how businesses work and interact). The two have subtle but impactful nuances, yet they seek to discover the mostly the same things. In such a revolutionarily interconnected world of recent, the main questions loom evermore pressing than ever: Is there a way to marry these disciplines? Can businesses use economic research to effectively navigate the market?
Avik Chakrabarti’s research team is aiming to do just this. The UW-Milwaukee professor and his team of volunteer student researchers are studying local businesses to address the issue of outsourcing jobs, a topic that has plagued American economics for decades. They want to find out if outsourcing truly is a problem for the U.S. and to what extent that it may be a problem for small and medium-sized businesses.
“The economic pressures that our local economy faces, to a large extent, are due to the global economic changes,” Chakrabarti says. He’s studied international trade, investment, and finance for nearly over 20 years, graduating from the University of Michigan with a Ph. D. in 1998. He wrote an extensive study published in Kyklos on Foreign Direct Investments and their effects on the economy, which has been hotly debated.
In an effort to provide local businesses with data that they can use to help them best perform in the market, Chakrabarti and his team of students are conducting a long-term study gathering data on businesses in Milwaukee and Wisconsin that will, among other things, give insight on how much outsourcing is being used and what effects it may have.
According to the economics professor, Wisconsin’s leadership is business and worker-friendly, but the crucial ability to keep up with a knowledge-based economy. “Big data,” a term used to describe the method of tracking patterns and trends in a rapidly changing business environment, is a necessity in today’s global marketplace and is yet woefully undersupplied. Businesses are in desperate need of a light to lead the way in the new economy, and gathering big data can provide businesses with analytical angles never seen before.
“When businesses look back at their own decisions and try to reconcile that with the findings of the students, I think there is a lot to learn that could make them better decision makers,” Chakrabarti says.
This leads us to the questions of outsourcing. Is it happening to a detrimental level? If so, why is it happening? One of the many current opinions says that it’s so CEOs and bankers can line their pockets, but this is somewhat shortsighted. Let’s walk through it.
Foreign Direct Investments, which describes how much money businesses from other nations are investing in another nation’s businesses, are attracted to urban areas because of their largest market size. Milwaukee is the largest urban area in Wisconsin, even though it may not feel like it. We still say hello to strangers on the sidewalks. Despite its size in a relatively small market, Milwaukee still doesn’t command nearly the FDIs that cities like Los Angeles and New York do. The lack of external investment leaves the local businesses to pave their own way to success. This is why Milwaukee and Wisconsin is so saturated with small and medium-sized businesses.
To combat the struggles of a small business, they are often cornered into outsourcing their jobs, either overseas or in different areas of the country. The cheap labor helps drive productivity and increases profits in the short-term, but this is only a Band-Aid solution. Businesses prefer to keep labor and money in their locality, but the resources aren’t always easy to access.
Chakrabarti’s big data gathering offers a solution. With a vast ocean of knowledge and data on the local business landscape, company leaders can use this information to better manipulate the market. He notes that consultants are often used to do this work for them, but given that they know a great deal about the overall landscape and only offer their services to the highest bidder, they can act as double agents. Having the advantage of big data on their side, companies can skip the middleman and find ways to find local workers without having to walk into the fray blindly.
“One could go back in the history of Milwaukee and Wisconsin in general and see that we have illustrious factories that we could be really proud of, using our natural resources and skilled workers,” Chakrabarti says.
Employing local workers has invaluable benefits, as the economics professor notes.
“Once you outsource a job, it is hard to bring that job back. Imagine a worker who has not only the domain knowledge specific to the company, he or she has developed a relationship within the company with workers as well as a relationship with the customers. Some of them may be suppliers, even,” he says. “So that gets broken all of a sudden if the management decides to get the job done elsewhere.”
Chakrabarti mentions that there are some things local workers can do to increase their value to companies. Outsourcing jobs is not merely a cheap labor issue, but a productivity and profit issues as well. With outsourcing jobs comes more logistical and profit challenges, which companies like to avoid to maintain simplicity.
Recognizing their value as a skilled worker and continuing to develop those skills is his biggest advice for local workers. Wisconsin is an industrious state, and educating workers on their skills and values as well as keeping that education focused on relevant training is a key. Companies can pay an overseas worker with little experience or training a fraction of what they would pay a local worker who would demand more, but the local workers would have to prove their worth.
“If you demand twice the wage, you must be at least twice as productive and effective to justify,” Chakrabarti says. “If the performance matrix meets the wage matrix, I don’t believe that the outsourcing crisis should be a scare.”
If such actions are taken, Chakrabarti is confident that an economic turnaround is inevitable. He and his team of volunteer student researchers have nobly taken on the task of helping this process to its proper goal, and it is likely safe to say we all hope they succeed.
