Last Saturday night, my wife and I found
ourselves in
Betheria, SC, deep in the Carolina low country,
about an
hour northwest of Charleston, in a converted shed
next to
railroad tracks at the end of a dirt road.
We weren't vacationing in Howe's Bayou.
We were there as part of a once-a-week audience of
50–
60 people aged 40–80 to listen to an all-star
cast of local
bluegrass, gospel, and C & W music makers (same
age) at
"Guy and Tina's Bluegrass Pickin' Parlor." We
brought
some dinner with us for mutual sharing, admission
was
free. The entertainers were unpaid, irrespective
of their
talent-which was considerable-on the banjo, guitar,
mandolin,
bass, or fiddle.
As the hours there slid by, I got to thinking…
Five weekends earlier, Annie and I had sat among
72,000
people in Houston's Reliant Stadium,
ostensibly to
watch the Texas Rodeo, which turned out to be only
the warm-up act for America's latest teeny-bopper
sensation, 17-year-old Hillary Duff. Amid a
sea of pre-teens
and early
teenagers and their moms (mostly), it seemed that
we were
the only people over 40 in the arena. Tickets
were $20
and up; the sell-out grossed well over $1
million. The
talent was difficult for us to discern, but the staging
was
phenomenal.
Who was producing greater value? Who had
greater
talent? Which audience was more discerning? And
what real
difference did it make?
I thought of this some more this week as I started
reading
Thomas Friedman's latest book, The
World Is Flat,
subtitled A Brief History of the Twenty-First
Century.
Friedman's thesis, as regular readers of the N.Y.
Times
know, is that "software… in conjunction with
the creation
of a global fiber-optic network… has made us all
next-
door neighbors." What Friedman calls
Globalization 3.0 is
"flattening and shrinking the world," driven not
by
countries or companies, but by individuals
—
"non-Western, non-white individuals from every
corner of the
flat world… who are now able to plug and
play."
Citing an essay in the journal Accounting
Today (June
7, 2004) by L. Gary Boomer, CPA, Friedman
writes "There
are about seventy thousand accounting grads in
India each
year [according to Boomer], many of whom
go to
work for local Indian firms starting at $100 a
month.
With the help of high-speed communications,
stringent training,
and standardized forms these young Indians can
fairly
rapidly be converted into basic Western accountants
at a
fraction of the cost," using high-speed data links
to firms
like Boomer's.
One hundred dollars a month. Even with a 4x
mark-up for
the firm, that's only $5,000/yr., sourced to the
U.S.
— whether it's for an accountant, a financial
analyst, a
software developer, a market researcher, or a
publishing editor,
all of which can be provided by the thousands in
India today,
and in China, Singapore, South Africa, and Eastern
Europe
tomorrow.
Compare that with the full-cost job analysis
that we
did last month for a client with a rather generous
benefits
package, and with work requirements that might be
considered
globally available:
| Salary |
$50,000 |
| FICA at 7.65% |
3,825 |
| SUTA/FUTA at 3.2% on first $14K |
448 |
| 50% of medical insurance (single) at
$212/month |
2,544 |
| 401K match (25%) |
1,250 |
| Worker's compensation at .9% |
450 |
| Total cost to the
company |
$58,517 |
In return for this, I said to my client, you get 40
hours a week
for 52 weeks as a starting point —
However, from this gets deducted:
| 12 paid holidays x 8
hours
| -
96 |
| 10 days of paid vacation |
-80 |
| 5 summer Fridays (half staff is off each Friday)
| -40 |
| 3 sick days (on average) |
-24 |
| 1 birthday |
-8 |
| Net hours available to
work |
1,832
hrs./ |
| Days available out of 260 (52 x 5) |
229 days |
A 25% allowance for personal time
(bathroom,
coffee, water, etc) plus lunch time, social
interaction, and
miscellaneous life distractions reduces work time
by 458
hours, to 1,374 hours per year against a 40-
hour week.
The $50,000/year employee thus ends up
costing my
client over $42/hour.
How does that stack up against an Indian
subcontractor
charged at $5,000 a year? If this well-
educated, middle
class, ambitious accountant/financial
analyst/software
developer/etc. produces 2,000 hours of competitive,
billable
product, his/her $2.50/hr. trumps $42/hr. at the
end of
every communications link.
Professional service providers, in particular, and their
employees have to understand this full-cost
equation. For all
employers, an individualized employee cost
analysis
(as above) distributed once a year with paychecks
may provide
the employee with useful perspective about his/her
role in
achieving the company's economic model.
What does all of this have to do with Guy and Tina's
Pickin'
Parlor and Hillary Duff? Simply this: in the
entertainment
world, the best steak is often less expensive than
the sizzle,
and we acknowledge that the Hillary Duffs and Barry
Bondses
of the world are overpriced. But what happens
when our
employees' sizzle begins to fizzle in the face of low-
priced
offshore talent? Hopefully Friedman has the
answer in
the 330 pages that I have yet to read.
