The famous video Story of stuff with Annie Leonard talks about externalizing costs. Annie Leonard tells how can a tiny good looking radio be sold at just few cents. Metal required for the radio is mined in Africa, plastic is processed in China, semiconductors are manufactured in China or Korea, radio is assembled in some south Asian country, the radio got transported to US crossing so many continents and oceans! And then also that tiny radio sells at few cents! Few cents even do not cover the cost of fare required to showcase the radio on racks of fancy shopping malls. Who is paying for all this cost? Those who work for manufacturing it, those who work for selling it, those who transport it, those whose natural resources were mined without giving them anything in return! They do not get paid enough, they are not provided with enough luxury at workplace what a typical US based MNC offers to its US employees. That where the cost cutting happens. The brand name on radio might be some big MNC, but actual cost of manufacturing is bared by many small small units scattered all over third world countries. On contrast all the profit goes to that person who owns the brand name and not to those who slogged day and night to get that product out.
Similar kind of story is getting cooked here in silicon valley of India. Its no hot news these days that big US company throws out their software department and all the software development comes to India. Why would they close down their profit making software departments? Possibly they want more profit. How do you get more profit from existing business? Either you put cost to customer by increasing price or reduce your expenditure so that at same selling price you get more money. First option is some what difficult to digest for a regular corporation. For considering first option you have to be really as arrogant and as strong player as Apple! Most of the corporations are not Apple, so they would go for second option. First thing that you can do in cost cutting is outsource as much as you can. What to outsource? something which is taking more cost at your corporation but somebody out there in third world country is ready to do it at considerably less cost. CEOs in Indian software industry accept such offers bluntly. They possibly bargain to some extent but still the deal they get is to do seemingly impossible work in unimaginably small fraction of time. Deal is accepted by both parties then people from both side feel very happy. Big corporation is happy for heavy cost cutting. Indian CEO gets various awards for fetching so called prestigious work in Indian industry. VCs who funded this small start up are also happy, as they see their funds converting in profit. Employees are happy because they get an edge over others to boost their ego as their small start up is now getting attached to one of the biggest corporations in the world. Let us try to find out how in this process exactly the cost is bared by those who work on the project. Initially they work with great zeal and enthusiasm due to recent ego boosting phenomenon. They slog day and night happily. And days, weeks, months go like this. For months people working on that project do not have chance to chat comfortably with family members. For months they do not have chance to see movie, do not have chance to have social gatherings, do not have chance to see new happenings in world. For months they work on same technologies, depriving themselves of new technologies. There is no time to learn new things. For months they do not have weekends nor they have holidays. For months they do not encounter any creativity. Their life rusts. During all this happening only thing that employees get is a pat on back. Even their basic needs like food when they work late hours is also not taken care by anybody. This extra stress taken by each employee, work of extra hours, work in nights, work on holidays, work on weekends goes totally unaccounted. This unaccounted cost is the cost reduction that you see! This is called externalizing the cost. Put it in some unaccountable form and then say that we have reduced the price, tell the world that we deliver softwares at very cheap rates (well, thats very cheap trick I guess!).