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Outsourcing the Outsourcers


Even Indian workers are too expensive these days. How about Mexico?

Iconic Irish company Waterford Crystal (WATFF) will lay off most of its workforce and shift production elsewhere, having already contracted most of its production to Slovenia.

At its height in 2002, Waterford employed 3,200 people, but that number will soon drop to approximately 125.

The company's plant will remain in Dublin, though it will become primarily a tourist attraction, rather than a manufacturing plant. Waterford, which manufactures the ball dropped each New Year's Eve in Times Square, draws about 300,000 tourists each year.

The decline of the dollar is partially to blame, as about half of the company's revenue comes from American consumers. Also to blame are the living wages paid Western European workers; Eastern European laborers can produce high-quality goods for far less pay.

Much as the newly-unemployed workers dislike being jobless, investors seem to like the new direction, bidding Waterford stock up 50% to 0.3 euro cents. (The company's market cap remains less than a tenth of its debt.)

A union representative had this to say: "That [employees] will now seemingly be cast aside and production moved to just another factory overseas is devastating."

Outsourcing is already de rigueur here in America, as companies from Procter & Gamble (PG) to DuPont (DD) to Cisco Systems (CSCO) have sent jobs overseas. Atul Vashistha, CEO of outsourcing consultant neoIT and co-author of the book The Offshore Nation, told BusinessWeek: "Many CEOs are saying, 'Don't tell me how much I can save. Show me how we can grow by 40% without increasing our capacity in the U.S."

Eli Lilly (LLY) is a good example. For each new drug it releases, it estimates the cost to be somewhere around a billion dollars. However, according to the same BusinessWeek article, outsourcing lowers those costs to about $800 million. Lilly now does 20% of its chemistry work in China at a 75% savings; it's also trying to cut costs on clinical trials by conducting them in Brazil, Russia, China and India.
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