Thursday, November 5, 2009

Blue Coat Systems (BCSI) - More Global Labor Arbitrage

We see in today's news something I believe has been happening for many years, and continues ... under the surface, slowly but surely.  I call it erosion because it is not obvious or a "big bang" emergency but as we look around and ask where all the jobs went [Aug 14, 2009: No New Normal Say Some Economists, Prosperity Without Jobs?] while concurrently trying to create bubbles on 5 year cycles to create work, the truth can be seen in countless press releases.

Here is an example of some news today with a technology company we have owned in the past - Blue Cost Systems (BCSI).  As I wrote this morning (and many times before) this increasingly flat world is great for capital, not so fun for labor.  Especially labor in high cost countries...(we can argue its a net positive for labor in low cost countries). Speculators are correctly driving up the stock of Blue Coat (+14%) today as "costs are lowered" - sort of ironic because what is good for this company, if extrapolated over countless examples the past 2 decades and many more in the future - is harmful to the domestic society as a whole.
  •  Blue Coat Systems (BCSI) this morning said it will cut about 10% of its staff under a new restructuring plan. The company currently has a little under 1,500 employees.
  • The company also said it will acquire S7 Software Solutions, a software R&D firm based in Bangalore, India, for about $5.25 million in cash. Blue Coat said it will shift some engineering positions from Sunnyvale (which is where the company is based and Austin, Texas to Bangalore and other locations. It is closing offices in Riga, Latvia; South Plainfield, New Jersey; and Zoetermeer, the Netherland.  (sorry good people of Latvia - looks like even you are too expensive to pay)

Sunnyvale, Austin, South Plainfield, Zoetermeer, Riga: 0
Bangalore: 1

If similar to what happens in most companies, expect another victory in Bangalore in about 2-3 years as another tranche of technical jobs is moved out of Sunnyvale and Austin.

The question that needs to be asked is at what point can the government no longer borrow against future incomes to keep the balls juggled in the air.  As people lose income one by one, government steps into the void, borrowing money we do not have to keep the Ponzi economy going.  I suppose this can go on as long as we can print more money and hand it out in stimuli, and our generous lenders (many of which are taking the jobs) continue to hand us rope.

The gulf between the have and have nots continues to grow by the year, with the government furiously trying to bucket water out of the hull of the boat.  While telling us this is just a cyclical issue... not structural.  I've disagreed long ago.  [Dec 8, 2007:  Do the Bottom 80% of Americans Stand a Chance?]  The effect on wages has been here for well over a decade now, and now that the bubble jobs have been destroyed you are seeing what is out there as the tide goes out.  I will keep repeating it until I am blue in the face... deflation is necessary for the "average" American to be able to tread water.  The cost of living needs to go down - period.  [Aug 18, 2009: Bloomberg Opinion - Deflation Theory is Lemon We've Been Sold]  Wages across countries are going to slowly but steadily move closer together - we can stay in denial as long as we want, but it is like fighting the immovable object.  Fruitless.  Using every government arm possible to try to inflate prices is just about the worst thing you can do to "the masses"... but that's the national policy / solution.  Oh well ... I am sure I'll be repeating these themes in 2015 as the successor to Ben Bernanke will be trying to inflate us out of the next crash - because these policies that have failed repeatedly surely will work "the next time".  For now, as long as fiat money creation makes the stock market go up - everything under the surface is dandy.  (source: dogma)

I will repeat the questions I wrote in September as we are told this is healthy because the middle class of China (Asia) will soon create countless jobs in America by buying our goods (what goods exactly?) [Sep 14, 2009: Global Wage Arbitrade at the Micro Level: Marvell Technology]

  1. How many years will take place between the displacement of workers "today" in America and the "middle class demanding things in China" from America?
  2. What do we do with those workers in the meantime aside from plugging them into government work or pseudo government (health care)?
  3. What will happen to the income of said "displacements" as they move out of jobs from a very good high tech company to... (crickets chirping)?
  4. What exactly are Americans making today that the Chinese want and need to import excluding large scale industrial weapons / defense?
  5. What exactly will Americans be making in "some day in the future" (5? 10? 15 years?) when the Chinese middle class get to a level of wealth and can buy things from us... ?
  6. Whatever those products are you named in question 5, why can't the Chinese make them internally in 5, 10, 15 years?

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