Goldman Interviews Bain Capital On The Future Of... Outsourcing And Labor

Tyler Durden's picture

After this year's presidential campaign, private equity and certainly Bain Capital, will likely be the last entity that those pandering to populist agendas will go to advice over the future of the business cycle in broad terms, and the future of US labor, most certainly including outsourcing, in narrow terms. And Goldman - that staunch defender of the superiority of capital over labor - will hardly be confused as ever taking the role of workers in any discussion. Which is why we read the following interview by Goldman's Hugo Scott-Gall with Bain Capital partners Michael Garstka and Alan Bird on such topics as corporate restructurings and the future of outsourcing with great interest, as it is very much unlikely that any of the conventional media sources would carry it. And while one may have ideological biases in whatever direction, the truth as presented previously, is that US private equity is a massive "behind the scenes" juggernaut, whose portfolio holding companies account for a whopping 8% of US GDP, and is directly and indirectly responsible for tens of millions of currently employed US workers! At the end of the day, it may well be that what private equity firms such as Bain think about the future of US labor prospects is the most important thing that matters for the future of the so very critical US unemployment rate. Which is why we present, for your reading pleasure, the somewhat unorthodox interview below...

From Goldman's Hugo Scott-Gall

Michael Garstka is a Partner at Bain & Company in London, where he is a senior member of the firm’s global Telecoms, Media and Technology Practice and its Energy and Utility Practice. He has previously worked across Asia for a decade, being based out of the firm’s Tokyo and Singapore offices. He has worked with senior executives and shareholders on strategy-driven corporate transformations and turnarounds.

Alan Bird is a Partner at Bain & Company in London and Johannesburg and the lead partner for the UK’s Organisation Practice. He also heads the firm’s global Mining Practice and has over 20 years consulting experience across a wide range of industries and geographies. His particular focus has been on growth strategy, broad-scale transformation and organisation effectiveness, with a special interest in performance and effective leadership supply.

Hugo Scott-Gall: Do you think the time is ripe for restructuring?

Michael Garstka: Yes. What we are seeing in our work with clients is an increased recognition of the need for and appetite for major, structural change in their businesses, be that strategically or operationally in nature. This is driven by an number of factors impacting companies simultaneously. Some of these factors are very cyclical in nature, and the macroeconomic environment, particularly here in Europe, continues to be challenging. But there are more significant, longer-term secular trends that are driving major disruptions across multiple sectors, and these are being amplified by the cyclical environment.

These include technology evolution, regulatory and government intervention, demographic and geopolitical changes.

For example, a government policy agenda of driving lower carbon emissions in many markets is not just leading to major  investment shifts in generation to renewables from fossil fuels, but is also driving significant investments in smart meters, “connected-homes” technologies, smart grids, and even loft and wall insulation. Multi-decade long trends such globalisation and demographics are still opening up lower-cost labour pools in different parts of the world, impacting labour-intensive industries, their location and competitive dynamics.

So while the cyclical trends are increasingly forcing change in the short term, it’s the undercurrent of these longer-term secular trends that is going to impact value creation and value destruction. Take the media sector for example. The ongoing shift towards digitisation is significantly impacting the traditional print media. Newsweek, the 80-year old flagship media brand in the US announced last month that it would stop producing its print edition and instead move towards a wholly digital platform. Yes, revenues and earnings were aggravated by the cyclical downturn in print advertising, but this was less significant that the impact on print media profit pools of online advertising. This trend is hitting magazines, newspapers and yellow page companies.

In consumer electronics, the Apple-led shift to a software platform led mode vs. a hardware-centric mode within handsets has completely changed the market dynamics in favour of Apple and Samsung (which has enthusiastically embraced the Google Android platform) and away from Nokia, which just 4-5 years ago enjoyed disproportionate share of market and profit pool. In mobile telecom equipment, technology shifts such as IP, a shift to common global standards vs. national standards, and the entry of Chinabased low cost players ZTE and Huawei have come at the same time. The cyclical softness in telco capital spending has been challenging, but is not the major story. Rather, this has exacerbated the changes in the industry.

Today, at one end of market we have Ericsson that continues to be successful, and at the other end we have insurgent competitors like Huawei which are leveraging their lower cost structure and taking share from the bottom, while companies in the middle such as Nokia Siemens Networks and Alcatel-Lucent are facing pressure on both margins and operating cash flow.

So, it’s usually secular trends prodded by cyclical factors that drive restructuring, and this accounts for a lot of what we’re seeing right now.

Hugo Scott-Gall: And what about in the resources sector?

Alan Bird: While the underlying trend in commodities is for future growth, the headwinds encountered over the last 12 months as demand has slowed in China and elsewhere have accentuated investor demands for immediate cash returns - patience has run out for "jam tomorrow" promises. This has driven a significant emphasis on restructuring, broadly on three levels. First, companies are reshaping their portfolios (witness Gold Fields’ announcement this week of its intent to unbundle its legacy South African assets), rationalising their asset mix and getting rid of some non-core assets. This has led to the entry of some unusual and new players, including private equity firms, into the industry. For example, BHPBilliton recently sold its Canadian diamond mine (Ekati) to Harry Winston Jewellers, which also has share in a diamond mine with Rio in Canada. Second, mining companies are reviewing their growth projects on a cash generation and quality basis. A good example of this is BHPBilliton's shelving of its US$40 bn Olympic Dam expansion project in Australia. Third, increased price volatility is driving a shift in the profit pools in some sectors (for example, thermal coal) away from asset owners to traders.

Traditional miners in these sectors need to rethink their business models.

Hugo Scott-Gall: How hard is it for corporates to restructure today, particularly in Europe?

Michael Garstka: There is a clear difference in the pace at which you can drive change, depending on the country in which you are based. It’s not that you can’t drive change in less liberal labour market economies as in Mediterranean Europe, it’s just that you have to follow a different route. The legal, trade union and government engagement is different, as is the out of pocket cost.

So what takes a couple of months in the UK or some of the Northern European countries, could take more than six months cost you more in the South. Not being able to restructure quickly is a constraint, but not should not prevent you from taking these tough choices.

Overall, we don’t see it getting harder. In fact, the imperative to restructure is getting stronger, but what we are seeing in our work with clients is a shift in the way companies think about what they need to do to drive growth. There is a strong emphasis on the growth portfolio, not just in the BRICs, but increasingly in the next tier of Africa, Mexico, Indonesia, especially among the consumer products companies. Instead of trying to increase their presence more broadly, our clients are increasingly allocating capital to a limited number of attractive growth markets. In order to win there, they also want to grow domestic talent rather than relying on expat talent pools. And so, while it isn’t significantly harder nor easier for companies to restructure now, the type of measures they are taking is changing quite significantly.

Hugo Scott-Gall: How do you restructure a company that’s facing a structural decline in its business?

Michael Garstka: You first need clarity on the path forward and then you need the confidence, and frankly the courage, to make uncomfortable decisions. Many companies built sets of assets, often through acquisitions during the boom years, but have made only limited efforts to rationalise their portfolio of businesses, product lines, manufacturing facilities or suppliers. When you are facing these secular trends, however, you need to approach this in a quite dispassionate way, and accept that there are parts of the business that are not going to earn desired returns or even survive.

Of course, there maybe exit barriers or high costs in some cases, like large liabilities, labour contracts and pension obligations. But it is increasingly dawning on executives that they need to make these decisions sooner rather than later, because they are facing an extended period of slow or no growth, which will only make it tougher to get out of these  businesses. At least in Europe, there is no “V-shaped” recovery that is going to let them off the hook.

Hugo Scott-Gall: Does that mean that there’s a reasonable amount of restructuring that has been put off and therefore still needs to happen?

Michael Garstka: Broadly, I think that’s correct. Most executives don’t wake up and come into the office wanting to make a decision to exit a product line or a factory that they’ve operated for decades.

Few executives enjoy having to take 20% plus out of their cost structure, or wants to fundamentally change the way they’ve always manufactured their product or approached the market. These decisions are hard, and successfully executing on them is even harder. So executives often convince themselves that their market conditions are temporary and there will be a bounce back, and hence there is a tendency to delay some of these tough decisions.

But as it becomes increasingly clear that we are either having a series of very short cycles or an extended down cycle, the secular issues tend to become more important. And in a number of sectors, we will see restructuring that has been delayed come back under focus.

Alan Bird: The shorter term, cyclical actions typically get more attention at first, because they are immediate and more easily addressed. They broadly relate to multi-industry type solutions like supply chain rationalisation, cutting administration expenses, realigning R&D portfolios etc. Then there are industry-specific actions which many companies have been pursuing, such as ringfencing toxic assets in the banking sector. The more challenging actions for companies to take are those industry breakout or industry reshaping strategies which are unique to a specific company in a specific industry. This is typically the heartland for our consulting services and we are increasingly seeing our clients move towards seeking these breakout restructuring opportunities.

Michael Garstka: So to answer your question, more restructuring is coming and it will be greater in some sectors versus others. But the key question that companies will focus on will be how to position themselves to take advantage of the underlying secular trends we have discussed. Not all companies will make those decisions and not all of those that do will s successfully execute such more radical restructuring. But those that do will come out in fundamentally stronger positions five to ten years down the line.

Hugo Scott-Gall: How can we identify companies that can execute restructuring well?

Michael Garstka: It’s important to pay attention to what management is actually saying when they meet with investors, analysts and the press. If the conversation is focused only on things like supply chain, R&D levels and admin costs like Alan mentioned in the previous answer, it is worth pausing for a moment. That’s appropriate for a company in an industry isn’t facing any secular changes, and their primary issue is the macroeconomic headwinds.

But if you realise that there is some fundamental technological, regulatory or demographic change which management is not considering, then that is not enough. In these circumstances, when the focus is not on a 3-5 year horizon, but rather on what can be done for the next couple of quarters, that is watch out.

On the other hand, companies that are considering taking actions that would really take their company forward or those that are trying to understand how they are performing versus their direct competitors irrespective of being in a boom or a doom time, are the ones that can lead the industry in terms of costs and create genuine value. Typically it’s the number one or number two company in the industry, but there are other sources of leadership economics too, whether it’s through superior customer loyalty,platform control or intellectual property.

Hugo Scott-Gall: Given rising wages in Asia and associated transport costs and IP theft risks, do you think there’s a strong enough argument for some types of manufacturing to come back to the West?

Alan Bird: There are two competing trends here. The first is improving the quality and cost-effectiveness of products and services from these 'low-cost' locations. I have had the privilege recently of visiting some of these outsourcing locations in places such as India and the degree of sophistication they now provide is simply amazing. The second trend is for developed markets to reassess their supply chains to enable greater agility by returning to source more locally and in the process becoming more green. On balance, the overall trend is still towards outsourcing to lower-cost countries, but it will be interesting to see how this play out.

Michael Garstka: And it goes beyond just labour arbitrage. Now it is increasingly about a shift in channels. The activities handled by call centres that initially moved to low-cost locations for cheaper employee costs are now moving online. An increasing number of customer segments now prefer shopping, paying their bills, and managing “self service” online.

Especially with smartphones penetration, which is providing customers internet access everywhere, the shift to online platforms is very real and happening quite quickly. This is fundamentally driving companies’ unit costs down while also improving customer service. We are working with clients on this major transition in the telecoms, financial services,
utility and retail sectors in most major geographies. So, it’s no longer just about a shift in the physical location of labour, because you are substituting labour for online. Similarly, manufacturing is seeing an increased amount of intelligence in the form of automation, robotics and 3D manufacturing which are all increasing the intellectual and capital content of manufacturing, making relative labour costs the less determining factor in location. And this remains a major secular trend.

The most forward looking companies are looking at the total cost of their value chains, which includes the issues of security and stability as opposed to just the traditional elements of cost. For example, if a company had all of its memory chips being made in one province of Taiwan, an earthquake could disrupt production significantly. Intellectual property rights security is another concern that a number of companies have raised, particularly in some of the Asian markets.

Historically, the more labour intensive functions are the ones that have moved to offshore locations , but another major issue today, especially for Europe, is the relative cost of energy. Companies in energy-intensive industries are increasingly concerned about the emerging gap in relative energy prices across geographies, and particularly with the dramatic fall in energy costs in the US resulting the shale gas boom. Labour cost arbitrage was the story of the last ten years, but “energy cost arbitrage” could be a major differentiator of national competitiveness going forward.

Hugo Scott-Gall: Is a private equity-owned company easier to restructure than a publicly listed one?

Alan Bird: I don’t really see a major difference between the two. It really is down to the calibre of the management team and the confidence and the decisiveness of action. I don’t think being publicly listed creates a massive impediment in terms of restructuring.

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Winston Churchill's picture

Obummer will foil that energy arbitrage.

EPA has announced regs for fracking.The Govt. will kill it dead.


CH1's picture

EPA has announced regs for fracking.The Govt. will kill it dead.

I hope you're wrong. Though... I wouldn't bet against you. :(

Drove through ND not long ago - I have NEVER seen such a booming place in my life... Oh My Gawd!

Urban Redneck's picture

it happens every-time, every-place there is a black gold boom- Abu Dhabi, Nigeria, Ghana

hell you can go back to the various yellow gold rushes of the 19th century and see the same phenomenon

I am Jobe's picture

Bend over Amerika- Your Lords have decided your fucking future. Be happy with the Phones and Crap u got.


CPL's picture

Indeed.  I'll say it again though.  Pay peanuts and expect a circus instead of a show.  Bain Capital and all the Project Management shops are the overhead that needs to be cut deeply and left in the dirt.  I don't work for head shops that bank more than me.  They can take 10% and suck my dick if they want the work done.  I catch them doing otherwise and my crew will be on work to rule order.

See how smart a Management Consultancy is when literal definitions to project milestones are met and nothing is really accomplished. 

So this is a warning to all clients.  Use these shops at your peril.  Go direct, save yourself some money and you'll get it done with documentation, no bullshit and someone will answer the phone after the project is done for follow up support usually at the discounted rate originally arranged.   


" There is a clear difference in the pace at which you can drive change, depending on the country in which you are based. It’s not that you can’t drive change in less liberal labour market economies as in Mediterranean Europe, it’s just that you have to follow a different route. The legal, trade union and government engagement is different, as is the out of pocket cost."


Double.Eagle.Gold's picture

That's a kick-ass crew then, precisely the kind of team I enjoy helping.

Senior Software Engineer, 20 yrs commercial software, 1/2 that at Microsoft.

Now running a small Mobile Software company, available for additional consultancy work.


Ropingdown's picture

"If you pay peanuts don't be surprised when you have to hire monkeys."

I am Jobe's picture

The Cashless Society is Almost Here – And With Some Very Sinister Implications

CH1's picture

Bitcoin, my fellow rebels... Bitcoins online mixed with PMs in person.

Things that go bump's picture

I get an error message with that link.

rtalcott's picture

Sounds like the same obvious line of consultant bs to say we are going to continue to drive our costs lower while taking advantage of all the gubbermint money...I never met any of these guys that I thought was worth the money they wanted for their rather obvious thoughts and advice...people pay these guys?  clients?

CPL's picture

You can bet that if the engineer is making 1200 a day, then these parasites are billing 4500 a day.


There's a reason nobody bothers helping them.  What they are hoping or are really dumb techies/engineers to forward resumes so they can continue the fleecing.  It has come to the point painting residential homes in Ottawa area is more profitable for Engineers than actual engineering.

rtalcott's picture

I agree...I've worked with most of the big ones...not out of choice...and it amazes me that anyone hires them and my argument against it is the same as yours...of course I'm unemployed now and they are not...and yes they are nothing but overhead in the truest sense of the term...

And I have never seen any of them accomplish anything that I could not have done better, faster & cheaper even if I had to learn how.

CPL's picture

Give it time, their money runs out as well and people are starting to ignore them as a market option because they've shit deeply in their talent pool sand box over 20 years AND we have NOBODY coming out of the schools to replace us. 

Did a talk a couple of years ago for the graduating engineers for Carleton and U of Ottawa, I shouldn't have booked an auditorium.  I should have booked a party room at a pub.  Pretty sad under 20 kids with an Iron ring from a starting point of 900 students in both schools programs.  Kids and their parents know the punishment we recieve for being part of this career path, it's just not worth the risk for them anymore.

Otherwise any career techies, dev and engineering staff I know are so used to the lay off cycle we are nearly impervious to bad economic cycles.  I don't know a guy/gal that is technical that does NOT have ten other sidelines and at least two other skills to fall back on.

Those pencil necks aren't skilled in anything but bullshit.  Once they miss a payment on their leased BMW shit tier rides..well Bullshit walks and money talks.  At least when I'm between gigs I can call up anyone of my under employed friends and we can make a product or service to sell because you and I ARE the product.  Buying sales and marketing support is cheap, go to any local community college and throw a couple of bucks and beer at some of the "business" students and get them to pound bricks for you.  Schools are full of them.

So don't consider yourself unemployed, think of it as building time.  The more often you get the pink slip, the more likely you'll build something of value between sitting someone elses office and pink slip country.  Eventually you'll be able to get some other things rolling, also creates the protection of ignoring low ball bids these leeches throw at us because you are well hedged with cash flow coming in from other opportunities you've set up yourself.  Make yourself harder to kill than a cockroach.  lol

Double.Eagle.Gold's picture

Ditto on having multiple skills to fall-back on.

Run a private Corporation, my investment vehicle for managing my accumulated 401K/IRS fund's. Prefer hard-assets, or businesses I can own outright. A Singapore brothel: offshore, fully owned, and hard. No Wall Street paper for me.

Started a small software company to produce mobile App's, ( Very tough business, hand & mouth. Just passed 1st year and 1,000 customers.

Teaching computer programming for a well-known East Coast Technical Training Company. One week gig's, fair pay & a challenging classroom filled with paying customers.




Yen Cross's picture

 Mittens is rolling over in his La Jolla crypt...

yogibear's picture

Two promoters (Bain and Goldman) of overseas outsourcing discussing somthing they want to do to infinity.

Like 2 promoters of porn discussing the future of porn. 

Goldman and Bain will push it's companies to use  Vietnam if it's cheaper than China.

BorisTheBlade's picture

There is a limit to everything and I bet both Goldman and Bain may find themselves much less relevant in 5 / 10 whatever number of years for exactly the reason they hope they maintain their relevance - the outsourcing efficiency is going to reach its apex and Bain and Goldman will finally be outsourced to China. Giant sucking sound of jobs seeping outside will be heard well within their ivory towers. Doing God's work should teach one a bit about God's irony.

Bobbyrib's picture

Goldman may see a decrease in their international influence, but I don't think they will see a decrease domestically, IMHO. They control our economy and both candidates in the last "election" were puppets of Goldman.

BorisTheBlade's picture

Maybe, but the point is financial sector is bloated and feeds off milking rest of the economy. Their influence might be the mother of their own undoing since they are the best and brightest and whatever, much less excuse to say they didn't know about the consequences. But sure, political influence and general public ignorance will buy them extra time and opportunity to eat less fortunate, no doubt.

NooooB's picture

Already happening.. Cambodia, Laos, and Myanmar. Thailand is already outsourcing because Thai people have become spoiled by the comforts of toyota factories and are starting to expect a decent days wage... china has been outsourcing to these places already and it's going to boom.  It's the vampires in every country that are going to profit. They will hapilly grind the rest of us into the dust as long as they get their yacht... And then they accuse the rest of us of class war... I guess that's why their rich.. Big fucking brass balls...

LongSoupLine's picture

two fucking crooks pretending to conduct an interview.



fuck both those middle class raping fucking meat stick assholes.  may they both get the worst case of tape worms in history.  fucking life sucking parasites.

Yen Cross's picture

 You are awesome! The sheer honesty, and blatant harshness of your posts is refreshing...

JamesBond's picture

When a young person fresh out of college oweing $40K in loans enters the job market with no way to discharge the debt, they will work for peanuts.  outsourcing for low worker wages is about to meet the starving 21 year old american in need of any job at any wage...



Intelligence_Insulter's picture

And they will work for a lot less because they are living in their parents basement.  Paying monkey drones anything over 12k a year is charitable.  It's good to see the entitlement mentality of the middle/upper class is being addressed and their inflated wages/egoz being knocked back down to earth.

Just because you have a mortgage and car notes doesn't mean you are entitled to a 5 figure job. That era is over.

A Middle Child of History's picture

In times past I would agree with you. However, we are living in unsettled times and if someone does not have a way to repay 40k in loans, they will default. This will occur before a graduate debases themselves to the point of working in a job far below their education and ability. The practical reality is that the cost of living in most locales requires a hourly wage quite a bit higher than the average fast food worker makes, just to break even. Living in mom's basement is a survival mechanism for many, and not laziness as many affluent Boomers accuse.

We increasingly see default as the, well, default way of dealing with overindebtedness. Walking away from an upside down mortgage, defaulting on credit cards, defaulting on student loans that were supposed to provide a good job in a society that has defaulted on a social contract with its younger workers. And lastly, we are about to see the biggest default of all, a government that is about to default on trillions in promises it made to older generations while it stole their savings through manipulating interest rates and running the printing presses.

When all of this goes down, a 40k student loan will be the least of the worries facing a young college graduate, and certainly not a motivating factor to take any kind of employment, which will most likely not be paid in dollars but in cans of food or bags of grain.

Double.Eagle.Gold's picture

My wife & I would voluntarily move into the basement if any of our kids offered to move home & help with the mortgage.



Omen IV's picture

how does the kid work for $1-$2.-- per hour on a manufacturing line or 3X that as manager -  necessary to compete with china SE Asia and pay his loan?   the equation will never work -

the "restructuring" will be nations changing the rules of engagement - the arbitrage of labor and now QC / robots- manufacturing systems / machines from germany to far east will mean murder by neglect for western workers - the WTO terms will inevitably change - cant realistically continue

Ropingdown's picture

Cheaper energy.  Protection of IP for a highly automated process.  If those don't tilt the equation back to the US, the function will stay (or go) off-shore.  (The Japanese tried protecting the key IP in a manufacturing line by isolating the key process in a Japanese-staff-only section of the factory.  In many cases this has failed to keep the IP secret.)

Rainman's picture

Some days I think it's just too bad these innovative brainiacs didn't stop with their efficiency innovations when they created the microwave oven. Disposable working class humans will soon be paid with a couple of daily rice balls by the various cartels. They will like it or they will starve.

Debt-Is-Not-Money's picture


"...humans will soon be paid with a couple of daily rice balls..."

Everybody must have a rice bowl, but some will be bigger than others!

A Middle Child of History's picture

Interesting article, but none of it matters since the beast is on the gobble and we are all headed for it's belly! Woggie, Woggie, where art thou with thy pestiferous youtube link?

Seasmoke's picture

Don't worry Bernanke is on the unemployment. It is one of only two things that is his mission.


A Humble Man's picture

The way I read the article is that the banksters and private equity cant make money right now levering up companies on borrowed money to overpay for other assets.  That cycle has come to an end.  We now have the new story, its better to break up companies into smaller units to become more cost effective, flexible, and agile. 

Its all bullshit.   

slackrabbit's picture

OK listen to the BS

"These include technology evolution, regulatory and government intervention, demographic and geopolitical changes."

WOW - thats what I learnt in a second year paper in international business. - Tech changes, Legal changes, Gov't policy changes, Demographic changes and Geopolitical changes.


As my professor said and I quote - 'You can pay a wanker $1000 per day or you and your staff can read the news'.

Urban Redneck's picture

The problem is that even if you pay the wanker $1000 per day, you still need to do Wanker-to-English translation:

Wanker: The second trend is for developed markets to reassess their supply chains to enable greater agility by returning to source more locally and in the process becoming more green. On balance, the overall trend is still towards outsourcing to lower-cost countries, but it will be interesting to see how this play out. ... Wanker 2: And it goes beyond just labor arbitrage.

English: Management looks at the "Green" movement driving up costs in developed markets in order to subsidize more pollution in developing markets, and then looks at their global organization and cost structure and decides they need to off-shore even more of whatever parts of their organization are left in developed countries to developing countries where they can reap the benefits of this perversion, and in NWO bizzaro-world they will actually be able to spin this as becoming even more "Green"...

(Wanker 1's purported conflict is simply double speak, which even he admits)


Schmuck Raker's picture

Goldman? Bain?

Has the 2016 election campaign begun already?!

NuYawkFrankie's picture

Goldman interviews Bain Capital...

Leprosy interviews Gangrene...

buzzsaw99's picture

two vultures talking about how long the carcass will last

JustACitizen's picture

There may come a day when the two vultures - quibbling over the remnants have to have a little cage match. I only hope that the current practitioners are all still there.

On the other hand - I often wonder what will happen when the people of China/India realize that the global corporations have turned their homes into toxic garbage dumps...

Methinks we will be living in "interesting times" for quite some time.