Posted on 01/28/2006 10:26:38 AM PST by Dark Skies
During his re-election campaign in 2004, President Bush was often put on the defensive by Democratic rivals over slow job growth and the complex issue of outsourcing. Contrary to the claims made by his liberal rivals, outsourcing is not simply about cutting jobs and moving them to a developing country like China or India.
With improvements in digital technology, many experts say we are on the verge of a new outsourcing wave. In the so-called flat world, any work that can be digitized can be transferred around the globe via email in a matter of seconds. Many job categories, that do not require personalized contact with the customer, are at risk.
For example, say a team of Mayo Clinic doctors were to design a new medical device for heart patients but are unsure about how to commercialize the new device. Outsourcing can provide what used to be regarded as highly personalized professional services at a tiny fraction of the cost of American professionals providing the same package of services.
BusinessWeek, in a recent special REPORT (LINK), explained how the New Delhi-based Evalueserve Inc. will, within a day, assemble a team of Indian patent attorneys, engineers, and business analysts, start mining global databases, and call dozens of American experts and wholesalers to provide an independent appraisal. And what is the total price tag? Around $5,000.
One could make the argument that new professional class victims are being generated, that the sinister effects of outsourcing are destroying high-paid jobs. But by dividing work processes and sending some of the simpler tasks to other locations around the globe, outsourcing is also about making the whole organization more efficient and profitable. In this case, it is an infant entrepreneurial venture, one developing a life-saving product that could generate many high-paying jobs in America. BusinessWeek called the new concept “transformational outsourcing,” and explained that outsourcing to a foreign country (or as the experts say, offshoring) is really about corporate growth and making better use of their skilled American employees.
The Mayo doctors can continue with their medical research and leave at least some stages of the communalization process to their Indian business partners. Market and patent research, and many other professional skills are becoming globally traded commodities, slowly but surely. Far from being a zero-sum game, where one side wins and the other loses, offshoring creates mutual economic benefit.
A 2003 study by the McKinsey Global Institute (MGI) showed that offshoring creates wealth for Americans as well as for China or India, the country receiving the jobs. According to their research, for every dollar of corporate spending outsourced to India, the American economy captures more than three-quarters of the benefit and gains as much as $1.14 in return.
True, some hardworking Americans will lose their jobs, but this painful reality doesn’t weaken the case for open markets and free trade policies. Given the benefits of offshoring, the logical response is to make our labor force and economy more flexible and able to cope with change, and keeps our workers performing higher value-adding tasks. The worst thing we can do is use regulation and tax policy to trap Americans in jobs where overseas sources are more competitive.
But it is not a perfectly smooth process for either side. Even in a country with exploding university enrollment, worker shortages are popping up in the manufacturing strongholds in most prosperous southeast region. Rising rural incomes mean fewer people are migrating into the major southern cities of Shenzhen and Guangzhou in search of work.
After years of wage stagnation around Hong Kong in the Pearl River Delta, salaries are starting to creep up and some firms in the most labor-intensive industries are starting to consider moving their factories farther inland. For instance, in the city of Dongguan alone, there are an estimated 267,000 unfilled jobs. Of course, the underlying challenge is make sure more Chinese people have the right skills to fill these job openings.
As does India, China suffers from a serious shortage of skilled business managers and researchers with international experience. While the number of MBA programs in China has greatly increased, demand for talent greatly outstrips supply. To understand the depth of this problem, consider these estimates from another MGI study:
The Middle Kingdom has some 25,000 state-owned enterprises along with 4.3 million private firms. But it has too few experienced managers for even the elite firms. It’s estimated that even the relatively small number of Chinese companies trying to expand abroad will need up to 75,000 internationally experienced leaders if they want to continue to grow over the next 10 to 15 years. Currently, there are only 3,000 to 5,000 such men and women in the whole country.
In the years ahead, India may face a similar talent shortage. While India has built up an international reputation for its dynamic information technology sector and call centers, the government has recently passed into law a controversial bill that critics charge will damage the very academic institutions that provide the most skilled employees that the Asian giant desperately needs to move up the economic ladder.
In an effort help millions of poor children, Newsweek recently reported that a new “quota law” has many private universities worried that they will lose their financial viability and academic integrity.
Similar to the debate over affirmative action raging at many American universities, this sensitive issue involves questions of fairness, academic standards, and helping students from less privileged backgrounds.
India is a caste society where the Dalits (or untouchables) face a bleak future with limited opportunities. While these private institutions have a long tradition of basing their academic decisions on merit, they will be forced to lower their standards to admit students from less privileged families and lower their tuition fees.
Americans should welcome Asia’s economic rise. While there are numerous cultural and legal hurdles to overcome in international business, greater cooperation would allow Mayo Clinic doctors and IBM engineers to concentrate on what they do best, creating products, services, and companies which do what Americans do best: innovate.
With many potential pitfalls, Asia’s continued economic development is not assured. Instead of trying limit trade and investment with the developing world, it is in America’s best long-term interest to promote more interdependence and keep China and India moving on a path toward greater prosperity.
Yes digital sourcing is already quite the rage in publishing/printing. The international CENVEO company in the U.S. basically 'frontdesks' client designs ftp's the design files to China and the client has the printed pieces on their desk within 24hrs FedEx.
The small company I'm with is looking to do the same thing, as a way of leveraging its small pool of talent in order to execute larger projects.
We're already using foreign talent, bringing them here; we've found that, through the magic of broadband, some of them are able to be productive while they are back home, which leads us to ask the question, why bring them here in the first place? Why not instead send our project leads there?
I've seen the same thing with my previous company, doing the high-end work in the states and doing the detailed work in the host country, and it worked well, again you just send a couple of specialists to lead the effort, and broadband allows you to keep it all together.
So we're going after work a hundred times the size of our normal projects. Not sure how its all going to play out, though. We're covered up with work right now, but they are looking ahead to the day that work slows down again; we want to have made the leap to the bigger playing field.
With many potential pitfalls, Asia’s continued economic development is not assured. Instead of trying limit trade and investment with the developing world, it is in America’s best long-term interest to promote more interdependence and keep China and India moving on a path toward greater prosperity.Willie Green. Call your office. The future beckons you.
Interesting article. My wife as a computer program was someone who was "replaced" by someone from India. The company went from being a very good non-profit one with a good working model to a not-so-good public one. They lost big contracts (note that they prospered during the dot com busts) and are in much smaller offices than before--a shell of their former selves.
I still can't stand getting a call from "George Jones" or "John Smith." HEHE I do like having someone close by who can understand certain situations better than someone clear away in Timbuktu.
I hope this process spills over into the world of education (how can it not).
It would depend on our attitude and efforts.
Last week I was having problem with my Dell. I called up tech support. They diverted my call to somewhere in India.........
.....err wait a minute. I live in India (oops).
Uh, ok never mind.......sorry (wrong thread).
Outsourcing is very common (and becoming moreso) in the architect and engineering fields. For example, armies of CAD technitians are working for US companies via electronic transmission in India, Malaysia, Philipines, Indo-China (Vietnam, Laos, Cambodia).
Some management pundits theorize about the "totally disaggregated corporation," wherein every function not regarded as crucial is stripped away.
The latest outsourcing: debt collectors.
I have the misfortune of having the same name as someone up to his eyeballs in debt and sloppily delinquent about paying his bills. Over the last few years I go through spates of phone calls from so-called lawyers' offices and their investigators. I've even had so-called self-proclaimed bounty hunters show up at the door to repossess cars I have never owned.
Guess where the calls come from now? Just guess. Come on. You can do it . . .
lol..."Is this Dell tech support? It is? Oops, please hang on, my other line is ringing."
I have the misfortune of having the same name as someone up to his eyeballs in debt and sloppily delinquent about paying his bills. Over the last few years I go through spates of phone calls from so-called lawyers' offices and their investigators. I've even had so-called self-proclaimed bounty hunters show up at the door to repossess cars I have never owned.
Guess where the calls come from now? Just guess. Come on. You can do it . . .
WOW. interesting. Yeah, that does happen. I had a neighbor who had the same name as a teacher who died. She went to the office to renew her teaching certificate and someone told her, "You can't renew it, you're dead."
One thing that a lot of folks here at FR forget; as the Japanese say, "Business is war."
When China has the lion's share of world industry and the jobs and taxes that go with them, their economy will prosper.
When the United States loses most of it's industry, and the jobs and taxes that go with it, our economy will wither.
One wonders: When the United States loses our heavy manufacturing capacity, who will produce the equipment that would be needed to support a war effort on the scale of WWII?
Oh, right, I forgot- that can never, ever happen.
Customer: "I've been ringing your call centre on 0700 2300 for two days and can't get through to enquiries, can you help?"
Operator: "Where did you get that number from, sir?"
Customer: "It was on the door to the travel centre."
Operator: "Sir, they are our opening hours."
From the article:
>>True, some hardworking Americans will lose their jobs<<
F'm!
I truly believe that America is entering into a post-capitalist era.
Unless you have a quasi-monopoly (as does Microsoft, and to a lesser extent some of the pharmaceuticals on patented medications), the HIGHEST profit margins (not to be confused with TOTAL profits) come from selling fewer goods, not more. (check out your local Foot Locker and look at the prices on numbered, limited edition sneakers).
This means that attracting large sums of capital in order to mass produce items is becoming less important than being able to quickly attack small, niche, high-end markets, which is something that large corporations are generally unable to do (Kodak or Xerox anyone?) but which small teams (maybe coming together for one project before disbanding and re-forming differently for another project) are perfectly suited to.
Unfortunately, this will, of course, have a negative impact on those people who want the security of staying at one company and doing the same job for 40 years. On the other hand, I'm not sure why those people believe that they should have today's standard of living while producing at the rate of 40 years ago.
Let the Asians have the stinky, polluting factories. As long as Americans are telling them WHAT to produce, we'll continue to do just fine.
Globalists are always spewing this garbage, but you notice that they never spew specifics.
The worst thing we can do is use regulation and tax policy to trap Americans in jobs where overseas sources are more competitive.
Yep, can't have an American getting a paycheck larger than someone in the third-world.
You identify some things that I've wondered a lot myself.
Gentlemen:
We can decry the outsourcing of US jobs or take a real look at what is going on...try to understand...and anticipate trends and consequences to our advantage.
Outsourcing is a global phenomenom...trade barriers are coming down to varrying degress...some countries like China are still agressively protecting their home industries and invading other markets like ours (but also massively investing in our governments bonds)...but other countries like Brazil are aggresively countering such predatory measures...India is certainly a leader in outsourcing but they are running out of skilled professionals and countries like the Phillipines will benefit by supplying the shortfall ...other countries like Japan need to deal with aging populations and shrinking workforces (while foreign investment in Japanese markets skyrockets).
The bottom line is that gradual massive movements are taking place in reaarangements of supply lines (China from Saudi Arabia) labor forces (outsourcing) markets, and investment capital
Deal with it...national boundaries are becoming economically unviable.
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