The mother of all key questions! IOW, if all we're doing is saying "ain't it awful" then we can say it and go home. But if we're talking about raising my import taxes to feed the non-workers, then let's pass the hat.
Posted on 07/02/2004 8:37:28 AM PDT by CarrotAndStick
In a significant report, an influential consultancy firm has warned American companies that either they outsource more work to India, including high-powered functions like research and development, or face extinction.
Companies risk extinction if they hesitate to shift facilities to low-cost countries because the potential savings are so vast, said a recently released report by Boston Consulting Group.
Outsourcing and India: Complete Coverage
The report also cited US executives who felt quality of American workers were deteriorating, compared to the high quality of workers in countries like India and China, the Washington Post reported.
"The largest competitive advantage will lie with those companies that move soon," the report states.
"Companies that wait will be caught in a vicious cycle of uncompetitive costs, lost business, underutilised capacity, and the irreversible destruction of value," said the report, released in May.
Boston Consulting, which counts among its clients many of the biggest corporations in the US, tells the companies that they have been too reluctant rather than too eager to outsource production to LCCs (low-cost countries).
"Successful companies," says the report, "ask themselves, 'What must I keep at home?' rather than 'What can I shift to LCCs,'" says the report. "Their question is not 'Why outsource to LCCs?' but "Why not?"
The study suggests that the movement of jobs to countries like India and China is likely to accelerate strongly in the coming years.
The report also revealed that during confidential discussions with executives at Boston Consulting's client companies, many conveyed low opinions of their American employees compared with labour available abroad.
Not only are factory workers in low-cost countries much cheaper -- well below $1 per hour in China, compared with $15 to $30 an hour in the United States and Europe -- but they quickly achieve quality levels that are "equivalent to or even higher than the best plants in the West," said the report.
"More than 40 per cent of the companies we talked with expressed significant concerns about the erosion of skills in the work force (in the US). They cited machine operators who are unable to handle specialised equipment properly or to make the transition to new work materials. In contrast, LCCs provide large pools of skilled workers who are eager to apply their 'craftsman' talents."
Midlevel engineers in low-cost countries, says the report, "Tend to be more motivated than mid-level engineers in the West," said the report.
It cites General Electric Co, Motorola Inc, Alcatel and Diemens AG as examples of companies that have set up research and development centres in both India and China "to leverage the substantial pools of engineering talent that are based in the two countries."
Indeed, the report undercuts the view that research and development jobs in Western countries will increase even as low-skill jobs migrate to nations like India and China.
Among companies with large operations in low-cost nations, "one of the most intriguing advantages we have come across is faster (and lower cost) R&D," the report states.
The report, the Post points out, provides reason after reason why US firms should locate operations offshore, and rebuts the arguments for why the trend is likely to slacken.
In contrast to experts who have predicted that rapidly rising wages in China and India will dampen their appeal to corporations, Boston Consulting contends that the Indian and Chinese cost advantage "may actually increase" in coming years.
"If wages increase at an annual rate of 8 per cent in China, while in the United States and Germany they increase at annual rates of 2.5 per cent and 2 per cent respectively in 2009, the average hourly wages will be approximately $1.30 in China, $25.30 in the United States, and $34.50 in Germany. So, in dollar terms, the wage gap will have expanded rather than shrunk."
Moreover, it says, "the growth of wages in China and India will be limited because of the enormous reservoir of underemployed people in these countries," noting that 800 million Chinese living in the countryside "are expected to exert very strong downward pressure on wages for low-skilled positions over the next few decades.
India, for its part, has a pool of 25 million highly educated English-speaking workers, expanding by a million every year, it notes and advises that some products -- such as those where patents and copyrights are at high risk -- should not be moved overseas.
It says that companies incur high initial costs, including severance payments, when they go abroad -- in the range of $25,000 to $100,000 per transferred full-time employee.
Establishing and managing a supply chain in a foreign country can also entail significant initial outlays, it warns.
But these drawbacks, it emphasises, melt away as companies recognise the other advantages to offshoring, including gaining access to huge and growing markets.
"China is a very special entity in this respect," says the report, "having already become the world's largest market for machine tools."
"Although the risks are real," it concludes, "experience shows that they can be managed -- and that there may be greater risk in failing to make the move to counries like India and China).
"Companies that continue to hesitate do so at their peril."
Oh contrair, they can and they do, Asian R&D is as good if not better then US R&D, Asian manufacturing surpassed US manufacturing in quality and value long ago.
True, but that's not all there is to it.
It's more like a contest between the 'can-doers' versus the 'can't-doers'. The happy people point to the good times rolling and the forces of darkness say it's impossible. I got this habit that when I see someone moping I get an urge to point out how we're blessed-- and sometimes it works.
let's say that he is as or more productive then his $25/hour American counter part. Now Is Asian labor a serious threat to US labor?
still waiting for an answer to 87
I can tell you about how I've done it and have been happy. If you're debating with me on behalf of the "can't do" crowd, you can tell me that I'm different (or I'm lying or some such thing), or if you're a "can doer" and seeking information you can say "wow, that's neat-- tell me more!".
But first your thoughts on this and post #102?
Yup. You're asking me to admit that companies will work to lower expenses, while increasing revenue. What's your point?
Again, what do you propose we DO?
I am a student of history, so I watch trends and try to imazine where they lead. Personally I am a can do person, I started a software company that I still work for, I own a little bar and I have invented quite a few really nice (software) things. I started life as an uneducated brick layer and worked myself up the food chain, so I am kind of a self motovated person, but I have never forgotten where I came from and I'd like to see others be able to do the same. hope that answers your question.
Tony: Sadly, we have no Ronald Reagans to lead us anymore. My "good ole American optimism" has gone the way of our freedoms. Regrettably, I have lost faith in American's abilities as it once was. Slowly, but surely, this country is sinking. We do not have the leadership at all levels who give me any feeling that it is going to change. I watch as American slowly dumbs down, more people not caring. More people know who was on Survivor than even know who their congress person is. I bet if you ask 10 people on the street to name their two senators, current representative in congress from their district, the mayor, their city district person's names, you will get answers like: Moe, Curly and Larry; or I don't follow politics. These people just show up on election day and vote their pocket book. They don't care if they are voting away their freedoms or not. Just vote for that extra dime. I see what is going on here in Washington state, around our county, in my town, over here in Seattle, in Tacoma and Everett. I see socialist coming more and more into power, more schools falling apart, more communist like McDermott being elected, Can't well, Osamma Mamma, Gary Locke the socialist governor. It is totally depressing. I actually feel like I live in the occupied territories. The local property tax person rode by my house last month. The other day I got a card in the mail that told me they were jacking up their estimate of my home by $22,000 so they could charge me even more taxes. And, there ain't a damned thing I can do but have a higher house payment to pay for their tax and spend programs. Schools in Kitsap Co., my county, suck. Students hang out all day at the mall. You can go there any time of the day and the damned place is full of teenagers. Smoking, doping, what have you. Becoming good little dumbed down democratic voters that will leach off my tax dollars in the future.
Optimism? Surely you jest?
On the radio a couple of weeks ago, some guy who ran a homeless place, who himself said he was homeless and lived there, said he could not find a decent job that would pay him the $17.50 an hour that he said he HAD TO HAVE to be able to live in Tacoma, WA. He would not take a job unless he GOT that amount. When asked what his specific job title was, he said he was like a general labor type person. Meaning, I am a high school drop out and the only experience I have is with a shovel.
Look at the city of Pittsburgh, which is teetering on the edge of bankruptcy. There are official commissions making recommendations, and they're being challenged by the Fraternal Order of Police and the Firefighters unions, who object to the commissions changing collective bargaining agreements that were made in cahoots with corrupt city officials. In any case, taxes WILL be raised on the backs of suburbanites who work in the city. Any wonder that companies and businesses are fleeing Pittsburgh or simply NOT hiring?
The mother of all key questions! IOW, if all we're doing is saying "ain't it awful" then we can say it and go home. But if we're talking about raising my import taxes to feed the non-workers, then let's pass the hat.
In a certain sense, I think this may be true. Corporations hire CEO's and other top executives who seem to come in and chop away at the established corporate structures in order to increase the value of the company's stock. These executives move from company to company, getting larger and larger compensation packages, probably work there a year or two, and bail out with golden parachutes.
I think that a lot of the reason these people make such large figures is the perception that they are making things better, and that perception is largely responsible for the improved valuation of a company. The quarterly report is the measure of the success of the executive. He merely has to cut costs, sell subsidiaries, close factories, and lay off workers to show a bigger profit. In spite of the seemingly obscene paychecks, if you can increase 400 million profits to 450 million in just one quarter, that 11 million dollar salary doesn't seem that bad at all!
If a family with the same amount of income stops buying clothing for their kids, and doesn't pay for college, and decides not to take the car to the shop, they will look better on paper the next month. But in the long run, the car may break down due to lack of maintenance, and the kids may find careers in fat food restaurants, partly from lack of education, and partly from lack of nice clothing. Similarly, stock buyers will think that since profits are rising, the stock is worth more, and they will buy more of the stock to hopefully get some of the dividends, or to make some money on market fluctuations.
I believe a lot of stocks are purchased by institutional investors, like CalPERS and mutual fund groups. These people probably don't scrutinize corporate histories as much as I would if I didn't have a pension fund and an IRA iwith a mutual fund group. As it is, I let them pick the investments, and I feel good when the report shows the share values increasing. So they are motivated by the same things as I am. They need to show incremental short term improvements so their shares will increase in value. Add to that, that the funds analyst has no vested interest in the long-term value of the stock, because he is just an employee of the fund group.
My opinion is that it boils down to a large degree to perception, which is why outsourcing looks attractive to some businesses. They can actually save money, but unforseen events like wars and terrorism can occur that can make the outsourcing decision far more expensive. But by that time, the execs who made the decisions will have golden-parachuted themselves to safer places.
I have a theory about public sector outsourcing, too, that goes like this: whether you are privatizing a government-provided service or taking over a previously outsourced service, you will save money in the short run. Take, for example, security: A private firm can bid for a security contract, and can show that they will do it for less. After they have the contract, they can raise the price gradually. After some time, the entity requiring security will see that it is cheaper to employ in-house rather than keep paying the expensive contract. Other factors, like high turnover of security guards, losses to theft or poor performance that comes from high turnover, will contribute to the increases in cost. They will hire lower-wage workers to take over security functions internally, and will actually show a savings. After some time, the new workers will unionize and bureaucratize, and the cost will rise. Eventually, it will become more cost-effective to privatize. It's only a theory, but it's my theory.
I dont understand the cartoon.
its all yours. I don't want my children struggling to earn $75K competing against $25K foreign workers. what for, people working in real estate and other fields are cleaning up.
Thank you for sharing. You're absolutely right about starting out on minimum wage and then working up to feed a family -- my thing was washing dishes at Denny's.
Even though it's so much easier to bandy slogans ("da bums are living off my taxes" <---> "da CEO's are stealing our food"), the issue is complex and both sides are right. We both know that the way we fed our families with a minimum wage job is that we improved ourselves to make our skills more expensive-- giving the min. wage. job to the next kid. What you might not know is that most Americans produce a couple hundred times as much value than most Chinese. That's what makes wages what they are, not tariffs. I can tell you all kinds of stories about trying to make do with local labor on off shore jobs, only to have to cut costs by flying in Americans.
Self motivated people like you and I are what the country is all about. The United States is distinguished by it's ability to out class the world-- ever since the 1780's when Jefferson, Adams, and Franklin went to Europe to negotiate free trade agreements. And we can also be willing to pay taxes needed for deserving charity cases.
"If the poor have no jobs and can't buy anything...how will the rich "stay" rich? "
The 'really rich' can invest their money to stocks & real estate around the world - they don't depend on the state of affairs in the US !!
I know it's not a pretty scenario - but the stronger will survive over the weaker (evolution theory)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.