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."
I don't know wher you got the 20 cents.... let's say $1.
Even so - you cannot make it here.
But those living in China CAN !!
I'm really appalled at the lack of economics education I see here. This looks more like DU than Freerepublic! How is it that most of us can be in favor of free trade of goods, but not the free trade of services? Where's the difference? For those of you that have actually had a ECON class in your life, think back to the principle of comparative advantage.
Trade never lost a SINGLE job. Trade creates jobs. When a good or service is produced overseas instead of in the US, people are displaced and become unemployed (temporarily).
If something can be produced cheaper somewhere else, than that makes both the domestic and world economy more efficient. The cost of a good or service is directly proportional to the amount of time, skill, and material that is put into it.
We also have to keep in mind that there is a FINITE amount of land, labor, capital, and resources in the world. If we use the factors of production in the most efficient manner possible (cheapest), more goods and services will be produced in the world and we will all be better off.
We would all be worse off if we were to ban the use of bulldozers and mandate that shovels be used to move earth, but it would create jobs right?????
And those BIG light bulb industry put a lot of candle makers out of work. Let's shut the lights off on them and shut them down and put the candle makers back to work!!!!!!!
While we're at it, lets ban tractors and other farm equipment except a plow. Those devices put a lot of farm workers out of work!!!!! These rich plantation owners make all these crops with hardly any workers at all. How do they expect the rest of us to buy their crops when we don't have any money to buy them because they put us out of work through the use of tractors and other machinery??????????
Let America be America again!
There is not a unlimited supply of skilled labor in China and India, in fact it's in rather short supply. As this labor resource is utilized more intensively, the price of it will go up dramatically. It's been my experience that the skilled labor in China/India isn't so skilled after all. Often the good or service is of lower quality, with more mistakes, and takes longer to finish.
Management often has tunnel vision. They see the cost of labor only, and often focus of the labor cost per worker and ignore the consequences. If you're a software company, bugs cost a lot of money in that the value of the software decreases as well as in reputation, and of course the money spent in finding and fixing bugs. If you're an engineer, small little mistakes can be very costly.
Just ask NASA about one simple little mistake made on the Mars rover a few years back where a single metric to standard conversion cost a couple billion dollars. If you reduce the chance and occurrence of costly engineering mistakes from happening, paying an engineer $75k/year here might be a bargain compared to a engineer in India or China making $10k/year. Stupid companies/management that only look at labor cost can miss the big picture. Cisco and Dell have sent support to India and it has been a disaster and has ended up costing them more money. Save a dime to spend a dollar.
You could go to a country like Brazil and get a triple bypass done for say, $1000, but that could end up costing you a lot more, your life!!! I'll stay in the US and pay whatever I need to pay to get good quality care.
If we send a dollar to China in exchange for a good or service, what good is that dollar to someone in China? They can't spend that dollar in China because their currency is the Yuan.
Their options are: Sell the dollar on the currency exchange market, buy a good or service directly from US, use the dollar to invest in the US, or use that dollar to buy other things in the world.
If that dollar is sold on the currency exchange market, the value of the dollar relative to the Yuan decreases. This makes Chinese goods more expensive for Americans and American goods cheaper for the Chinese. Because of this, the trade surplus/deficit, both in goods and services in the long run will be zero.
If that dollar is used to directly buy a good or service from the US, then the exchange rate does not change and a job is produced to replace the job that was "lost" before.
One of the worst things in the world is to stuff dollars under your mattress. Both Americans and foreigners know this. They either want to get goodies with the dollars they have or invest it to get more dollars so that in the future, they can buy even more goodies. Whether that money is spent on goodies or invested, jobs are created.
As Americans, we are extremely blessed and lucky to have the dollar as the reserve currency of the world and the currency used to exchange in many goods, most notably OIL. What's great is that we control the dollar-we print it! We send these green pieces of paper overseas in exchange for cars, clothes, oil, electronics, you name it! And the other great thing is that you don't even have to send a lot of these green pieces of paper! The Fed can do its part in saving the spotted owl by adding zeros!!!!
The use of dollars in investment or transactions in the world plays a large role in making foreign labor goods and labor look cheaper than it really is because if all dollars that were sent overseas were to be put on the currency exchange market then the value of the dollar would plummet and that would make the price of foreign labor and goods very expensive from an American point of view and American goods and services cheap from a foreigner's point of view.
People (mostly liberals) don't understand one very important economic concept. At some point,we are all producers and consumers, except for those leeches on welfare. People whine that this or that will make the rich more money and leave the rest of us without money or jobs. Nonsense! If I go out and make a bunch of money by producing a lot of great worth, those pieces of paper do me no good unless I do something with them, IE spend or invest them! JOBS!!!! HOORAY!!! "Trickle down economics" does work!
"Poor" people do not create jobs in this country, in fact, they cost jobs. It is the rich people that create the jobs.
Well, I'm off my soapbox for now.....
bump
INDIA AND CHINA STILL HAVE SLAVE LABOR AND NO LAWYERS. SEND ALL YOUR WORK THERE NOW AND TAKE ADVANTAGE OF THE SLAVERY OR YOUR COMPANY'S PROFIT MARGIN WILL BE TOO SLIM TO COMPETE.
I think that wraps it up.
SLAVE LABOR -- That explains it. Last time I was calling tech support they had all these whips and chains sounds in the back ground. I thought I was copying the phone number out of the wrong magazine or something.
I envy you that you lived in such idyllic times. It reads almost like a fairy-tale.
As manufacturing & R/D is being killed in the US - more and more students (avoid engineering) and are going to law schools... I don't even want to envision the times to come !
Exactly. The only way to maintain our competitiveness is for Americans to start thinking this way, instead of the constant doom and gloom- everyone's going to be working at McDonald's- scenarios.
I talked with an Indian business student out here in California at a local college.
There is current slave labor, but to get around the human rights stuff and the UN, they wrap the slavery with a employment contract that gives employees in most cases almost nothing.
"the constant doom and gloom - everyone's going to be working at McDonald's- scenarios "
Also let's not forget the WalMart GREETERS !!
That's called the destruction of the middle class.
American unions priced themselves out of the labor market.
The irony is, these SAME workers, now retired -- are combining their capital (retirement savings) with FOREIGN labor to make earnings.
Is this a great country or what - </sarcasm Off>.
If we had just kept the GD unions OUT of it in the first place, we could have maintained long term growth, without this instability.
THANKS, DEMOCRATS
Now! Now! Now! Let us not let Shakespeare get in the way, shall we?(Oops, too late!)
In conditions of global "free" market with no tariffs every the labor has to be a commodity driven to the lowest possible level. When surplus labor is available it means below subsistence level.
Marx predicted it long time ago but backward Soviet block prevented this revolutionary situation to take place in the most developed countries. Bussiness class is too stupid not to hand over the rope to hang its members.
This is absurd. The same companies that are complaining about skills are the same ones that won't spend any money on training and new technology. Oh man, I can't believe they are saying that workers who are used to working in fields with water buffalo are better equipped to handle new technologies whereas the American worker, who has been exposed to technology his whole life. This is so blatantly prejudiced I am ready to puke.
84 - "Are you saying that we shouldn't outsource 4,633 jobs, even if it creates 947,000 new jobs with higher pay"
ROTFL - you really don't have a clue, do you?
I will give you 4,633 dollars if you will give me 947,000 dollars.
That's all it takes, and you can get rich.
106 - "I can tell you about how I've done it and have been happy. " (live on $4.50/hour).
And don'tell me to collect a US salary/retirement from a US source and live in a low cost of living place like Panama.
but its true, corporate managers trash talk their workers to help justify their offshoring decisions - while filling their own pockets with the savings between US salaries and the salaries of the offshore workers.
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.