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."
to say that mutual fund and 401K owners, actually in some way "control" the companies they invest in through their ownserhip is wrong - they do not. These investments are one step above casino gambling for the average person.
Thanks for adding something new to the discussion.
Another thing that I think of when reading early American biographies, is that businesses used to invest in their employees (and thereby had a vested interest in them and retaining them). Such as the apprenticeship programs for everything imaginable (i.e., Ben Franklin and his brother's print shop). Now the employee is responsible for paying for his own training and retraining in which ever way the economic winds blow (and technology advances)and there is no vested interest either way.
It's called propaganda, friend. They'll paint any picture they can to hide the one they don't want the public to see.
I was about to lecture you on getting a positive attitude until I saw your 'about' page-- you're no stranger to hard work and success.
Like jpsb and I were saying (click here for post 119), we've all worked at one time or another for minimum wage and not only did we not die, we prospered. 35 years ago jpsb and I were grateful to have work at any wage. Sure we could have used some extra cash, but if we'd have held out for high pay at the beginning we'd never have gotten to where we are now.
If we try and 'fix' capitalism by passing laws (like min. wage raises or high tariffs) to prevent minimum wage jobs, then the next kid is going to be out of luck-- who'd want to hire someone only worth $4.50 if they're going to pay $10 anyway?
You can laugh at the idea of creating 947,000 new jobs while outsourcing 4,633 jobs, but that's what's happening and we've got to accept reality as it is.
give you 4,633 dollars if you will give me 947,000 dollars.
There are corporate bonds for sale that can do better than that-- it just takes 50 years. You don't need tell me about how 50 years is too long for you-- every time I say how things can be done (and how I've done it) there are lots of freepers who can think up reasons why it can't be done (or why they can't do it). As one Texan to another, we know there's always some way to make things work out right.
This is a must-read for me later.
"It takes longer. The quality is poor. And the "total failure" rate is very, very high, on the order of 80+% "
But it's cheaper ! And cheaper is the mantra these days.
Remember LOW LOW Price....
The company I work for is a wholly owned of a large multinational corp. They are lobbying strongly that we look to china for machined parts that are needed. Advantages? All new equipment, not junk. Low hourly rates (about .40-.50 cents per hour. Over 10,000 machinists working in one location. BTW, the machinery is all state supplied meaning the companies don't have to worry about getting a return on their investment. Scary.
Good post. It seems that if big government/the bureaucracy, academia, labor, the legal profession, the courts, Hollywood, etc had more conservatives as balance, they would'nt be the big and growing threat that they now are. The right don't like big government, and as a result, big government is dominated by the Left....and those people affect every aspect of our lives. Would big government controlled by conservatives be better than one controlled by Liberals/Socialists? Or would Conservatives do what Liberals are now doing? Same for academia, labor, the legal profession, etc.
Are you reserving the right to complain that "foreigners" are taking all of the spots in our Engineering Schools?
"In China in the 1920's, labor was so cheap that humans were used instead of horses to pull loads. The horses actually had to be fed, where the humans were left to their own devices."
OUCH ! It looks like we went the full circle now....
Yeah? I think the quality of US executives is deteriorating. Write a report on that.
Now the employee is.... a commodity.
For Americans sake I am happy to hear this for now. However the quality of work overseas will get better. Hungry people have no choice but to get better or starve.
Right, and so would be using McDonalds to cater your wedding!
Some people panic, and lose faith in America and Americans, *so easily* these days . . .
American developers *are* better than the off-shore ones. By a long shot. I see it every single day. I can give a lot of reasons -- I'd point first to the level of 'creative thinking' required, and how our culture emphasizes individualism (despite what the D party would like to sell the American people). And how their cultures actually discourage individual creative thinking.
You get what you pay for. It's as if so many people don't believe in the market, and think there is a free lunch. Well there isn't.
Off-shore labor is cheaper because no one is willing to pay them more. No one is willing to pay them more because they're not as good. If they *were* as good as on-shore help, they'd be charging what we charge. But since that's the market, they charge only what the market will bear. And in fact, we're finding in project after project that even at the low, low rates they're charging they're over-priced.
It's that simple.
What it boils down to is that far, far too many folks are down on the American people -- even *here* on FR. They've thrown their hands up in the air, and cried, "American's can't compete!"
How sad.
And so does the quality of our work, let me tell you. We're still learning how to build complex software architectures. And with the emerging dominance of N-tiered software architectures, things are getting quite complex indeed.
Americans *can* compete. Americans *will* continue to compete.
It's in the nature of the beast. Software dev isn't like making shoes -- you can't teach someone to hit this nail every time. It's extraordinarily complex. It takes creativity, thinking outside the box, a certain kind of mind. Every piece of software that gets built is partially a 'research and development' project.
Things that Americans excel at -- individual thinking, creativity, ideas like this are nearly unknown in China and India. Their cultures actually punish individualism.
My friend, I see it every single day. Americans *are* better than their off-shore counterparts. Companies who have off-shored their work are bringing back. I've had 2 offers of consulting work to clean up behind off-shored projects in the last year (both of which I turned down -- my current contract was just more interesting work).
As I would expect. Call Americans what you like, but it ain't bragging if you can back it up. And we can, and do, every single day.
I am a mechanical engineer and I am confidently capable of distinguishing the good stuff from the bad. In this case, both the laptop and the adapter were made as well, if not better, as any first-grade manufactured product would have been made, say, in the US or even Germany.It amazed me. But far more, it scared me.
There are quality issues, no doubt. And software is not like making a mechanical thing, you can't tell them, "do this this way, every time". Software dev just doesn't work that way. Every new project is at least slightly different from the last. The languages, environments, platforms, requirements all change constantly. In software dev, you can't get thru one single day without having to deal with something unexpected.
And even when (like with t-shirts) their lower quality is at least good enough -- then you still have labor issues, govt issues, transportation issues, supply issues, and on and on.
There is no free lunch. And Americans *can* compete.
Never count an American out.
From the articles I read, US computer schools down 30% just this year...guess it is not that many foreigners...oh and China/India pay for engineering degree.
Not true...chinese either work as slave under gov gun or not allowed unions or strike.
And yet 99% of Asian population can not afford anything that they make...when dollar stop being oil reserve currency (Iran already quit and Russia and Saudi Arabia under massive pressure to switch to basket currency or just Euro) US credit collapse...countries sell off dollar to buy Euro and US flood with worthless dollars...then US credit come due and US no longer buy up what Asia makes...then it come time to reckon in US and Asia...very interesting times then.
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