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."
There are all kinds of labor problems.
Getting things done in Mexico, unions and strikes aren't the problem at all. The 'labor' issues are with finding -- and retaining -- good employees. It's almost impossible. These are issues that both India and China are currently struggling with too. You can't work a person like a dog and get their best from them. It does not work.
Doing complex work like software dev means the developer needs to be well fed, well rested, focused. You can't be pushed like a slave and do well.
This is so important that the 'XP' methodology even mandates a 40 hour work week. You push a developer to hard, it actually results in *less* productivity in the long run.
There was a round of news articles earlier this year about the 'burn-out' rate at some of these Indian IT shops. Did you happen to read any of those?
When anyone reads Marx's philosophy, they wonder (if they have logical thought) "how could such nonsense obtain so much credibility with so many people. There isn't any reality to back this drivel up!" Well, look at the history books, and you'll know why. Marx never said or did anything to make his views and ideology credible. So where did Marxism get the credibility to be embraced by so many? The answer is, the business community gave Marxism credibility. The owners and managers of big business behaved so horribly, with so much cruelty, greed, and corruption, that they lived up to the worst stereotypes of themselves.
Well, they're doing it again. If capitalism is to succeed, then everybody who is willing to do what they are capable of must be able to earn the necessities (food, housing, basic medical care) to be able to do so. But supporters of outsourcing want to turn America into a third-world plantation ogilarchy. And if they succeed, we could see a resurgence of Marxism or something like it.
The "free" market "worth" is not the measure of true worth. If you had surplus of top brain surgeons and they were starving, maybe you could get them for $3 per hour. When price of oil goes up it deos not mean that oil is "worth" more. it mean that producers can command higher price.
Well calibrated minimum wage defends the weakest members from exploatation. When all employers have to pay a certain minimum and when tariffs protect workers from competition from countries with lower costs and standard of living the market can build society up. Otherwise market becomes a destructive force leading to the corrupt and violent oligarchy Latin American style or socialism.
They want to become "reform minded oligarchs" like Khodorkovsky or Gusinsky in Russia.
Some say that Saddam Hussein sealed his fate when he decided to switch to euro.
This is what Solzhenitcyn warned about! If Western elites do not exercise the SELF-RESTRAINT the Red Storm will rise again. But as it is written in the Holy Scriptures: "As a dog returneth to his vomit, so a fool returneth to his folly" (Prov:26:11)
Sure, but let's not confuse the assembly of the product with the product itself. That Indian factory is the tail end of a process that started on the drawing board, moved through engineering and prototyping, to final design and fabrication. Much of this work was likely done by Americans, even if Indians put the pieces together.
bump again
Yes, but the scary part was that those parts were manufactured in India.
This is a software company in India. Looking at it, I am unconvinced such software centres produce poor quality work. If they did, they wouldn't last a week.
You're worrying about the WRONG THING! Your children will be making the same $25K (or whatever) as foreign workers. The adjustment that's going to take place is the DEFLATION OF US REAL ESTATE.
Look to your own property values!
what are they doing with those degrees?
huh? I couldn't even afford to buy the house I am living in again, its gone up so much in value.
Population increases through immigration will ensure that US real estate never plummets in value. there will be corrections from time to time, but if you are expecting prices to drop 50% - it ain't happening, absent a depression. the entire banking system is dependent on it.
Bingo! - at least that's what I see shaping up. It's certainly happened before.
When workers who were making $100,000+ start taking $25,000 jobs then they suddenly start to default on mortgages. Supply/demand dictates that the price of property goes down.
That said, I have not considered the effect of immigration. I guess there'll be lots of Mexicans and "Irish Travelers" living in those $200,000 homes!
wage deflation is not happening across the board - many professions are doing fine.
Sony BDZ-S77 Blue Laser Disc Recorder (this page is in Japanese)
Which country is right now currently enroute with an ion propulsion drive spacecraft to the asteroid belt (between Mars and Jupiter) where the plan is to land on an asteroid, fire a "bullet" into the surface, capture the fragments as they fly away, and then return the package back to Earth? Japan is; its Hayabusa craft is now on its way to the asteroid Itokawa -- the craft was launched last year, and it just did a swing-by of the Earth. This craft is really zipping along right now, almost as fast Pioneer 11 after its big swing-by of Jupiter. The engines are microwave ion propulsion, and the Japanese created this microwave version of ion propulsion engines. The ion engine has been around for a long time; the U.S. had the first spacecraft (back in 1998 or so) to experiment with ion propulsion, but the Japanese have far outstripped us; for that matter, even the Europeans are ahead of us on deploying this technology.
JAXA information about the recent Hayabusa swing-by
Japan Journal's Science section
Where can you currently right now on an operational mag-lev train system? Hint, it isn't in the good old USA, and we didn't engineer it, either. A firsthand account of riding Shanghai's highspeed train. And where is the world's fastest maglev train (not yet commercially deployed, though)? It is in Japan
I don't know what is going on with this country; when Sputnik first flew, we went into a frenzy to teach a new generation of scientists and engineers. We resolved to put a man on the moon in 10 years. Our response to the current explosion of new technological progress abroad is not even tepid, it is completely apathetic. Maybe we can send a few folks to Mars by 2025 or whatever the latest 25 year plan in D.C. is. Probably not.
We aren't even trying to catch up. The number of U.S. citizens and permanent residents that are taking science and engineering degrees is in decline. From the NSF, about 1/3 the way down the page:
"Fluctuation in graduate S&E enrollment from 1994 to 2001 reflects a decline of 10 percent in enrollment by U.S. citizens and permanent residents, balanced by an increase of nearly 35 percent in foreign graduate S&E enrollment. A 26 percent drop among white men and 9 percent drop among white women drove the U.S. decline. U.S. minority enrollment increased by 22–35 percent. Foreign enrollment declined from 1992 to 1996, returned to its former level by 1999, and reached an all-time high in 2001."
Those that are foolish enough to get an S&E degree are not finding jobs, and those with science and engineering jobs are losing them. (see, for instance, IEEE's official stance limiting H-1B visa, Arizona Republic article on engineering trends).
And those who have don't have the first and best technology certainly won't have the first and best technology in weapons. Japan and Israel may fly some of our designs, but they put in their own electronics. We had to trade in a lot of goodwill with Japan to force them to not build their own aircraft in the 1980s; my guess we couldn't twist their arms like this again, especially we then backtracked on the original deal, and said that Japan was getting too good of a deal -- one that we had originally forced them into.
We aren't thinking ahead. We don't have the population to fight wars of attrition with a China or India, and when we lose our technological edge, we can forget doing anything other than trying to mount a decent self-defense force and hoping to play a good second fiddle to whoever it is in our interest it might be to play up to. This is not the legacy that I want to leave to my kids, and we better daggone do something pdq or we will be passed by.
What happens to a country with the nuclear weapons we have should it succomb to "destruction"? I fear we'll become a rogue state under absolute despotism...it won't necessarily be the current leftists that control things either but those with the most guns.
I see us collapsing into a number of different regions...some more stable than others each controlled by their own "strong men". What happens with our military will ultimately shape the collapse!
The Democrats have one major issue that would ultimately hamper them from imposing a full oligarchy.Straight White males! They have tried all kinds of hoodwinking verbal gyrations on minoritites and women to keep them in the fold but they can not count on the support of white males. This means that they can not count on the support of the military to support their would be revolution...they would need outside support!
Relax. It's just the Third Wave arriving!
But we're talking globalist elites here not elites in one country who can invest in other countries. If the aim is to divide the entire world into an upper 5 percent of super rich and the rest poor....even the markets would collapse and currencies would be maningless. The rich could only stay rich when there is a market for the products made by the companies these rich invest in! The rich can only stay protected by force...force derived from the very poor they are "superior" too.
Unfortunately, it is a hood-winked middle class that actually gives stability to a capitalist society. You erode that middle class and there is no society and no stability...not even for the very rich...who would have to live in fear that the next strongman won't come along and steal HIS assets and make Him a new member of the under class 95 per cent!
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