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."
Scary thinking about what the future holds, with these two giants - China and India.
If they do this enough they will perish anyway. These countries will take over.
Comming soon the super rich and the super poor.
You can thank the imperial federal government controlled school system and the American Teachers Association and democrats for this one. The dumbing down of America is taking route. Just sit on a bench and watch what walks around. Think seriously about what you are seeing. The young people that you see that look like retreads from the 60s or purchased their clothing from Goodwill, will be in charge of things in a few years. This country will sink into economic despair, socialism will flourish, quality of life will drop, personal freedoms will cease to exist. It is coming. I wish I could see more positive signs, but when over 1/2 of this country believes in the likes of Kerry, the democrats, Michael Moore, Bill Klinton type people as their heroes, this country is doomed. It is already on a down hill slide. Let the dems get the White House and Congress back at the same time, and it is over. Soviet America will exist.
Kerry started out with this issue and backed away from it once the big checks started coming in.
That is why he will lose. Without economic populism what does the Democratic Party have ? Gay marriage and Michael Moore ?
Come, on. It does look bad, but as bad as you imagine? Now that's not true!
Load of garbage from a consultant company with a vested interest in outsourcing. Any corp that buys into this fad will pay for it with their own downfall.
In the days of "rugged individualism", this was not a problem. Now we have a culture that denies individual responsibility, particularly in the odious mass-production public education [sic] system. When the natural feedback loop between incompetence and failure is broken, both are perpetuated.
As a person who has quite literally made a small fortune dealing with international manufacturing, supply chain management and cost management, I am utterly aghast at the infantile assertions that outsourcing, offshoring, greenfielding or any other set of short term tactics for reducing solely labor costs (and, with a weaker set of proof, facility costs) are a prerequisite for survival! My gosh, what about value engineering, error reduction, DFM, CAD/CAE/CAM optimization, automation, reduction in non essential absence, reduction in worker substance abuse, performance management, materials science, and the many other demonstrated effective methods of taking landed cost out of products? It is high time for cost management professionals to silence, once and for all, the current myriad of idiocy.
Over here.
Geez why does this not suprise me?
Check this steaming load out.
I think I know the woman who is leading the charge on this on-Christine Dietrick from AT Kearney. She is as left as they come...
And yes BCG (aka the Dogbert Consulting Group) wants fat fees (the high upfront costs dontcha know) for this conversion.
Hey! Now! Now! I didn't mean that we must ignore the threat, but isn't there danger in being too paranoid about the future? For heaven's sake, this is America!
I don't practice paranoid. I just look through clear eyes. I see what this country used to be. How people used to be. How this country used to act. How this country used to behave. How this country could rely on its leaders, look up to people in high places or in positions of opportunity. But, that is no more. Not in my book. In my book, this country has a huge cancer growing in it's belly and it would take major surgery to cut it out. Problem is, the patient will most likely die on the table.
And I don't pride myself in being too much of an optimist either. What I'm saying is that America is far too advanced to backtrack from the privileges it enjoys now.
"the average hourly wages will be approximately $1.30 in China, $25.30 in the United States, and $34.50 in Germany "
How can Germany survive for so long - and its people still do quite well ??
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