| In 2004 the democratic presidential candidate | | | | American. The most common reference I heard |
| race was zeroed down to which candidate | | | | about is that incompetent people in the east |
| proves his protectionism in eyes of average | | | | are taking our jobs just because companies |
| Americans, who are worried about the | | | | are able to get their work done in 20% of the |
| increasing number of jobs loses due to | | | | amount it will cost to get it done by an |
| outsourcing and off-shoring. To sum up the | | | | American worker. So are all jobs going to |
| sentiments management thinker Tom Peters puts | | | | China and India? |
| it in one of his presentation (Tom Peters | | | | |
| 2004) -"when I was young my mom use to tell | | | | The answer is no, in fact it varies from |
| me finish your food, people in India and | | | | industry to industry, so if you are a call |
| China are dying of hunger. Today I tell my | | | | center or an information technology worker, |
| daughter finish your homework, people in | | | | people in India and Philippines are competing |
| India and China are looking for your | | | | for your jobs. If you are an insurance claim |
| job".Outsourcing and off shoring has become | | | | processor, Irish workers may be striving for |
| the latest rage in corporate America. | | | | their share and further facing competition |
| Companies are resorting to outsourcing to cut | | | | from growing trained workforce in Poland and |
| costs and be competitive in the market. This | | | | east European countries. If you are an |
| focus on outsourcing has led to shipping out | | | | aircraft engineer and designer, Russian |
| of thousands of American jobs to far fetched | | | | workers may be more of a concern. And if you |
| place like India and China.Today Young people | | | | are a textile industry recruit then start |
| sitting in their offices in Bangalore and | | | | looking for opportunities outside the |
| Dublin are answering average American's | | | | industry as Chinese and Mexican companies |
| insurance queries, planning their taxes, | | | | will put you out of the job if they haven't |
| helping them fixing their computers, | | | | by now.Can these countries keep on having |
| providing information regarding their credit | | | | these comparative advantagesWell as mentioned |
| card accounts and helping them in planning | | | | earlier it depends upon the comparative |
| their debts. The surge doesn't last there it | | | | advantage of the country, my personal |
| has now started threatening the white collar | | | | analysis is that outsourcing is a long term |
| jobs which was once considered Americas birth | | | | phenomenon and countries and companies which |
| right. So what will be the future for | | | | will succeed at it will be those which will |
| American jobs market, will it be as doomed as | | | | treat it as a part of their business |
| the candidates in the presidential race made | | | | strategy.Companies which just want to ride |
| to believe us or we have to dig deeper to | | | | the outsourcing bandwagon with no long term |
| find the real truth.What is Outsourcing and | | | | strategy in place will fail miserably at it. |
| difference between Outsourcing and | | | | Like all supply and demand issues the |
| Off-Shoring Outsourcing and off-shoring are | | | | outsourcing future will also be decided by |
| taken one for another but there is a | | | | the demand and supply of available resources |
| fundamental difference between outsourcing | | | | in a particular country. For example off |
| and off-shoring. | | | | shoring and outsourcing activities during the |
| | | | cold war were from the United States and |
| Outsourcing is defined as the exporting of | | | | England to Ireland and Israel. As |
| non-core business operations or jobs from | | | | globalization stepped in more and more |
| internal production within a business to an | | | | countries opened their door to free economy |
| external entity which specializes in that | | | | this change led to the emergence of new |
| specific operation. Decisions regarding | | | | players like China, India, Philippines, |
| outsourcing are often made to lower | | | | Russia and South Africa.Among these China |
| operational costs or to focus on business | | | | emerged as the leader in manufacturing |
| core competencies. | | | | section while India is excelling in |
| | | | information technology. India today is |
| Off shoring is when the company sets up its | | | | considered one of the most employer-friendly |
| offices in foreign land to avail the | | | | countries for outsourcing because Ireland and |
| resources, tax benefits or human capital. | | | | Israel have almost saturated their surplus |
| Unlike outsourcing, in off shoring operations | | | | labor pools and salaries in those countries |
| and jobs are managed by the parent company | | | | have started rising. While in India |
| rather than getting it done from external | | | | educational system churns out almost 3 |
| entity. | | | | million College graduates every year and they |
| | | | earn approximately one-tenth to one-fifth the |
| A related new term is out-tasking: it is | | | | salaries of their Western European or |
| typically on an annual contract, or sometimes | | | | American counterparts.As the cycle in |
| even a shorter one. It involves continued | | | | previous outsourcing hotbeds proved that once |
| direct or indirect management role play in | | | | the pool starts saturating and prosperity |
| decision-making by the parent company of the | | | | level increases the economy moves toward two |
| out-tasking business.Why do we | | | | things- One higher salary for the working |
| OutsourceOutsourcing is not a new phenomenon; | | | | class as they require more money to sustain |
| it is with us since time immemorial. | | | | their life style.- Secondly the countries |
| Europeans started outsourcing sugar from | | | | will move towards higher end products. For |
| Latin American countries by employing local | | | | example in 50's Japan use to manufacture |
| people. In modern economies it has its root | | | | clothing and garments for American market. As |
| in theory of comparative advantages by | | | | the Japanese economy developed it started |
| traditional economist David Ricardo (Ricardo, | | | | churning out silicon chips and the made |
| 1817). As the theory propagates that one | | | | forage into automobiles and electronics. |
| should spend one's energies on things in | | | | Today Japan is the second largest market in |
| which it has comparative advantage. It will | | | | the world and it outsource most of its |
| ensure maximum utilization of the resources. | | | | clothing and garments requirements from |
| Similarly outsourcing enables the business to | | | | China, Japanese owned factories in Taiwan and |
| focus its energy on its core competencies and | | | | Korea are producing chips for Japanese |
| avail the benefits of others dexterity in | | | | electronics. Today some of the biggest names |
| operations, in which other companies have | | | | in electronics in American market are |
| efficiency. These efficiencies could be | | | | Japanese. What started as a Akio Morita |
| process related like company A is better than | | | | revolutionary Walkman today blossomed into |
| Company B in making T-shirts, or they can be | | | | Play Station 3 , next generation gaming |
| formulated like one government providing more | | | | console.How outsourcing influencing the |
| tax holidays then another so the first | | | | American economyThe growing tendency of |
| country become preferred destinations even | | | | companies in corporate America to go for |
| though the actual cost of getting a T-shirt | | | | outsourcing has seriously influenced the |
| made is comparatively higher than the second | | | | American job market. The fear and noises have |
| country. According to the McKinsey consulting | | | | almost the same decibel level as the one |
| analysis off-shoring creates net additional | | | | heard with the introduction of NAFTA ( North |
| value for both outsourcing economy as well as | | | | American Free Trade Agreement ) in early |
| in-sourcing economy, taking India as example | | | | nineties. The fear at that point of time was |
| it says that for every dollar off-shored, the | | | | that opening our borders for Mexican |
| U.S. economy accrues between $1.12 and $1.14 | | | | agriculture products will wipe of the |
| while the India captures just 33 cents. US | | | | agriculture industry in the country. It will |
| economy benefits from combination of reduced | | | | flood US with Mexican workers all over and |
| costs (58 cents), purchase from US Suppliers | | | | lots of manufacturing jobs in southern |
| (5 cents) and repatriated earnings (4 cents). | | | | America agriculture and automobile sectors |
| In addition some 67 cents for directly | | | | will be lost. Had these fears came true after |
| retained benefits and 45-47 cents from | | | | the decade of free trade in North America. |
| re-deployment of labor in high end | | | | The free trade proponents believed it has |
| jobs.Advantages of Outsourcing Companies like | | | | created more jobs and the economy has grown |
| Dell and AT&T has received a lot of negative | | | | at a faster rate then in the previous decade |
| publicity for locating their customer support | | | | while the opponents believes it led to job |
| system off shore and thus taking away | | | | cuts in manufacturing and textile sector, in |
| American jobs, but the companies still went | | | | which Mexico has become the largest clothing |
| ahead with outsourcing. So the big question | | | | supplier to United States of America with in |
| is what are the advantages or benefits which | | | | a decade. The truth lies somewhere in |
| are driving most top companies today to | | | | between.Effect of NAFTA on US economyAs free |
| outsource their business processes from | | | | trade brings more opportunities it also |
| foreign shores.- Business Cost Sharing - | | | | brings new competitors. NAFTA opened the US |
| Large businesses continue to outsource as | | | | manufacturer doors for exporting products to |
| costs are shared by the third parties. As the | | | | Mexico plus setting up their factories in |
| third parties have their own area of | | | | Mexico to make them more competitive to |
| specialization, they keep on investing in | | | | European manufacturers. Overall sectoral |
| those facilities. It saves the American | | | | analysis throws some light on the true |
| company to invest in that | | | | picture |
| infrastructure.- Reduce Costs - One of the | | | | |
| most tempting reasons to outsource is that | | | | Textile SectorThe protectionist most feared |
| the third party will provide better service | | | | about the influx of Mexican garments in the |
| at lesser cost. This is one of the most | | | | US market resulting in job losses. Taking |
| significant reason why outsourcing is going | | | | advantage of NAFTA , Mexico became the |
| to third world countries where labor is | | | | largest supplier of clothing and garments to |
| inexpensive compared to developed world. In | | | | United States with in a decade, but looking |
| third world countries where growth and | | | | closely we will analyze that though it has |
| prosperity level is low, companies are able | | | | taken away garment manufacturing jobs but it |
| to significantly reduce their wage bill by | | | | has increased jobs in spinning and weaving |
| paying less salary to people for the same | | | | sectors of textile industry. The garment cut |
| work which was done by a worker in developed | | | | and tailored in Mexican factories is |
| country for higher salary. Is it exploitation | | | | American. It provided a good value to our |
| - to answer it plainly in most cases it is | | | | cotton farmers in the country. Additionally |
| not, as the income level these companies | | | | it created new jobs in retailing, |
| provide is relatively higher than the | | | | transporting and hospitality industry.If we |
| prevalent income level in those | | | | look at it from country strategic prospective |
| countries.- Tax Benefits - As Outsourcing | | | | it kept away the dominance of China in US |
| brings lots of jobs to the country where | | | | market. So it balanced our basket of clothing |
| projects and tasks are outsourced, most | | | | suppliers.Low price clothing has also kept |
| government in these countries provide tax | | | | inflation rate at lower levels. Today when |
| holidays and other benefits which makes | | | | the protectionist are screaming from the top |
| outsourcing a viable option.- Makes company | | | | of their voices about pitfalls of |
| competitive - As most companies are | | | | outsourcing, I like to remind them that the |
| outsourcing today so the one which are not | | | | minimum price of a 'Made in America' jeans |
| doing it have a cost disadvantage. To remain | | | | can't be less than $80 dollars, it is just |
| competitive against competitors, most | | | | because of outsourcing that we are able to |
| companies these days resort to out sourcing. | | | | buy it at $12 in nearby Wal-Mart stores. (Jim |
| In fact this competitive benchmark usually | | | | McKay, Pittsburgh Post-Gazette, |
| leads companies to explore new foreign | | | | 2004)Automobile and manufacturing |
| outsourcing destinations with better | | | | sectorGoing through an article of New York |
| infrastructure and incentives. For example to | | | | Times economist Paul Krugman (New York Times |
| provide cheaper clothes in 70's and 80's | | | | 2005), he stated that Toyota has decided to |
| companies like Wal-Mart start outsourcing | | | | start its car manufacturing plant in northern |
| apparel from Japan and Korea. As the | | | | Canada instead of Southern and Central |
| prosperity level grow in these countries and | | | | America. The reason the aptitude level of the |
| work force became relatively costly then | | | | Canadian workforce is higher than the |
| before the companies moved to South East | | | | American. The answer is simple when foreign |
| Asian countries like Indonesia, Vietnam and | | | | investment is shying away because we are not |
| Thailand. In the mean time China developed | | | | investing in health care and educational |
| its infrastructure and made it a more | | | | benefits for average Americans then it will |
| competitive place then by spreading their | | | | foul to cry that we are loosing jobs to |
| basket Wal-Mart moved to China. Today as a | | | | off-shoring. First and foremost thing is to |
| company Wal-Mart is the biggest trading | | | | put our house in order.Agriculture |
| partner of China and it actually exceeds some | | | | SectorAgricultural tariffs were reduced to |
| countries total foreign trade with | | | | zero for half of American exports to mexico. |
| China.- More control over business outcomes - | | | | The other half will be eliminated by 2009. On |
| It may have started as cost reducing activity | | | | grains, dairy, and poultry, NAFTA eliminated |
| but today outsourcing is providing business | | | | Mexico's licensing requirements. The opening |
| executives a better scope to shape company's | | | | contrast to Mexican flooding the US market |
| future. According to one of the recent survey | | | | with its product it provides avenue for US |
| of more than 800 health care, manufacturing , | | | | food companies to develop business processes |
| retail and travel executives in the US and | | | | to subsidy flushed Western European |
| Europe by consulting company Accenture | | | | farmers.Overall scenarioCompare to its NAFTA |
| (Advantages of outsourcing 2004) , 86% said | | | | partners U.S. domestic exports to have |
| outsourcing provides them more and more | | | | increased dramatically-with real growth of |
| control over business results in a variety of | | | | 95.2% to Mexico and 41% to Canada-growth in |
| strategic areas, the most important being the | | | | imports of 195.3% from Mexico and 61.1% from |
| ability to plan. "Industry leaders today view | | | | Canada overwhelmingly surpass export |
| outsourcing as a prescription for change | | | | growthConclusionHow this outsourcing will |
| versus an antidote to rising costs," says | | | | influence the long term prospects of US |
| John Rollins, a partner in Accenture's | | | | econmy is still to be seen but to put things |
| products operating group(Advantages of | | | | in context, with or without outsourcing |
| outsourcing 2004). More and more companies | | | | economies shed and creates new jobs every |
| are outsourcing so that they can focus on | | | | year especially American economy which is the |
| their core competencies. Companies like Nike | | | | most robust economy in the world. Every years |
| don't even manufacture a single shoe or | | | | millions of American change or leave their |
| garment. It outsources all these activities | | | | jobs due to technological invention like ATM |
| from its dedicated third party factories in | | | | machines which reduce the number of banking |
| South East Asia, China and South Asia. The | | | | executives needed, process redundancy like |
| Nike headquarters in US only focuses its | | | | need for type writers etc. Job outsourcing is |
| energy on developing new design and | | | | also not one way traffic, one countries |
| sharpening its marketing | | | | outsourcing is other countries in-sourcing. |
| juggernaut.Disadvantages of | | | | In the manufacturing sector the US economy |
| Outsourcing- Political Risks - This is one of | | | | may be facing trade deficit but in service |
| the most evident risks which a company has to | | | | sector it has trade surplus.Globalization is |
| face if it decides to outsource. The most | | | | bringing new opportunities and challenges for |
| hotbeds of the outsourcing revolution today | | | | companies and employees, it is also putting |
| carry a various level of political risk with | | | | stress on governments to provide its citizen |
| them. For example - China is governed by a | | | | better education, improved health care and an |
| communist country, even though government | | | | overall better standard of living. |
| proclaims to adhere to World Trade | | | | Outsourcing is developing new markets for |
| Organization laws but one can never be sure | | | | American products as these countries which |
| in a communist country as the government can | | | | are having rising per capita income and |
| over change a law overnight to benefit its | | | | changing lifestyle.Outsourcing is a win win |
| own people. Other countries like Ireland, | | | | situation for both parties right now, all the |
| India, and Philippines etc at some point or | | | | protectionist are trying today is kill the |
| other are marred by violence and other such | | | | American spirit of freedom and innovation. We |
| activities.- Growing dependence on the third | | | | became the largest economy in the world not |
| party contractors - As the company dependence | | | | because we were protected but because we |
| on the third party increases the relative | | | | opened our doors to foreign capital. |
| cost of business also start increasing as the | | | | Foreigners invested their hard earned money |
| third party will start asking better | | | | here and created jobs. Today we have similar |
| share.- Difficult to innovate - as the | | | | opportunity to alleviate poverty from some of |
| companies are dependent on third parties, it | | | | the poorest countries in the world. Just to |
| leaves lesser scope for a business to | | | | put a test ask the Bangladeshi women who |
| innovate business operations and get better | | | | makes T-shirt for GAP and Wal-Mart. |
| than competitors. If the company wants to | | | | Government and corporate America must |
| focus on a specific training and other such | | | | understand that they have a bigger |
| aspects, the third party will try to resist | | | | responsibility that goes beyond boosting up |
| as it will put a hold on his business | | | | the bottom line or fattening top management's |
| prospects with other business | | | | collective wallet.Kendra Parker is one of the |
| clients.Outsourcing hotbeds in the worldYou | | | | leading writer on outsourcing, she has |
| mention the name of China and India in the | | | | published numerous papers in various |
| community these days and one will receive a | | | | magazines. she regularly writes term papers |
| serious gaze as if these countries are taking | | | | for business and outsourcing section. |
| away the prosperity and jobs of average | | | | |