global outsourcing trends - international business relations global outsourcing trends kemarra

8/8/2019 Global Outsourcing Trends - International Business Relations Global Outsourcing Trends Kemarra

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International Business RelationsInternational Business RelationsGlobal Outsourcing TrendsGlobal Outsourcing Trends

Bay Area CITD Seminar SeriesBay Area CITD Seminar SeriesTuesday, January 18th, 2005Tuesday, January 18th, 2005

Kemarra Inc. - Key Marketing Resources & AssociatesSan Francisco USA

Unlocking Your Market Potential: www.Kemarra.com


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Globalization & Outsourcing

What started it?

What does it mean for the US?

What does it mean for the developingcountries?

Mounting trade deficits

Productivity and unit labor costs Country facts and figures

What next?


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Globalization & Outsourcing

Cheaper & faster data and voicetelecommunications

Easier global financial transactions

Cheaperhardware

Easy to use, standard software

Lack of staff in th

e US Educated English speaking workforce abroad


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Benefits vs Drawbacks for the US

Corporate benefits

Lower costs

greater efficiency without having to invest in people andtechnology

Increased focus on core competences

Increased corporate profits Corporate drawbacks

Increased project management complexity

Some loss of immediate control

IP vulnerability

For the US

Increased corporate profits

Higher US unemployment

loss of industrial base

High trade deficit

Impact on interest rates?

Impact on currency exchange rates?


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Benefits vs Drawbacks for Developing Countries

Benefits for developing countries Cash generation

Increased employment & training

Infrastructure build-up

Accumulation of business experience

Drawbacks Lock into low-wage economy

May become vulnerable to cheaper outsourcing


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Reciprocal or one-way?

Reciprocal returns OK if cash earned by countries providing

outsourcing services returns to the US viapurchase of US goods

One of the reasons for FTAs

One-way loss China buys far less goods from the US

Complete outflow of US funds without cash returnto the US


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Reciprocal or one-way?

Proponents of NAFTA point out that exportsfrom the United States to Mexico have risen150% and exports to Canada are up 66%.

The Clinton administration estimated in t

helate 1990s that expanded trade in North

America had created over 300,000 new U.S.jobs.

Detractors argue the trade deficit with

NAFTA represents US jobs shipped abroad


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U.S. monthly goods and services deficit

http://www.bea.doc.gov/bea/newsrelarchive/2005/trad1104_fax.pdf


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Trade Deficit

The US international trade deficit increased to $60.3 billion inNovember 2004 from $56.0 billion in October, as imports increasedand exports decreased. (12 Jan 2005).

In September 2004 the imbalance with China grew to $15.5 billion,beating the previous high.

The goods deficit with Japan increased from $5.9 billion in October to$7.3 billion in November. Exports decreased $1.0 billion (primarilycivilian aircraft) to $4.2 billion, while imports increased $0.4 billion(primarily passenger cars) to $11.5 billion.

The goods deficit with the European Union (25) increased from $9.3billion in October to $10.5 billion in November. Exports decreased $0.8billion (primarily pharmaceutical preparations, passenger cars, and fuel

oil) to $14.6 billion, while imports increased $0.3 billion (primarilypharmaceutical preparations, crude oil, and medicinal equipment) to$25.0 billion.

The goods deficit with Canada increased from $5.7 billion in October to$7.3 billion in November. Exports decreased $1.6 billion (primarilynatural gas and trucks, buses, and special purpose vehicles) to $15.4billion, while imports were virtually unchanged at $22.7 billion.


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Trade Deficit

Interest payments on US external debt add toburden

Further deficits reduce confidence in US assets

Flight away from US assets would weakenstock market and force interest rate hikes

But US assets would become cheaper for

foreign investors

http://www.census.gov/foreign-trade/www/http://www.iie.com/publications/papers/mann0899. htmhttp://www.cato.org/research/articles/reynolds-041203.html


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Dollar still too high?

High dollar Makes US goods more expensive abroad

US products therefore less competitive

Imports become cheaper

Dollar still high compared to 1995 level Global financial crises around 1997 led to flight to $

Strong US internal growth

Problems Other countries like China still not on open exchange

system hold their currency artificially low.

http://www.iie.com/publications/papers/mann0899. htmhttp://www.imf.org/external/pubs/ft/fandd/2000/03/mann. htm


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US DollarGlobal Exchange Rate

US Dollar Global Exchange Rate 1973 - 2005

0

20

40

60

80100

120

140

Jan-

73

Jan-

75

Jan-

77

Jan-

79

Jan-

81

Jan-

83

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Datel ne

Exchange Rate

http://www.federalreserve.gov/releases/H10/Summary/


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Declining Dollar Good orBad?

US Dollar Global Exchange Rate 1993 - 2005

60

70

80

90

100

110

120

130

140

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Da eline

c ange a e

p://www.federalreserve.gov/releases/H10/Summary/


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Labor Productivity

US workers are highly productive Highly trained Excellent general infrastructure

Highly automated

Extensive use of software tools US workers also work longerhours than

anybody else

These two factors explain the recentproductivity gains in the US while employmentlevels did not rise

Productivity and and unit labour cost comparisonshttp://www.ilo.org/public/english/employment/strat/publ/ep00-5.htm


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Unit Labor Cost

1970 1980 1996

United States 100 100 100

Canada 99.05 91.41 90.95

Mexico 77.24 66.15 40.64

Austria 80.86 98.34 108.87

Finland 83.33 82.99 88.69

France 82.85 91.64 94.13

Germany 82.64 93.00 109.95

Greece 39.69 57.93 89.24

Italy 76.99 76.59 82.72

Portugal 56.27 69.67 67.54

Spain 82.49 71.60 80.55

UK 105.23 109.47 110.92

Norway 92.76 100.32 116.78

Japan 55.55 67.86 93.50

Korea 44.18 53.77 63.92

Australia 82.76 85.60 88.04

Whats best - you pay someone $1 an hour and they have to work 10 hours to create x,or you pay someone $10 an hour and it takes them 1 hour to create the same thing ?


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Outsourcing Trends

US Companies forced to outsource to stay competitiveagainst worldwide competition

Current service providers move higher up food chain India has very sophisticated BP management

Now doing design work Microsoft, SUN, IBM, investing in infrastructure Labor costs rising

Countries such as China and India are producing highnumber of IT graduates India: 75,000

China: 50,000

Former East Bloc countries now entering EU Russian generates good math graduates IP protection enforceability

Life Sciences also a good sector for outsourcing


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Some outsourcing profiles

The rapidly-expanding Shanghai Jinqiao High-Tech Park is one of the fastest-growing sites for foreign investment in China.


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Some outsourcing profiles

Country Population IT wage English Skills

China 1.3 billion $3 - 8k Poor Transaction processing, low-endsoftware development andmaintenance

India Over 1 billion $5 - 12K Good Application development,maintenance, call centers,financial processing

Philippines 77 mil $5 - 10K Medium Accounting, finance, callcenters, animation, humanresources.

Russia 155 m $6 - 10K Poor Web design, complex softwaredevelopment, aerospaceengineering

Canada 107 million $25 - 50K Good Software development andmaintenance, call center, techsupport.

Mexico 107 million Spanish aplus

Spanish-language call centers,software development, datacenter outsourcing

Ireland 5.5 million $25 - 35K Good European shared-servicescenters, software development,call center


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What the US needs to do

US needs to continue the pace of innovation

Become design, marketing and sales force for the world?

Government and private corporations needs to educateworkforce continually

Must increase number of technical graduates US companies must invest internally in the US

Government needs to encourage US employment taxbreaks - American Jobs Creation Act of 2004

Reduce trade deficit, exchange rate?

Should not impose protectionist trade barriers Should not impose penalties on US companies outsourcing

global outsourcing trends - international business relations global outsourcing trends kemarra

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