offshore outsourcing 3
TRANSCRIPT
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Offshore OutsourcingOffshore OutsourcingTravis Larsen, Lara Osmond, Billy Palmer,
Kyle Smith, April Young, John Youngberg
Travis Larsen, Lara Osmond, Billy Palmer,
Kyle Smith, April Young, John Youngberg
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Background:
Offshoring and Outsourcing
Background:
Offshoring and OutsourcingThese terms have had various meanings and are usedinterchangeably in some of the literature, to clarify:
Outsourcing: subcontracting business outside of thecompany
Offshoring: moving business from one country to another
Offshore outsourcing: transferring business outside of thecountry, to another firm
Most of the research pertaining to offshore outsourcingsimply call it outsourcing, we will do the same
These terms have had various meanings and are usedinterchangeably in some of the literature, to clarify:
Outsourcing: subcontracting business outside of thecompany
Offshoring: moving business from one country to another
Offshore outsourcing: transferring business outside of thecountry, to another firm
Most of the research pertaining to offshore outsourcingsimply call it outsourcing, we will do the same
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Background:
Reasons for offshoring
Background:
Reasons for offshoring Businesses outsource for the purpose of
cutting costs and raising profits. An earlyexample of outsourcing in America in the
1970s, IBM developed the IT industry inIndia.
Economically, if some people can use some
of their skills more cheaply than others, thenthose people have the comparativeadvantage. The idea is that countries shouldfreely trade the items that cost the least for
them to produce.
Businesses outsource for the purpose ofcutting costs and raising profits. An earlyexample of outsourcing in America in the
1970s, IBM developed the IT industry inIndia.
Economically, if some people can use some
of their skills more cheaply than others, thenthose people have the comparativeadvantage. The idea is that countries shouldfreely trade the items that cost the least for
them to produce.
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Background:
How it came to be:
Background:
How it came to be: Production offshoring got its big push when the
NAFTA made it easier for manufacturers to shiftproduction facilities from the US to Mexico.
After its accession to the WTO, China emergedas a prominent place for offshore outsourcing: Cheap prices through very low wage rates, cheap loans,
land, and huge economies of scale based on cities withpopulations of over a million workers.
Currently, India's engineering talent has made Indiathe offshoring destination of American high-techfirms, lead by HP, IBM, Intel, AMD, Microsoft,Oracle, and Cisco.
Production offshoring got its big push when theNAFTA made it easier for manufacturers to shiftproduction facilities from the US to Mexico.
After its accession to the WTO, China emergedas a prominent place for offshore outsourcing: Cheap prices through very low wage rates, cheap loans,
land, and huge economies of scale based on cities withpopulations of over a million workers.
Currently, India's engineering talent has made Indiathe offshoring destination of American high-techfirms, lead by HP, IBM, Intel, AMD, Microsoft,Oracle, and Cisco.
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A Brief History of OutsourcingA Brief History of Outsourcing
Outsourcing has been practiced forover a hundred years
In the early years of US History, America's covered wagon covers and
clipper ships' sails
Scotland
India
Indias textile manufacturing
England
Outsourcing has been practiced forover a hundred years
In the early years of US History, America's covered wagon covers and
clipper ships' sails
Scotland
India
Indias textile manufacturing
England
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A Brief History of OutsourcingA Brief History of Outsourcing
More recently, in the U.S. in the 1970s, it wascommon for computer companies to export theirpayrolls to outside service providers for processing.
In 1979, British voters elected Margaret Thatcher astheir prime minister, and in 1980 U.S. voters electedRonald Reagan as their president. They worked (as did their successors) to create and sustain
agreements and organizations to promote free trade. The General Agreement on Tariffs and Trade (GATT)
The North American Free Trade Agreement (NAFTA)
The formation of the European Union
The World Trade Organization (WTO), which superseded theGATT in 1995
More recently, in the U.S. in the 1970s, it wascommon for computer companies to export theirpayrolls to outside service providers for processing.
In 1979, British voters elected Margaret Thatcher astheir prime minister, and in 1980 U.S. voters electedRonald Reagan as their president. They worked (as did their successors) to create and sustain
agreements and organizations to promote free trade. The General Agreement on Tariffs and Trade (GATT)
The North American Free Trade Agreement (NAFTA)
The formation of the European Union
The World Trade Organization (WTO), which superseded theGATT in 1995
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A Brief History of OutsourcingA Brief History of Outsourcing
Continuing into the 1980s, accountingservices, payroll, billing, and word processingall became outsourced work.
Until this point, the reasons for outsourcinghad more to do with small efficienciesthan reshaping the economy.
It wasn't until the late 1980s thatoutsourcing began to emerge as a potentiallypowerful force in transforming globaleconomies.
Continuing into the 1980s, accountingservices, payroll, billing, and word processingall became outsourced work.
Until this point, the reasons for outsourcinghad more to do with small efficienciesthan reshaping the economy.
It wasn't until the late 1980s thatoutsourcing began to emerge as a potentiallypowerful force in transforming globaleconomies.
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A Brief History of OutsourcingTh
e First Wave (1987-1997)
A Brief History of OutsourcingTh
e First Wave (1987-1997) Major outsourcing in the manufacturing industry
Associated loss of blue-collar jobs in many industrial sectors
Work outsourcing primarily to East Asian countries ofTaiwan, China, South Korea, and Malaysia
Reasons: Low costs of manufacturing
Availability of skilled labor
Promotion of business friendly environment
Existence of production and supply networks in thosecountries
Major outsourcing in the manufacturing industry Associated loss of blue-collar jobs in many industrial sectors
Work outsourcing primarily to East Asian countries ofTaiwan, China, South Korea, and Malaysia
Reasons: Low costs of manufacturing
Availability of skilled labor
Promotion of business friendly environment
Existence of production and supply networks in thosecountries
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A Brief History of OutsourcingTh
e Second Wave (Late 1990s)
A Brief History of OutsourcingTh
e Second Wave (Late 1990s) Where to?
India
Malaysia Philippines
South Africa
Where to?
India
Malaysia Philippines
South Africa
Why?
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A Brief History of OutsourcingTh
e Second Wave (cont.)
A Brief History of OutsourcingTh
e Second Wave (cont.) Push factors vs. Pull factors
Pull factors for Second Wave countries: Widespread acceptance of English
Business and communication education
Common accounting and legal system to the U.S.(at least in some of the countries)
General institutional compatibility and adaptability
Time zone and geographic differences created24/7 capability and overnight turnaround times
Large and continuous supply of technically savvygraduates
Push factors vs. Pull factors
Pull factors for Second Wave countries: Widespread acceptance of English
Business and communication education
Common accounting and legal system to the U.S.(at least in some of the countries)
General institutional compatibility and adaptability
Time zone and geographic differences created24/7 capability and overnight turnaround times
Large and continuous supply of technically savvygraduates
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Current OutsourcingCurrent Outsourcing
"In India, they were pumping these guys out left and right. . . . Look atthe deal here: We've got very highly paid SAP programmers that wecould hire in the U.S. - and they're hard to find. Or we could go to Indiaand find very talented SAP programmers immediately at 35% to 40%lower cost."
Network World July 2004
"...offshore outsourcing will create more than 337,000 jobs by 2010..." InformationWeek November 2005
"Demand for offshore IT services isn't slowing, and that trend is showingup in Indian companies' hiring. Between July and September, TataConsultancy Services increased its staff by nearly 12% to more than53,000, while Infosys Technologies' staff grew 15% to more than46,000."
InformationWeek October 2005
"Only 19% of US businesses have an offshore outsourcing strategy, astudy by Ventoro found. However, the percentage skyrockets to 95% ifonly Fortune 1000 companies are considered."
ZDNet Research October 2005
"Business Process Outsourcing will overshadow and incorporate IToutsourcing and mainstream BPO expenditure is likely to grow worldwideby 10 per cent a year from $140 billion in 2005 to over $220 billion by2010."
LogicaCMG August 2005
"Outsourced IT services brought in $12 billion for India 2004, leading theworld in IT exports."
Santa Clara University'sLeavey School of Business
October 2005
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Current Outsourcing:
# of Jobs Affected
Current Outsourcing:
# of Jobs Affected Jobs Lost to Date*: 300,000-995,000
300,000-500,000 (Goldman Sachs)
400,000-500,000 (Business Week)
995,000 (economy.com)
ProjectedJob Loss: 3.3 million-6 million 3.3 million over 15 years (Forrester Research)
6 million over 10 years (Goldman Sachs)
Jobs at Risk: 14.1 million 14.1 million (UC Berkeley)
* The total size of the U.S. Labor Force is 140 million jobs
Jobs Lost to Date*: 300,000-995,000 300,000-500,000 (Goldman Sachs)
400,000-500,000 (Business Week)
995,000 (economy.com)
ProjectedJob Loss: 3.3 million-6 million 3.3 million over 15 years (Forrester Research)
6 million over 10 years (Goldman Sachs)
Jobs at Risk: 14.1 million 14.1 million (UC Berkeley)
* The total size of the U.S. Labor Force is 140 million jobs
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International Aspects:
Problems
International Aspects:
Problems Jobs are leaving the United States and
going to other countries
Less people in the United States knowtrades that are outsourced
Jobs are leaving the United States andgoing to other countries
Less people in the United States knowtrades that are outsourced
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International Aspects:
Benefits
International Aspects:
Benefits Domestic companies can employ
foreign workers for less
Prices lower for products sold in theU.S. and made in other parts of theworld
Countries in the rest of the world canbecome more developed
Domestic companies can employforeign workers for less
Prices lower for products sold in theU.S. and made in other parts of theworld
Countries in the rest of the world canbecome more developed
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International Aspects:
Options
International Aspects:
Options Keep outsourcing at the current level
Decrease outsourcing in the future
Increase outsourcing in the future
Keep outsourcing at the current level
Decrease outsourcing in the future
Increase outsourcing in the future
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International Aspects:
Keep outsourcing as is
International Aspects:
Keep outsourcing as is Foreign workers benefit
Loss of work for domestic workers
Domestic firms benefit from lowerwages
Foreign firms lose workers and have
less choice in labor No new firms can outsource
Foreign workers benefit
Loss of work for domestic workers
Domestic firms benefit from lowerwages
Foreign firms lose workers and have
less choice in labor No new firms can outsource
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International Aspects:
Decrease outsourcing
International Aspects:
Decrease outsourcing More jobs for American workers
Higher wages for lower skilled workers
Workers in foreign markets work forforeign companies
Less work for foreign employees
Lower wages for foreign employees
Domestic companies have to payhigher wages by using domestic
workers
More jobs for American workers
Higher wages for lower skilled workers
Workers in foreign markets work forforeign companies
Less work for foreign employees
Lower wages for foreign employees
Domestic companies have to payhigher wages by using domestic
workers
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International Aspects:
Increase outsourcing
International Aspects:
Increase outsourcing Firms wanting to start outsourcing
benefit
What else can we outsource? More foreign workers can find better
jobs
More trades will be lost for Americanworkers
More workers will no longer work for
foreign firms
Firms wanting to start outsourcingbenefit
What else can we outsource? More foreign workers can find better
jobs
More trades will be lost for Americanworkers
More workers will no longer work for
foreign firms
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Special Problems:
Negative Consequences
Special Problems:
Negative Consequences Qualified professionals are losing their
jobs to offshore workers who will work
for less Difficulty of monitoring child labor
Difficulty of managing remote locations
with those who understand the culture,and are in synch with corporateobjectives
Qualified professionals are losing theirjobs to offshore workers who will work
for less Difficulty of monitoring child labor
Difficulty of managing remote locations
with those who understand the culture,and are in synch with corporateobjectives
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Special Problems:
Positive Consequences
Special Problems:
Positive Consequences Proven beneficial as far as cost, quality,
and value of work delivered
Improved service delivery and accessto a greater number of highly qualifiedtalents
In-house organizations lack theassurance of quality standards thatthose with offshore operations have
Proven beneficial as far as cost, quality,and value of work delivered
Improved service delivery and accessto a greater number of highly qualifiedtalents
In-house organizations lack theassurance of quality standards thatthose with offshore operations have
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Special Problems:
Myths and Realities
Special Problems:
Myths and Realities Myth: A job outsourced is as good as a job lost Reality: Outsourcing is a budget balancing act.
Outsourcing does not call for job losses, but
increased efficiency. This helps the firm to focusits resources on their most valuable aspects ofbusiness, namely producing and selling itsproducts. The end result of this drive towardefficiency is evident to Americans in lower pricesand higher standard of living. Foreignoutsourcing goes hand in hand with higherwages, lower prices, higher profits, andenhanced competitiveness.
Myth: A job outsourced is as good as a job lost Reality: Outsourcing is a budget balancing act.
Outsourcing does not call for job losses, but
increased efficiency. This helps the firm to focusits resources on their most valuable aspects ofbusiness, namely producing and selling itsproducts. The end result of this drive towardefficiency is evident to Americans in lower pricesand higher standard of living. Foreignoutsourcing goes hand in hand with higherwages, lower prices, higher profits, andenhanced competitiveness.
Source:
http://www.offshoreoutsourcingworld.com/blog/OutsourcingMythsandRealities
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Special Problems:
Myths and Realities
Special Problems:
Myths and Realities Myth: Outsourcing is a one-way street Reality: We are not only outsourcing jobs, but have
jobs being outsourced to us. There are over 6.4million jobs in the US that have foreign employers.
They are actually growing at a faster rate than we areoutsourcing. Those foreign employers that areoutsourcing to the US often pay higher than the jobsthat are being outsourced from the US. For instance,the 4,300 employees that work for BMW in SouthCarolina, and the 14,000 employees that work for
Honda in Ohio. The fact is, most of the jobs that arebeing outsourced are actually below the US averagewage. As a result, comparatively lower wage jobs arebeing outsourced and higher wage jobs are coming in,increasing the standard of living in America.
Myth: Outsourcing is a one-way street Reality: We are not only outsourcing jobs, but have
jobs being outsourced to us. There are over 6.4million jobs in the US that have foreign employers.
They are actually growing at a faster rate than we areoutsourcing. Those foreign employers that areoutsourcing to the US often pay higher than the jobsthat are being outsourced from the US. For instance,the 4,300 employees that work for BMW in SouthCarolina, and the 14,000 employees that work for
Honda in Ohio. The fact is, most of the jobs that arebeing outsourced are actually below the US averagewage. As a result, comparatively lower wage jobs arebeing outsourced and higher wage jobs are coming in,increasing the standard of living in America.
Source:
http://www.offshoreoutsourcingworld.com/blog/OutsourcingMythsandRealities
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Looking to the Future:
Potential Negatives
Looking to the Future:
Potential Negatives American unemployment rate will rise
Americans will spend less because they
will feel less rich American resources such as concrete,
drywall, and oil will be shipped over
seas and America will experience ashortage of goods.
American unemployment rate will rise
Americans will spend less because they
will feel less rich American resources such as concrete,
drywall, and oil will be shipped over
seas and America will experience ashortage of goods.
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Looking to the Future:
Potential Positives
Looking to the Future:
Potential Positives Quality of jobs increase as lower wage
jobs are replaced with high-wage, high-skill jobs
As competition increases, savings fromdecreased costs will be passed on toconsumers
Domestic companies will be able tocompete with foreign companies easier,causing a decrease in tariffs andincrease in world trade
Quality of jobs increase as lower wagejobs are replaced with high-wage, high-skill jobs
As competition increases, savings fromdecreased costs will be passed on toconsumers
Domestic companies will be able tocompete with foreign companies easier,causing a decrease in tariffs andincrease in world trade
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Looking to the Future:Looking to the Future:
Only time will tell whether thenegatives will out-weigh the positives,
or vice versa
Only time will tell whether thenegatives will out-weigh the positives,
or vice versa