Off

shor

e O

utso

urci

ngO

ffsh

ore

Out

sour

cing

The

The

Off

shor

ing

Off

shor

ing

Deb

ate

Deb

ate

1. T

radi

tiona

l The

ory

1. T

radi

tiona

l The

ory

2. W

hat�s

diff

eren

t no

w?

2. W

hat�s

diff

eren

t no

w?

3. H

ow d

oes

this

aff

ect

3. H

ow d

oes

this

aff

ect

��Th

e �J

ob

The

�Job

Thi

efs

Thie

fs� (

Indi

a, C

hina

, for

mer

USS

R)?

� (In

dia,

Chi

na, f

orm

er U

SSR)?

��Th

e �V

ictim

s� (

Amer

ica,

Eur

ope)

?Th

e �V

ictim

s� (

Amer

ica,

Eur

ope)

?

4. W

hat

shou

ld w

e do

?4.

Wha

t sh

ould

we

do?

5. S

houl

d w

e ju

st d

o no

thin

g?5.

Sho

uld

we

just

do

noth

ing?

Why

do

we

like

trad

e?(w

hich

incl

udes

firm

s be

ing

able

to

mov

e ta

sks

to

whe

reve

r th

ey w

ant)

Uni

ted

Stat

es

Prod

uces

-

Saxo

phon

es

-Fi

re T

ruck

s

No

Trad

e

Why

do

we

like

trad

e?

Why

do

we

like

trad

e?

Is t

his

the

sam

e m

odel

as

that

use

d to

Is

thi

s th

e sa

me

mod

el a

s th

at u

sed

to

unde

rsta

nd

unde

rsta

nd o

ffsh

orin

gof

fsho

ring ??

Or

is t

here

som

ethi

ng d

iffer

ent

goin

g on

?O

r is

the

re s

omet

hing

diff

eren

t go

ing

on?

Trad

ition

ally

Yes

, The

Mod

el

Trad

ition

ally

Yes

, The

Mod

el

Appl

ies

to J

obs

Too

Appl

ies

to J

obs

Too

��W

e ca

n re

ap t

he b

enef

its

We

can

reap

the

ben

efits

of

, for

inst

ance

, low

cos

t of

, for

inst

ance

, low

cos

t te

chni

cal s

uppo

rt

tech

nica

l sup

port

of

fsho

red

offs

hore

dto

Ind

iato

Ind

ia��

How

?

How

?

��By

doi

ng n

othi

ng m

ore

By d

oing

not

hing

mor

e th

an c

hoos

ing

to o

ffsh

ore

than

cho

osin

g to

off

shor

e

But,

whe

n di

scus

sing

off

shor

ing,

we

just

fo

cus

on o

ne a

spec

t of

the

tra

de m

odel

!Sa

me

mod

el a

pplie

s, n

ow w

e fo

cus

on:

Who

is it

tha

t is

losi

ng t

heir

job?

?

And

how

ang

ry a

re t

hey?

Visu

aliz

ing

the

chan

ges

in jo

b lo

ss

The

�1Th

e �1

ststU

nbun

dlin

g�U

nbun

dlin

g�

��Se

para

ted

cons

umpt

ion

area

fro

m p

rodu

ctio

n Se

para

ted

cons

umpt

ion

area

fro

m p

rodu

ctio

n ar

ea (

fact

orie

s fr

om c

onsu

mer

s)ar

ea (

fact

orie

s fr

om c

onsu

mer

s)��

Trad

ition

ally

, som

e se

ctor

s lo

st a

nd s

ome

gain

edTr

aditi

onal

ly, s

ome

sect

ors

lost

and

som

e ga

ined

a) T

extil

e w

orke

rs lo

st t

heir

jobs

a)

Tex

tile

wor

kers

lost

the

ir jo

bs

[low

ski

lled]

[low

ski

lled]

b) C

ompu

ter

prog

ram

mer

s go

t jo

bs

b) C

ompu

ter

prog

ram

mer

s go

t jo

bs

[hig

h sk

illed

][h

igh

skill

ed]

Can

wor

kers

losi

ng in

(a)

just

shi

ft t

o (b

)?Ca

n w

orke

rs lo

sing

in (

a) ju

st s

hift

to

(b)?

If t

his

was

the

cas

e, t

he U

S w

ould

just

per

form

If t

his

was

the

cas

e, t

he U

S w

ould

just

per

form

high

er v

alue

add

ed s

ervi

ces

and

no o

ne w

ould

lose

high

er v

alue

add

ed s

ervi

ces

and

no o

ne w

ould

lose

��Is

thi

s th

e w

hole

sto

ry t

oday

?Is

thi

s th

e w

hole

sto

ry t

oday

?��

Are

the

high

ski

ll jo

bs s

afe?

Are

the

high

ski

ll jo

bs s

afe?

Nop

e, w

e ha

ve a

�2

Nop

e, w

e ha

ve a

�2n

dndU

nbun

dlin

g�U

nbun

dlin

g�

��Al

low

ed b

y a

com

bo o

f ne

w t

echn

olog

y (lo

w c

ost

com

mun

icat

ion

Allo

wed

by

a co

mbo

of

new

tec

hnol

ogy

(low

cos

t co

mm

unic

atio

n an

d co

dific

atio

n of

wor

k) a

nd t

he d

oubl

ing

of t

he w

orld

�s la

bor

and

codi

ficat

ion

of w

ork)

and

the

dou

blin

g of

the

wor

ld�s

labo

r fo

rce

forc

e��

Trad

ition

ally

, low

ski

lled

jobs

wer

e as

soci

ated

w/

gett

ing

Trad

ition

ally

, low

ski

lled

jobs

wer

e as

soci

ated

w/

gett

ing

offs

hore

dof

fsho

red

��To

day

corr

elat

ion

does

n�t

appl

yTo

day

corr

elat

ion

does

n�t

appl

y��

Man

y hi

gh s

kille

d jo

bs (

radi

olog

y, a

ccou

ntin

g), c

an b

e M

any

high

ski

lled

jobs

(ra

diol

ogy,

acc

ount

ing)

, can

be

offs

hore

dof

fsho

red

��M

any

low

ski

lled

jobs

(ta

xi d

rivin

g, f

riend

ly r

esta

uran

t w

aite

r)M

any

low

ski

lled

jobs

(ta

xi d

rivin

g, f

riend

ly r

esta

uran

t w

aite

r)ne

ver

will

be

neve

r w

ill b

e��

Serv

ice

Sect

or

Serv

ice

Sect

or o

ffsh

orin

gof

fsho

ring

is r

elat

ivel

y ne

wis

rel

ativ

ely

new

��Fr

ight

ens

peop

le

Frig

hten

s pe

ople

b/cb/c

it�s

an im

port

ant

driv

er o

f ou

r ec

onom

yit�

s an

impo

rtan

t dr

iver

of

our

econ

omy

��Su

dden

ness

of

the

chan

geSu

dden

ness

of

the

chan

ge��

Chin

a, I

ndia

, for

mer

USS

R jo

ined

wor

ld la

bor

forc

e ov

er ju

st a

fCh

ina,

Ind

ia, f

orm

er U

SSR jo

ined

wor

ld la

bor

forc

e ov

er ju

st a

few

ew

ye

ars

year

s��

Capi

tal t

o La

bor

ratio

fel

l 61%

, giv

ing

pow

er t

o em

ploy

ers,

em

plCa

pita

l to

Labo

r ra

tio f

ell 6

1%, g

ivin

g po

wer

to

empl

oyer

s, e

mpl

oyee

s oy

ees

do n

ot h

ave

time

to a

djus

tdo

not

hav

e tim

e to

adj

ust

Char

acte

rizin

g jo

bs u

nder

thr

eat

of

Char

acte

rizin

g jo

bs u

nder

thr

eat

of o

ffsh

orin

gof

fsho

ring ::

��IT

inte

nse

IT in

tens

e��

IT T

rans

mitt

able

out

put

IT T

rans

mitt

able

out

put

��Co

difia

ble

Codi

fiabl

eta

sks

task

s��

Litt

le f

ace

Litt

le f

ace --

toto-- f

ace

inte

ract

ion

face

inte

ract

ion

��(V

an

(Van

Wel

sum

Wel

sum

and

and

Rei

fRei

f20

05)

2005

)

--H

ow w

ill t

his

affe

ct t

he la

bor

forc

e ar

ound

the

wor

ld?

How

will

thi

s af

fect

the

labo

r fo

rce

arou

nd t

he w

orld

?

Indi

aIn

dia --

(the

rec

eivi

ng e

nd)

(the

rec

eivi

ng e

nd)

�Ch

amar

bagw

ala-

�D

eman

d fo

r sk

illed

labo

r go

es u

p, r

etur

ns t

o sk

ills

goes

up

�In

crea

se in

whi

te-c

olla

r jo

bs, m

ainl

y in

ser

vice

sec

tor

�It

is t

he r

esul

t of

tra

de a

nd o

ther

ref

orm

s th

at g

ener

ate

dem

and

for

indi

vidu

als

who

ca

n im

plem

ent

thes

e re

form

s �

Such

as

indi

vidu

als

with

man

ager

ial,

prof

essi

onal

, or

tech

nica

l ski

lls�

Oth

er r

efor

ms

incl

ude

inte

rnal

eco

nom

ic t

rans

form

atio

ns s

uch

as d

ereg

ulat

ion

and

priv

atiz

atio

n�

Effe

cts

on W

age

Gap

�M

anuf

actu

ring

�Sk

illed

Fem

ale

dem

and

up (

not

b/c

of t

rade

)�

Skill

ed M

ale

dem

and

up�

Uns

kille

d Fe

mal

e de

man

d do

wn

�U

nski

lled

Mal

e de

man

d do

wn

�Se

rvic

es�

Skill

ed M

ale

dem

and

up�

Skill

ed F

emal

e de

man

d up

�U

nski

lled

Mal

e de

man

d up

(no

t b/

cof

tra

de)

�U

nski

lled

Fem

ale

dem

and

up (

not

b/c

of t

rade

)�

Conc

lusi

on:

trad

e in

crea

ses

wag

e ga

p

The

Uni

ted

Stat

esTh

e U

nite

d St

ates

--(T

he d

ispe

nsin

g en

d)(T

he d

ispe

nsin

g en

d)

��Sh

ould

the

ser

vice

sec

tor

be w

orrie

d?Sh

ould

the

ser

vice

sec

tor

be w

orrie

d?

Man

ufac

turin

g�s

expe

rienc

eM

anuf

actu

ring�

s ex

perie

nce

��Res

ults

of

enga

ging

in t

rade

Res

ults

of

enga

ging

in t

rade

(Lew

is a

nd R

icha

rdso

n bo

ok)

(Lew

is a

nd R

icha

rdso

n bo

ok)

��Th

ose

losi

ng jo

bs t

o Th

ose

losi

ng jo

bs t

o of

fsho

ring

offs

horin

g��

70%

fin

d ne

w jo

b70

% f

ind

new

job

��36

% h

ighe

r ne

w e

arni

ngs

36%

hig

her

new

ear

ning

s ��

25%

new

ear

ning

s 30

% lo

wer

25%

new

ear

ning

s 30

% lo

wer

��i.e

. low

er s

kille

d m

anuf

actu

ring

wor

kers

i.e. l

ower

ski

lled

man

ufac

turin

g w

orke

rs

��O

n O

n av

gav

g , n

ew w

eekl

y ea

rnin

gs lo

wer

, new

wee

kly

earn

ings

low

er

Serv

ice

Sect

or�s

exp

erie

nce

to d

ate

Serv

ice

Sect

or�s

exp

erie

nce

to d

ate

The

Bad:

The

Bad:

��60

% r

eal p

erso

nal c

onsu

mpt

ion

60%

rea

l per

sona

l con

sum

ptio

n��

90%

of

non

90%

of

non --

agric

ultu

ral j

obs

agric

ultu

ral j

obs

��H

ard

hit

folk

s:H

ard

hit

folk

s:Lo

w w

age

wor

kers

in I

T (t

elem

arke

ters

, Lo

w w

age

wor

kers

in I

T (t

elem

arke

ters

, ph

one

oper

ator

s, c

omp

oper

ator

s)ph

one

oper

ator

s, c

omp

oper

ator

s)33

% o

f jo

bs d

isap

pear

ed 1

999

33%

of

jobs

dis

appe

ared

199

9 --20

0420

04Av

gAv

gw

age

was

onl

y $2

5,00

0w

age

was

onl

y $2

5,00

0

��(W

ait,

wer

e so

me

of t

hese

lost

to

tech

nolo

gy??

)(W

ait,

wer

e so

me

of t

hese

lost

to

tech

nolo

gy??

)

The

Goo

dTh

e G

ood

��Ex

port

of

serv

ices

= 2

*(ex

port

s of

goo

ds)

Expo

rt o

f se

rvic

es =

2*(

expo

rts

of g

oods

)��

Impo

rt o

f se

rvic

es =

1.5

*(im

port

of

good

s)

Impo

rt o

f se

rvic

es =

1.5

*(im

port

of

good

s)

and

is a

ver

y sm

all p

ortio

n of

GD

P (.

4% in

200

3)an

d is

a v

ery

smal

l por

tion

of G

DP

(.4%

in 2

003)

��W

e ha

ve a

tra

de s

urpl

us in

ser

vice

s (g

row

ing

ever

y yr

)W

e ha

ve a

tra

de s

urpl

us in

ser

vice

s (g

row

ing

ever

y yr

)��

Hig

h G

row

th in

ser

vice

des

pite

ove

rall

slow

gro

wth

Hig

h G

row

th in

ser

vice

des

pite

ove

rall

slow

gro

wth

=>

we

have

a s

ervi

ce c

ompa

rativ

e ad

vant

age

=>

we

have

a s

ervi

ce c

ompa

rativ

e ad

vant

age

--M

ann

Man

n

��H

igh

skill

ed, j

udgm

ent

orie

nted

, pro

blem

sol

ving

jobs

Hig

h sk

illed

, jud

gmen

t or

ient

ed, p

robl

em s

olvi

ng jo

bs#

jobs

Inc

reas

ed 1

7% 1

999

# jo

bs I

ncre

ased

17%

199

9 --20

0420

04��

Amiti

Amiti

and

and

Wei

Wei

(200

5)(2

005)

Find

no

evid

ence

tha

t su

gges

ts t

hat

Find

no

evid

ence

tha

t su

gges

ts t

hat

offs

horin

gof

fsho

ring

fost

ered

job

loss

in

fost

ered

job

loss

in

Brita

in d

urin

g th

e pe

riod

1995

to

2001

Br

itain

dur

ing

the

perio

d 19

95 t

o 20

01

Long

Run

Con

sequ

ence

sLo

ng R

un C

onse

quen

ces

��Ar

gum

ent

1:Ar

gum

ent

1:��

Just

as

agric

ultu

re a

nd m

anuf

actu

ring

did

not

disa

ppea

r fr

om o

urJu

st a

s ag

ricul

ture

and

man

ufac

turin

g di

d no

t di

sapp

ear

from

our

econ

omy,

nei

ther

will

ser

vice

s. Th

e ec

onom

y w

ill g

radu

ally

adj

uec

onom

y, n

eith

er w

ill s

ervi

ces.

Th

e ec

onom

y w

ill g

radu

ally

adj

u stst

��Pr

ojec

ted

job

loss

: po

rtio

n of

labo

r fo

rce

that

is

Proj

ecte

d jo

b lo

ss:

port

ion

of la

bor

forc

e th

at is

off

shor

able

offs

hora

ble

10%

10

%

Bard

ahn

Bard

ahn

an K

roll

an K

roll

20%

20%

Van

Van

Wel

sum

Wel

sum

, , Rie

fRie

f , a

nd

, and

Vic

kory

Vick

ory

3.3

mill

3.3

mill

ion

ion

Forr

este

r Res

earc

h, M

cCar

thy

Forr

este

r Res

earc

h, M

cCar

thy

1 m

illio

n is

less

tha

n 1

mill

ion

is le

ss t

han

avg

avg

2 w

eeks

wor

th o

f gr

oss

job

loss

2 w

eeks

wor

th o

f gr

oss

job

loss

(( Wel

sum

Wel

sum

uses

the

4 p

revi

ousl

y m

entio

ned

char

acte

ristic

s an

d tr

ies

to c

ous

es t

he 4

pre

viou

sly

men

tione

d ch

arac

teris

tics

and

trie

s to

co u

nt u

p al

l the

jobs

, un

t up

all

the

jobs

, pr

obab

ly a

n ov

eres

timat

e fo

r pr

obab

ly a

n ov

eres

timat

e fo

r of

fsho

ring

offs

horin

gal

one.

)al

one.

)Th

e Th

e O

ffsh

orin

gO

ffsh

orin

ghy

pe is

ove

rdon

e, w

e sh

ould

just

rel

ax!

hype

is o

verd

one,

we

shou

ld ju

st r

elax

!

��Ar

gum

ent

2:Ar

gum

ent

2:��

This

tra

nsfo

rmat

ion

is f

unda

men

tally

diff

eren

t fr

om t

hose

in t

heTh

is t

rans

form

atio

n is

fun

dam

enta

lly d

iffer

ent

from

tho

se in

the

past

pa

st

and

will

req

uire

a v

ery

pain

ful a

djus

tmen

tan

d w

ill r

equi

re a

ver

y pa

infu

l adj

ustm

ent

So s

houl

d w

e al

l jus

t re

lax

and

do n

othi

ng??

So s

houl

d w

e al

l jus

t re

lax

and

do n

othi

ng??

Not

qui

te�

Not

qui

te�

��O

utco

mes

ver

y un

pred

icta

ble

(gra

ph)

Out

com

es v

ery

unpr

edic

tabl

e (g

raph

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ay)

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ill b

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eric

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r s s

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form

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In

crea

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crea

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IT

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atio

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e be

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ng, a

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bene

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proo

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isha

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ctor

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me

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the

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us b

ack

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ly r

esta

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aite

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xi d

river

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lusi

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port

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smoo

thly

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r th

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use

gain

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men

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use

gain

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dual

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divi

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rt t

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p di

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als

o ha

ve lo

wer

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ing

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mkt

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term

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ages

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