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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
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