Outsourcing

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Outsourcing

• Joseph Meyers
• Ted Holmgren
• Tyler Smith
• Casey Mueller
• Brian Updike

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• In-sourcing to keep within a corporation tasks
  and projects that were previously outsourced
• Outsourcing to purchase (goods) or subcontract
  (services) from an outside company.
• Off-shoring - registered, located, conducted, or
  operated in a foreign country

Definitions from dictionary.com
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Intro video
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Nike Manufacturing Facilities
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Video Innovation
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OutsourceWorld London

• Replace the transitory business concept of
  offshoring with the longer term reality of
  globalization. (www.dr.richard-sykes.com)
• Dr Richard Sykes is Chairman of the Outsourcing
  Offshore Group of Intellect, the UK trade
  association for the IT, Telecoms and Electronics
  industries.
• Mike McElwee is ICT Director at English Heritage
  and has a keen interest in performance management
  and benchmarking.
• Taking outsourcing from improving operational
  effectiveness toward strategy

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The outsourcing model

• S.C.R.A.P.
• Scope
• Contract
• Relationships
• Audience
• People

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Scope

• Consider Outsourcing
• Routine
• Measurable
• Generic
• Temporary Overloads

• Keep insourced
• Strategy
• Contract management
• Difficult to measure
• VFM skills base
• Your own specialist knowledge

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Outsourcing India

• The game here really isnt about saving costs
  but to speed innovation and generate growth for
  the company.
• IT outsourcing- 70 cost savings?

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Average Salaries of Programmers
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At-risk White Collar Workers

• New industries outsourced Plenty of Americans
  know of Indias inexpensive software writers and
  have figured out that the nice clerk who booked
  their air ticket is in Delhi. But these are just
  superficial signs of Indias capabilities.
  Quietly, but with breathtaking speed, India and
  its millions of world-class engineering,
  business, and medical graduates are becoming
  enmeshed in Americas New Economy
• More IT engineers in Bangladore (150,000) than in
  Silicon Valley (120,000)

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At-risk White Collar Workers (Contd)

• U.S. software engineers- jobless rate has more
  than doubled to 4.6 in 3 years
• 6.7 for electrical engineers, 7.7 for network
  administrators
• Accountants
• 20,000 returns in 2006 (500/mo CPAs)
• 200,000 projected next year

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Positive View

• Indias brainpower will fill a huge gap in
  skilled labor as baby boomers retire
• By 2020, 47 of Indias population will be
  between 15 and 59 35 currently
• Just like China drove down costs in
  manufacturing and Wal-Mart in retail, India wil
  drive down costs in services.

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Indias Perspective

• Indias IT boom hasnt affected the majority
• IT service workers account for less than 1 of
  workforce
• 300 million Indians subsist on less than 1 a day
  
• 1/3 of Indias 1 billion citizens are illiterate,
  60 of homes having electricity

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Indias Perspective (contd)

• Younger generation seeks to deliver nation from
  poverty
• Video clip
• Government has confidence to tackle many social
  problems- highways, airports, deregulation of
  utilities

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So far we have talked about

• Steel
• Sugar
• Oil
• Nike
• 70 of our GDP is service and 65 of jobs are in
  service

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What is changing to make services tradable?

• Key technological advances in international
  communication have changed how we transfer
  information.
• Information has been codified, such that
  computers make it easier for less skilled
  individuals to perform tasks.
• Consumers are becoming accustomed to doing
  business without interacting directly with a
  person.

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What services can be traded?

• Traditionally, the services industry was
  considered to be non-tradable.
• The objective is to identify activities that are
  traded domestically as potentially tradable
  internationally.
• Gini indexes

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Industry Examples

• Low Gini (non-tradable)
• Elementary Schools
• Waste Management
• Hospitals
• Automotive Repair
• Restaurants

• High Gini (tradable)
• Management, Scientific, and Technical Consulting
  Services
• Securities and Financial Investment
• Data Processing Services

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From Stains on the White Collar

• the majority of jobs forecast to be lost pay
  less than the US average wage. These are not the
  software engineers from Silicon Valley. On the
  other hand, almost 10 million people work in
  high-paying business, financial, architecture,
  engineering, computer, and mathematical
  occupations projected to account for 30 percent
  of total job losses until 2015--and these
  occupations did account for 30 percent of the
  actual job loss from 2000 to 2002!

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Projections for Job Offshoring
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Bangalore Calling

• Plants that are part of a U.S.-parent
  multinational company have 11 percent higher
  labor productivity than those that are only
  domestic, and this higher productivity supports a
  715 percent wage premium (blue- and
  white-collar, respectively).
• It is also the case that U.S. plants that are
  owned by a foreign parent are more likely to grow
  faster, employ more people, use advanced
  manufacturing technologies, and have 1319
  percent higher wages compared to domestic-only
  plants.

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Which jobs do we outsource?

• Where do we draw the line?
• Can many of the jobs being outsourced be
  domestically outsourced?

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Why Call Centers?

• Lower costs
• Greater speed
• Greater accuracy

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Call Centers--Alternative Approaches

• Market
• 3000 call center workers in India in 2000
• 115,000 in 2005 (cfo.com)
• Homesourcing
• Domestic outsourcing

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Homesourcing

• Call center located in the Salt Lake Area
• Stay-at-home mothers
• Fueled by
• Reach of personal computer and a modem
• High cost to commute

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What About the Wage Factor?

• JetBlue CEO David Neeleman
• We will never outsource to India. The quality we
  can get here is far superiorEmployers are more
  willing to outsource to India than to their own
  homes, and I cant understand that. Somehow they
  think that people need to be sitting in front of
  them or some boss they have designated. The
  productivity we get here more than makes up for
  the India wage factor.
• Workers were 30 more productive
• Less attrition

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Domestic Outsourcing

• Steven Bigari
• Drive-Thru service in Missouri, Minnesota,
  Massachussets
• Order-taker in Colorado

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ResultsBased on a study conducted by Booze Allen
Hamilton

• McDonalds
• Cut average time to take an order by 30 seconds
• 1 min 5 sec vs. 2 min 36 sec average across
  McDonalds
• Cut overall labor costs by 1 despite paying call
  center workers
• Mistakes reduced to 2 from 4

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A few Facts

• Unemployment is at 4.7
• Service Industry added 62,000 jobs from August to
  September
• Average time unemployed
• 18.4 weeks in 2005
• 19.6 weeks in 2004
• The IT industry created 76,300 jobs in the US
  between March 2001 and March 2004
• The US outsourced 402,800 IT jobs oversees during
  that same period.

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Video

• Destroying our Village

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Does Outsourcing Hurt America?

• White Collar Workers may not have other jobs to
  train for.
• New jobs created are subject to outsourcing as
  well creating a never-ending spiral of job
  creation in the US and exportation to other
  countries.
• Outsourcing leads to a fake jobless recovery.

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• It is a matter of survival for these firms it
  would be virtually impossible to start a new IT
  or software company in silicon valley without
  offshore outsourcing
• (outsourcing USA Today December 2004)

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• Jobs are not created by the good intentions of
  legislators they are created by companies free
  to be competitive in a world economy
• Keving Schmiesing

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What should we do?

• Protect borders with an advanced High Tech
  fire-wall. (ie. Illegal immigration)
• Support education programs that build management
  and entrepreneurial aptitude in students.
• Encourage strategic rather than cost cutting
  outsourcing.