ITES: Summary

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ITES Summary
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Consider Total Delivered Cost as of US Cost
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Organizations Moving Significant Service
Activities to Developing Countries

• Morgan Stanley
• JP Morgan/Chase
• Seamans
• Amazon
• New Jersey
• Disney (animation)
• Yale Medical Center
• And many others

• General Electric
• American Express
• Bechtel
• Citicorp
• CNA Insurance
• Dell
• Microsoft
• United Technologies

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Outsourcing vs. Offshoring
Offshore?
N
Y
Offshore Devel. Centers Claims processing
Issues Is activity strategic? Potential
savings- scale, sp. skills Customer, employee
concerns
N
RD Product Mktg
Outsource?
Janitorial Cafeteria Payroll
Call centers BPO Medical Trans.
Y
Presence necessary info only, Context/judgement c
an specify monitor
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Outsourcing vs. Offshoring
Offshore?
Y
N
Outsource?
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The Boundaries Are Shifting
Offshore?
Y
N
Traditional integrated firm
Captive Operations
N
Outsource?
Remote Outsourcing
Traditional Outsourcing
Y
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The Effect Will Vary Across Sectors
Banking Finance Insurance
Education
Cleaning Svc. Cafeteria
Packaged Goods Pharma Airlines
Electronics Energy Equip.
TelecomSW Development
Share of Labor in Cost Base
AerospaceConstruction
Public Utilities
E-Commerce
Share of Offshorable Labor
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Offhoring Involves a Variety of Risks

• Location risks
• Infrastructure, macro volatility, cultural
  distance
• Organizational risks
• Will the task get done the same?
• Locational issues, contracting issues
• Customer perception
• Visibility, sensitivity
• Employee perception
• Who is affected? Public outcry?

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We are at the Beginning of a New Era
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Offshoring Will Have Huge Effects

• New sectors will be exposed to international
  competition
• Competitive intensity will rise, shift toward
  costs
• Value chain disaggregation will accelerate
• Huge opportunities for EM firms
• Policy challenges in both developed and
  developing countries

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The Policy Challenge Some Perspective

• millions
• 138 Jobs in the United States
• 35 Annual job switches
• 3.5 Annual positions created
• 2.1 Annual positions eliminated
• 0.2 High end estimate of offshored jobs

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By Historical Standards, Unemployment is Low
Unemployment Rate ()
Labor Force Participation ()
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Yet, the Policy Machinery is Revving Up

• 33 states have introduced anti-offshoring
  legislation
• The U.S. Senate passed similar legislation

• But, few measures likely to be effective
• Cost
• Observability
• Monitoring

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The Outsourcing Wave is Rapidly Becoming
Offshoring

• If you sit at a desk and process paper or
  computer files, I can move your job to India. I
  can definitely do it cheaper. I can probably do
  it faster and more accurately.
• Its a whole new world, and most U.S. firms have
  no idea whats about to hit them.
• - Raman Roy, CEO of Spectramind eServices. April
  2002.