Outsourcing:

1
Outsourcing

• The Rise of the East

2
Hardware and Software Jobs

• Today, if you tell people youre a programmer,
  theyll ask you how long you have until your
  employment benefits run out. Bill Blunden
• What is the future of American IT jobs?
• What are the softer sciences surrounding IT the
  economic, the sociological, the cultural?

3
Outsourcing and Offshoring

• Outsourcing is a major buzzword when it comes to
  American jobs.
• What is outsourcing?
• The migration of tasks or functions from internal
  production to a third party.
• Outsourcing is not necessarily offshoring.
• I.e., offshoring is outsourcing to a third party
  service provider in another country such as
  India, China, or Russia.

4
Offshoring
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Why offshore?

• Most importantly, to reduce the bottom line.
• And why shouldnt corporations attempt to?
• Fill in for the labor shortage.
• insufficient qualified candidates (employees) to
  fill the marketplace demands for employment at
  any price.
• 70 of the US economy is anchored here.
• Whats good for GM is good for America. -
  Charles Wilson, General Motors Chief

6
Proponents cite Industrial Revolution

• Natural process, free market, struggle for
  innovation.
• Comparative advantage
• trade in new kinds of products will bring overall
  improvements in productivity and well-being.
• Technology allows for luxury.
• Ultimately, the Industrial Revolution led to a
  higher standard of living and much better working
  conditions.
• Jobs lost led to better jobs gained.
• Human rights may improve as fast as
  digitalization.

7
Outsourcing History

• Chindia is hottest topic in hardware and
  software.
• The new competitors, India and China are unlike
  any competitors we have seen in our
  lifetime.-Jeffrey Immelt, GE, in 2006
• Began with manufacturing jobs
• Outsourcing possible because of infrastructure
• Education
• Networking technology
• Collaboration tools
• Modern software technology

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What is being outsourced?

• Basically anything.
• Esquire writer testing the limits outsourced
  reading email, fighting with his wife and reading
  to his son.
• Which IT positions are most popular for
  outsourcing?
• trouble ticket/help desk operations
• hardware and network operations
• end-user support
• disaster recovery and power backups
• By 2010, 30 percent of Fortune 500 companies will
  source from three or more countries
• 60 of world IT out sourcing goes to India.

9
Salaries of Foreign IT Workers

• Why organizations outsource

10
International Outsourcing Pros and Cons

• Development
• Annual foreign direct investment(FDI) 37.5
  billion to 60.33 billion.
• India 6 billion.
• China spent 119 billion on IT needs and India
  33 billion in 2005 and the money spent was on
  expanding infrastructure.
• Establish business relationships and gain
  reputation.
• Luxuries of globalization available.

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International Outsourcing Pros and Cons

• Human rights
• Just 12 of SP 500 companies have formal codes
  to address labor issues.
• Yahoo giving up name of Chinese labor organizer.
• June 17th, 2002 20,000 internet cafes closed in
  China
• Environment
• Globally, top 100 companies account for 57 of
  all carbon emissions.

12
Lifestyle Changes

• Globalization
• For example, there are 363 million mobile phone
  users in China. US has only 181 million.
• American fashion, music, fast food.
• IT hubs where social landscape centers around
  technology parks.
• Today approx 10,000 small IT companies in China.
  
• Matrimonial Alliance  invited for Kshatriya
  boy, 28, software engineer in US, arriving in
  December. Fair graduate girl willing to go to
  US?

13
Innovation Overseas

• China 2004 spent 24.6 billion on science and
  technology to improve innovation.
• Planning to spend 46 billion in 2010.
• E.g., Beijing RD lab where 1/3 of researchers
  hold American PhDs.
• E.g., Motorola has 16 research labs in China.
• India houses RD operations for countless
  corporations which regularly produce patent
  applications including
• Intel
• GE
• Texas Instruments
• Cisco
• Mexico is also performing skilled labor largest
  3 exports are auto parts, automobiles and
  electronics.

14
Relations with America

• Policy of made in China becomes made by China.
• Though they rival American companies in talent,
  creativity and innovation, all successful Indian
  and Chinese companies do not advertise as such.
• In America, Indians possess the second highest
  income of any ethnic group.
• Yet a fast-growing economy and improved living
  conditions are drawing Indians back home.

15
Growing Pains

• China offers basically subsidized manufacturing
  cheap land, subsidized fuel and low taxes.
• Each country has its own issues to deal with.
  Chinas issues, for example
• Government
• Domestic instability
• Aging population and population itself 340
  million to 1.1 billion in last 60 yrs.
• Retain competitive advantage as salaries rise.
• Offshore destinations now include Latvia,
  Uruguay, Mauritius, Lithuania, Sri Lanka,
  Pakistan, Morocco, Senegal, and Ukraine.

16
Proponents cite Industrial Revolution

• Natural process, free market, struggle for
  innovation.
• Comparative advantage
• trade in new kinds of products will bring overall
  improvements in productivity and well-being.
• Technology allows for luxury.
• Ultimately, the Industrial Revolution led to
  higher standard of living and much better working
  conditions.
• Jobs lost led to better jobs gained.
• Human rights may improve as fast as
  digitalization.

17
Farm changes

• Then those farmers who were not good shopkeepers
  lost their land to good shopkeepers.  No matter
  how clever, how loving a man might be with earth
  and growing things, he could not survive if he
  were not also a good shopkeeper.  And as time
  went on, the business men had the farms, and the
  farms grew larger, but there were fewer of them.
• Now farming became industry, and the owners
  followed Rome, although they did not know it. 
  They imported slaves, although they did not call
  them slaves Chinese, Japanese, Mexicans,
  Filipinos.  They eat rice and beans, the business
  men said.  They dont need much.  They couldnt
  know what to do with good wages.  Why, look how
  they live.  Why, look what they eat.  And if they
  get funny--deport them.
• And all the time the farms grew larger and the
  owners fewer.  And there were pitifully few
  farmers on the land any more.  And the imported
  serfs were beaten and frightened and starved
  until some went home again, and some grew fierce
  and were killed or driven from the country.  And
  farms grew larger and the owners fewer.

18
American effect

• H1 visas are creating overseas workers.
• Foreign companies, like Infosys and Wipro garner
  1/3 of visas.
• Vast amount of innovative, intellectual work done
  overseas.
• Drop in senior software engineering salaries.
• Flight capital
• Americas brightest minds leaving in leaps and
  bounds.
• Other countries are using America as a
  technological colony, but really a consumer
  colony.

19
American Effect

• Americans are losing jobs and not getting them
  back.
• Cant pay for reeducation, mortgage, insurance,
  retirement.
• From 1979 1999, through deindustrialization,
  37 didnt find new work. 63 showed average 13
  drop in salaries.
• CEOs and investors make money.
• Tax havens
• Divide between rich and poor.
• Cycles of offshoring
• Corporations force prices down and more
  outsourcing.
• What is effect of current recession?

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Vested Interests

• Role of the lobbyist
• Do McKinsey and NASSCOM possess biases? How
  malleable is the information that think tanks
  generate?
• Other countries best interest to keep America
  complacent, we buy products, so quote how
  necessary it is to have an American affiliate,
  even if its not a benefit.
• Deceptive tactics like accent neutralization.

23
McKinsey Profile

• From Bain partner about competing with McKinsey
• They have these deep relationships with senior
  management that lead companies to return to
  McKinsey, unquestioned, time and time again.
• Non-American majority controls shareholder
  committee.
• The Firm derives 60 of its revenue -- and
  probably even more of its profit -- from outside
  the U.S.
• Expects future growth to be fueled by such
  fledgling markets as Russia, Eastern Europe,
  China, and India.

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Whos to Blame?

• Do Americans impel complacency themselves?
• Education system
• About half of all math and hard science PhDs are
  foreign-born.
• Less than 5 of Americans get engineering
  degrees.
• In one study ranking best performing graduates in
  math and science, America came in 19th, behind
  Latvia.
• Lower standards
• Counter lower standards by lowering standards.
• Bauerlein and education
• Eroding values drive foreigners awayfrom our
  culture.
• A culture with no culture.

25
Future of American Jobs

• According to Ahead-of-the-Curve Careers from
  U.S.News
• Regarding strong expected growth, globalization
  fuels
• demand for business development specialists,
  helping U.S. companies create joint ventures with
  Chinese firms.
• Offshoring managers are needed to oversee those
  collaborations as well as the growing number of
  offshored jobs.

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END