American Outsourcing

1
American Outsourcing

• Helene Bergeman
• Libor Cech
• Gary Franklin

2
Introduction

• American jobs are being lost to overseas workers
• US wages are being beaten down due to the
  competition.
• Services jobs paying 35/hr in the US can be
  replaced with 10/hr by workers in India
• Manufacturing jobs paying 11-20/hr can be
  replaced for 1-2.50/hr in China
• Some US workers are willing to take less pay and
  less benefits to keep a job
• Some proponents believe the US is benefiting from
  lower cost goods and services and are able to
  create jobs in the US export sector.

3
Destination Mexico

• Labor-intensive assembly operations
• Electronics
• Hewlett-Packard, IBM, Phillips, GE
• Pharmaceuticals
• Merck
• Apparel
• Business Services

4
Destination Mexico

• Advantages
• Close regional proximity to the U.S.
• Inexpensive shipping
• Reduced transit times
• Ease of communication
• Spanish / English
• Time Zones
• Intellectual property patents enforced by the
  govt

• Disadvantages
• Higher Wages
• Sunday holiday pay
• Limited working hours
• Mandatory social benefits
• Lower overall productivity compared to China
• Higher utility costs
• Vulnerable currency rate

5
Destination India
Service-oriented outsourcing

• Transportation
• Customer Service, Baggage tracking
• Information Technology
• PC Technical Support (HP, Compaq.)
• Financial
• Credit Card, Billing, Tax Preparations

• Healthcare
• X-Ray after-hours assessments
• Education
• On-line and VOIP tutoring, On-line small business
  consulting

6
Destination India

• Favorable governmental laws
• Intellectual property rights
• Foreign ownership of stock
• English widely spoken
• Literate workforce with higher education

SOURCES Robert Kennedy is the author of The
Services Shift, a new book on off-shoring.
http//www.fte.org/hottopics/archive/outsourcing.
htm
7
Destination China

• Manufacturing jobs are a good fit for outsourcing
  to China.
• Low wages. Fully loaded salaries for Chinese
  workers were below 1/hr.
• The average Chinese worker spent 2,930 hours per
  year at the Special Economic Area.
• 25 more hours than the average Mexican committed
  to maquilas.

8
Product Failures Made in China

• Pet food
• Toothpaste
• Seafood
• Blood thinner Heparin
• Infant formula tainted with melamine.
• 54,000 children injured 4 dead
• Sources
• http//www.latimes.com/news/opinion/la-ed-melamine
  1-2008oct01,0,3593047.story
• http//www.usnews.com/articles/news/world/2008/10/
  09/the-story-behind-chinas-tainted-milk-scandal.ht
  ml
• http//www.time.com/time/world/article/0,8599,1844
  750,00.html

9
General Electric Globally

• Mexico
• Manufacturing Capacitors, electric motors,
  control devices, lighting
• Real Estate
• Financing
• China
• High-technology medical systems, plastics,
  light, aeronautics
• Research Development
• Leasing
• India
• Capital Services transaction processing, finance
  accounting services, Call Centers, Data
  Modeling
• Manufacturing Engines, plastics, power systems

10
What if GE had to choose?

• Get out of China
• Less overall investment in capital to-date
• Difficult barriers to entry in the local market
• RD discoveries could result in corporate theft
• India provides more quality opportunities for
  growth low cost manufacturing for Asian markets
  educated employee base
• Mexico provides lower cost manufacturing in close
  proximity to US largest intl GE operations
  friendly economic ties govt investment in
  education

11
Outsourcing Elsewhere

• Pharmaceuticals
• Czech Republic
• Poland

Source http//www.polishmarket.com/index.php?ite
mfree_articlesid_form407
12
Czech Republic Poland

• Low Barriers to Entry
• English commonly spoken
• Well developed chemical research facilities
• Favorable Govt regulations
• Lower level of corruption
• Counterfeiting discouraged
• Centrally located in Europe
• Ease of travel, distribution hub

13
GE Financial

• Located in 47 countries worldwide
• Offering
• Banking
• Loans
• Leasing Solutions
• Insurance
• Doing business in India since 1994
• 4500 outlets in 60 locations
• Sources
• http//www.cwalocal4250.org/outsourcing/binarydata
  /GE20India.pdf
• http//www.enterblog.com/200411090747.php
• http//genpact.com/Genpact/section.aspx?menuabout
  section1

14
GE Financial the best locale

• Advantage India
• Linguistic edge over China Mexico
• GEs financial operation is primary resource in
  India
• But GEs long term plan for growth includes
  focusing on Chinese market current economic
  environment meant big losses for GE India in 2008

15
GE Consumer Electronics

• 2nd largest appliance maker in U.S.
• Televisions
• Home Appliances
• Telephones
• Small Electrics
• Electrical Products
• http//www.appliance.net/2008/haier-still-consider
  ing-ge-893

16
Where should the CE division of GE end up?

• China
• Fine Silicones were in Shenzhen, Shenjang and
  Shanghai
• China exhibited a synergythe areas of
  electronics, telecommunications p14
• Infrastructure is in place to support
  manufacturing on the shop floor as well as
  component acquisition from the silicon chip
  needed for complex computer interfaces to the
  distribution network for outsourced assembly.
• Exclusive GE licensee, Jasco, develops, markets,
  and distributes more than 2,000 GE branded
  consumer electronic accessories, computer
  accessories, home electric products, and home
  security/surveillance products.
• Based in Oklahoma City, Jasco currently has
  offices in Shenzhen, China.
• Sources
• http//www.appliance.net/2008/ge-delays-sale-of-ap
  pliance-division-945
• http//www.associatedcontent.com/article/1106358/t
  he_consumer_electronics_division_of.html?cat55
• http//www.jascoproducts.com/
• http//www.answers.com/topic/general-electric-comp
  any

17
GE Healthcare - 17B industry

• Diagnostic equipment manufacturers
• Deployment of (GEs) medical imaging and
  diagnostics equipment
• Patient monitoring systems
• Biopharmaceutical manufacturing technologies.

18
GEs Best Choice - India

• Higher hygienic standards than China or Mexico
• English-speaking
• GE outsourced its first fully digital latest
  X-Ray system. Manufactured in India, expected to
  cost 40 less than imported digital machines

Source http//in.reuters.com/article/indiaDeals/i
dINIndia-37310520090106
19
Relation to Coursework

• Offshore outsourcing Use of vendors in other
  countries, usually where labor is inexpensive, to
  do programming or other system development
  tasks.
• Information systems A physical process that
  supports an organization by collecting,
  processing, storing, and analyzing data, and
  disseminating information to achieve
  organizational goals.
• Transaction processing system An information
  system that processes an organizations basic
  business transactions such as purchasing,
  billing, and payroll.
• Data modeling Defines a way data are
  conceptually structured. Examples of model forms
  include the hierarchical, network, relational,
  object oriented, object relational, hypermedia,
  and multidimensional models.

20
Outsourcing Benefit or Detriment?

• FDI incentives coupled with a low-cost labor
  market drain jobs from U.S.
• Companies choose to outsource labor-intensive
  jobs to Mexico China.
• An educated, low-cost employee pool in India
  siphons away high-paying IT jobs from the U.S.

• Stable and/or falling prices of consumer goods in
  U.S. as lower cost production is passed to the
  consumer.
• Rising standard of living for emerging industrial
  societies.
• New opportunities for U.S. leadership on the
  Global Stage.

In Conclusion this case was used in the course
to highlight the futility of your IT education
and coursework, since it will be outsourced to
India within 5 years.
21
...but still