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Outsourcing

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the majority of jobs forecast to be lost pay less than the US average wage. ... not have other jobs to train for. ... (outsourcing USA Today December 2004) ... – PowerPoint PPT presentation

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Title: Outsourcing


1
Outsourcing
  • Joseph Meyers
  • Ted Holmgren
  • Tyler Smith
  • Casey Mueller
  • Brian Updike

2
  • 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
3
Intro video
4
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

19
The outsourcing model
  • S.C.R.A.P.
  • Scope
  • Contract
  • Relationships
  • Audience
  • People

20
Scope
  • Consider Outsourcing
  • Routine
  • Measurable
  • Generic
  • Temporary Overloads
  • Keep insourced
  • Strategy
  • Contract management
  • Difficult to measure
  • VFM skills base
  • Your own specialist knowledge

21
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?

22
Average Salaries of Programmers
23
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)

24
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

25
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.

26
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

27
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

28
So far we have talked about
  • Steel
  • Sugar
  • Oil
  • Nike
  • 70 of our GDP is service and 65 of jobs are in
    service

29
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.

30
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

31
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!

34
Projections for Job Offshoring
35
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?

38
Why Call Centers?
  • Lower costs
  • Greater speed
  • Greater accuracy

39
Call Centers--Alternative Approaches
  • Market
  • 3000 call center workers in India in 2000
  • 115,000 in 2005 (cfo.com)
  • Homesourcing
  • Domestic outsourcing

40
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

41
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

42
Domestic Outsourcing
  • Steven Bigari
  • Drive-Thru service in Missouri, Minnesota,
    Massachussets
  • Order-taker in Colorado

43
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

44
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.

45
Video
  • Destroying our Village

46
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.

47
  • 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)

48
  • 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

49
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.
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