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Group Case Study - 1 American Outsourcing
Questions 1. Will the dominance in software and services outsourcing shift toward China? The dominance in software and services outsourcing will definitely shift toward China one day. China has the potential value of expanding direct operations, an unparalleled wealth of highly skilled labor and solid infrastructure to place it atop most short lists for offshoring engagements. It was recognized by the Chinese Government two years ago – “Facing the fast growing outsourcing market, China is no longer satisfied being “the center of world manufacturing”. As a result of over a decade of liberalization of trade and innovation and entrepreneurship on a grand scale, China has achieved a significant commercial presence on the world stage, which has been heightened by accession to the WTO. Although China has positioned itself as the world’s manufacturing center, it is now poised to become a world player the IT and BPO sectors. Foreign BPO companies are pushing to involve China in global business process strategies. International competition drives business process transformation in China. And China offers huge growth potential such as the Chinese workers cost about 15 percent less than equally qualified Indians. Business process transformation strategies in China will be driven primarily by the need to respond to rapid market growth. The need for faster services and capacity will lead many of developed markets to outsource. In overall ranking of the world’s key economies on their attractiveness as offshoring locations in nine categories, including political and security risk, regulatory environment, tax regime, labor laws, costs, skills, and infrastructure, China came in Second behind India. However, China has also been reported as
HRM 6010 1 Dr. Alfred Chee
to continue improving IP protection. Against this background. rigorous delivery methodology. China has already started focusing on providing outsourcing services to markets in Asia and the Pacific. Hong Kong and Australia.1 American Outsourcing having a higher attractiveness level as a “potential” outsourcing destination. reduce the bureaucratic red tape. China HRM 6010 2 Dr. create clarity and understanding for the foreign outsourcer. This move will further spark the Chinese outsourcing industry. How will such a pattern affect China’s manufacturing capabilities? China will be destination for Asian economies. 2. technical skills. recognized quality standards. and will spur new growth and investment future high-tech labour force. Nowadays. and investor to inform “what to do” and “where to go”. much remains to be done to make China a “must go to” destination for buyers and businesses seeking to outsource IT services and BPO. process management and process engineering skills. Its rates can undercut India’s rates by 30% average. So China has great potential and competence to be dominant in software and services outsourcing. will become attractive over the next 5 to 10 years in IT. These countries. but it still takes time. a significant number of countries are vying to get a piece of the global pie. Global sourcing is seen as necessary to be competitive or even survive. China had to be the first rank above India. will become India’s major competitor for outsourcing services. increasing telecom density and PC penetration. And in the “Future opportunity Rank -2015”. such as Japan for offshoring. In the outsourcing field. and provide assured delivery by stable work force. customer. China is trying to improve English teaching and other skill sets. China had been India’s major challenger. Most Asian-Pacific headquarters across industries are currently relocating to China from places like Singapore. with varying skills and capabilities and populations are the ingredients in the battle for global delivery model supremacy. Its market opportunities will continue to grow and it will continue to expand R&D and focus on high-end offshoring. in many cases even higher. While this is good news. Alfred Chee .Assignment .
Chinese firms will be creating major new market opportunities by strategically acquiring business outsourcing companies. some advantages may disappear. Or it sends people to work abroad. Alfred Chee . China has a highly competitive cost structure (arguably. When a GE-like company considers offshore operations. Therefore. with all other qualifiers being achieved. If China employs people in the manufacturing countries to work. which will give a multiplier effect in the end. The main purpose of any given organization to outsource would be to reduce cost and increase profit. On the other hand. increased service outsourcing to China will only strengthen its overall business productivity as a result of synergies met by fusing manufacturing and services under one roof. with an already established manufacturing base. comes. it will outsource its manufacturing to other countries (like Vietnam or other Asian and African countries) and shifts its emphasis from manufacturing to service. Would a GE-like company find it ideal to limit the outsourcing of manufacturing and services to one country? It would be considered unwise for a GE-like company to limit its outsourcing of manufacturing and services to one country only. which China dominates the software and services outsourcing. China has extremely low cost real estate and power.1 American Outsourcing is the biggest challenge and the largest threat to India. With the largest population and fastest economic growth. When the day. the cost might be increased. low cost HRM 6010 3 Dr. 3.Assignment . IT and BPO. it suggests that China already shift its keystone. and these may turn China into today’s America. In an Outsourcing Environment. the management should consider what is called the context of offshore outsourcing. When it dominates the software and services outsourcing. China’s cost advantage would be the “winning” criteria). this can be a very attractive to the US companies. it may raise unemployment internally. China has at least three strengths in the global outsourcing market: manufacturing. which are looking for cost cutting due to the downturn.
Pakistan. India. third world countries or emerging economies. feasible or risky territories for GE-like companies to outsource.com/content/roadmap_country_selection_01. Alfred Chee . The four quarters of the above chart represent and provides a logical explanation as to why it would be unwise for a GE-like company to limit its outsourcing to a specific country only: HRM 6010 4 Dr. Ireland. Australia. Brazil and others. Vietnam.euroitx. (Source: http://www.1 American Outsourcing countries. Bangladesh.Assignment . countries in transition. Romania. These low cost countries location also belong to a group or groups of countries called developing countries.php) The above figure should the various countries as attractive. Amongst the list of countries would include Canada.
• Attractive Markets: Here the cumulative cost advantage is high while it maintains a low risk environment. On the other hand. As a result of this outsourcing or off shoring. 4.Assignment . Will the American employment losses continue in the short-run? The decline in manufacturing employment has resulted and coincided with the increase in outsourcing to domestic contractors. However there is also a cumulative cost which is low followed by a low business risk environment. which is also known as off shoring and staffing services. Alfred Chee . • Unattractive Markets: Unacceptable environment as both cumulative cost advantage is low and business risks are high. much of the production in Information Technology industry are outsourced. organizations have gained by having lower prices for high tech equipment which in returns stimulates the diffusion of high-tech equipment and ensure flow of profits in the U. According to Mann (2003).S. which includes substantial increase in outsourcing of materials and services inputs to foreign companies or affiliates.1 American Outsourcing • Secure Markets: there would be a cumulative cost advantage and low business risk. allocate and HRM 6010 5 Dr. an organization might use a recruitment agency to source. Therefore this would be an attractive environment for outsourcing. For example. the business gain opportunity is also low. economy. the cumulative costs are high while the associated business risk is low. However off shoring and outsourcing might inevitably result in higher productivity. • Hazardous Markets: Cumulative cost advantage and associated business risks are high. This environment promises extraordinary business gain for the real enterprising spirits. match worker with the actually production needs The organization can also opt to outsource noncore functions of the departments to domestic or foreign contractors whom may have greater expertise in the required work field. Hence.
McCarthy’s Research that the positions and job vacancies in the United States would have been outsourced or off shored by at least 3. Without a doubt.3 Million white-collar jobs and USD136 Billion in wages by the year 2015. Having said that. regardless of blue or white collar base have been promised better rewards. acquire new skill. The industry grew by 70% during early years of 2000. the changes over the past three decades in the American economy have led to outsourcing and off shoring of manufacturing jobs. 5.1 American Outsourcing The well-known Associate Software and IT company. Will the outsourcing trend ultimately bring in more jobs in the longer run? HRM 6010 6 Dr. These organizations’ also tends to replace their employees with foreigners and have left many American worker unemployed. Most American Organizations’ tend to have short-term or quick money scheme. which includes quarterly results paid bonuses. American workers. It was clearly demonstrated by John C. adapt quickly to the changing environment and most importantly to be ready to accept greater job insecurity with extended working hours. This BPO is another form of practice of outsourcing business functions to alternative subsidiaries or relevant vendors in other parts of the world. has predicted that one of the biggest growth in IT industry was in India. The main reason for this exponential growth was due to the widespread usage of Cross-Border Business Process Outsourcing (BPO).Assignment . The National Association of Software and Service Companies (NASSCOM). This malpractice which is practiced widely in the United States has resulted in losses to their best employees’ human capital. Alfred Chee . particularly in higher skill and value as the workplace has become increasingly more high-technological. these rewards are subjected to the American if they agree to work harder. However.
Germany. Here is how: The best example is the business relationship between India and the United States.000 new jobs in the US.Assignment . UK. Asian countries where the wages are low will prosper with millions of new jobs created. Of course.1 American Outsourcing In the shorter term. It is also noted that IT outsourcing by US companies to India also resulted in Indian companies creating new jobs in US. Though most of the works are being done in India. Tata Consultancy. This proved to be a huge business opportunity for US companies. outsourcing will erode a lot of jobs in the developed counties like US. and US respectively. As a result. It is a win-win situation for both these countries in the end. France among others. more jobs will be created in the developed countries as well. India has to resort to alternative energy sources like nuclear power. it is estimated that US$ 100 billion worth of revenues will be generated for US companies. In 2006.htm). India and the US signed an agreement to enable US nuclear companies to enter India for nuclear power generation for civil purposes. Wipro and Mahindra have created 30. (Source: http://www. It is imminent that most of the jobs (both Manufacturing & Services) in the developed countries will migrate to developing countries where the wages are low. Job creation in developed countries In the longer term. the energy consumption is getting higher and higher resulting in a huge energy crunch in that country. Most of these new jobs will be created in the US. Since more and more American service jobs are being outsourced to India. of new jobs in developing countries of Asia. and oil prices shooting up to touch the US$200/ barrel mark on the other. if not millions. as in the case of India. other HRM 6010 7 Dr. This is how globalization creates jobs and spreads wealth both in rich as well as poor countries. Alfred Chee . It will create thousands. through outsourcing. With very less domestic oil resources on one hand.businessweek. Eastern Europe and Africa. It is estimated that Indian tech giants like Infosys.com/globalbiz/content/jul2008/gb20080718_118267_p age_2.
in turn. Alfred Chee . McKinsey Global Institute (MGI) has estimated that 90% of the US jobs are of a nature that they cannot be done elsewhere .offshoringtimes. Marketing and Distribution jobs must be created in these countries like the US where the clients are present.S. The standard of living and overall money flow in these countries also increase year by year. Catering and Personal Care services. This will create another wave of new job creation in the process.2002.7 million jobs were created with a net increase of 17. The percentage of jobs that can be outsourced at the most is only 10% of the overall job pool in the US.7 million. This is how new jobs are created in the country where the jobs are lost.1 American Outsourcing much-needed Jobs apart from software developing like Public Relationship (PR). They. Between 1993 .indiatimes.html) HRM 6010 8 Dr.cms) On the other hand. 327. at the same time. countries like China and India are prospering with more wealth. it is worthwhile to be noted that. Is it time for the U. 6. Government to step in with the outsourcing regulation? There is no need for outsourcing to be stopped. become lucrative and high-growth markets for Multi-national corporations. millions of newer jobs will be created both in the developing as well as the developed world. and they can sell even more products to even more customers who are getting rich by the day. (Source: http://www.com/Pages/2006/offshore_news671. due to outsourcing and job migration.they cannot be outsourced. These are the jobs in the industries like Retail. in the longer term. 310 million jobs were lost due to outsourcing. by those countries to where the jobs go as a result of outsourcing. It is obvious that. (Source: http://timesofindia.Assignment .com/Business/India_Business/Indian_companies_e mploy_over_30000_US_citizens_FICCI/rssarticleshow/3204087.
Assignment . This can be done by giving education subsidies for science and engineering education and offering more scholarships. 7. All those displaced workers. The accounting side of outsourcing says that as much as $1. so that. Outsourcing market must be allowed to prosper without Uncle Sam’s intervention.1 American Outsourcing US Government Regulation .html) Government must pass new laws to make sure that those companies who are about to send jobs abroad must give advanced notice to those employees to be laid off. (Source: http://piton-global. Government must give tax breaks to those companies whose jobs cannot be outsourced to other countries. The US has one of the highest redeployment rates in the world. Alfred Chee . These employees must be entitled a proper minimum compensation and other benefits after the lay-off. This is the reason why the US tech industry is heavily dependent on immigrant high-skilled professionals from other countries.46 in new economic value is created for every $1 spent by US companies by offshoring & outsourcing activities. HRM 6010 9 Dr. The reason for the loss of US jobs to other countries was not just the availability of cheap labour in these developing countries but also the acute shortage skilled engineers and professionals in the US. Or should the outsourcing market be allowed to prosper without Uncle Sam’s intervention? Yes. Facts give the proof. are expected to be re-employed within 6 months of lay-off.Suggestions What the US Government must do is to allocate funds to retrain those employees who have lost jobs.com/resource03. they could find new jobs. The Government must also encourage more and more students to take up engineering and science studies in the college. on an average.
By this way.00 Spending $1. These cost savings can then be passed on to each and every US customer in the end by ways of lower prices of commodities and the ability to companies like Wal-Mart to thrive. In the end. He can buy other things with this saved money.htm) $1. the customer who buys this T-shirt also saves about $5. The US company.1 American Outsourcing The study also estimates that US companies save 58 cents ($0. they will make the same Polo brand T-shirt for under $2 and sell it for $3 to the US Company who owns that T-shirt brand. Let us assume a Polo T-shirt made in the US sells at about $10. other companies can sell their products to the customers who are left with more cash. Just 5% of the wealth created (or saved) in this way would be enough to re-train displaced workers for new jobs. the US economy at large can benefit by huge cost savings. can sell it for $5 with a profit of $2.com/money/2003/dec/03bpo. HRM 6010 10 Dr. in turn.rediff.46 Value Gain Outsourcing Gains As a result of all these net savings brought about by outsourcing. (Source: http://www.Assignment . more business is done and more companies can earn higher profit benefiting the whole of the US economy and it’s GDP. In the end.58) for every $1 spent on these outsourcing & offshoring activities. If it is outsourced to a Chinese company. Alfred Chee .
“Human Resource Management. http://www.com/content/roadmap_country_selection_01. Boston.html 3. References 1.Assignment . http://timesofindia.euroitx.com/resource03. And Shaw.com/Business/India_Business/Indian_companie s_employ_over_30000_US_citizens_FICCI/rssarticleshow/3204087. Boston. Schoenfeldt.com/globalbiz/content/jul2008/gb20080718_118267 _page_2. 3.indiatimes. 5th Edition: 2003 2. http://www.com/Pages/2006/offshore_news671.php HRM 6010 11 Dr. Raymond J. Stone. J.1 American Outsourcing Bibliography 1. 5th Edition: 2005 Ivancevich.rediff. 8th Edition: 2001 Fisher. D.htm 2.” Houghton Mifflin.. J.htm 5.” McGraw-Hill.. L. M. “Human Resource Management.offshoringtimes. “Human Resource Management. B.com/money/2003/dec/03bpo.” John Wiley & Sons Ltd.businessweek. http://www. http://www. F. Alfred Chee .html 6. C. http://piton-global.cms 4.
1 American Outsourcing HRM 6010 12 Dr. Alfred Chee .Assignment .