AMERICAN OUTSOURCING
Jason Harris
Brandon Eudy
Joe Elko
Tim Chenier
Question 1
CASE INTRODUCTION
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Objective look at the increasing trends of
transferring manufacturing or service jobs
abroad and the effects they have on the United
States, Mexico, China and India
Outsourcing – subcontracting a process, such as
product design or manufacturing, to a thirdparty.
Outsourcing Destinations:
Mexico
 India
 China
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Question 2
JOBS OUTSOURCED TO MEXICO
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Maquiladora – labor-intensive assembly operation that imports
inputs from a foreign country, processes these inputs and then ships
them back to the country of origin.
Mostly manufacturing
First-generation – labor-intensive with limited technology
Third generation – businesses that performed research, productdesign, & development
Electrical & electronics industry
Automotive & metal mechanics industry
Textile, medical, and chemical plants
Administrative employees – 7%
Technicians – 12%
Production workers – 81%
Question 2
DISADVANTAGES FOR MEXICO
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Employee benefits
Higher wages
 Transportation
 Food subsidies
 Affordable housing
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Question 2
JOBS OUTSOURCED TO INDIA
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Intellectual Capital – readily available and
inexpensive skilled labor
R&D hub for a wide range of industries
 Software engineers
 Call centers
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Question 2
WHY INDIA IS A GOOD LOCATION
Inexpensive skilled labor
 Readily available intellectual capital
 All sectors privatized
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Question 2
JOBS OUTSOURCED TO CHINA
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Special Economic Areas – created to attract
foreign investors, create jobs, and generate
exports.
Manufacturing jobs
Question 2
PROBLEMS WITH CHINA
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Milk
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Pet Food
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http://www.newscientist.com/article/mg19426023.600
Toys
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http://news.bbc.co.uk/2/hi/asia-pacific/7720404.stm
http://en.wikipedia.org/wiki/2007_Chinese_export_recalls#Toys
Heparin
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http://www.nytimes.com/2008/03/06/health/06heparin.html?_r=1
GE’s World Presence
Question 3
COMPANIES THAT OUTSOURCE
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Mexico
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China
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Production of capacitors, electric motors, control devices
and lighting products with significant market share in real
estate and financing.
High technology industries, aircraft engine maintenance
facilities, training, and component manufacturing.
India
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Human capital emphasis resulting in the successful
sourcing of products, services, and intellectual talent from
India’s 100 million well educated English speaking citizen
GE’s World Presence
Question 3
COMPANIES THAT OUTSOURCE (CONT)
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China offers arguably the most cost effective
labor rates and the purchasing power of a 1.3
billion population that is unrivaled in the world.
India currently offers intellectual talent from a
pool of 100,000 million plus English speaking
citizens that is also unmatched in today’s market.
While there are advantages of outsourcing to
Mexico, there are viable alternatives to the
services that Mexico provides.
The Philippine Offshoring and Outsourcing Industry
Question 4
FOLLOW UP RESEARCH
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Quality Human Capital
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Abundant labor force of 32
million
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English proficiency
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World Class Infrastructure
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Telecommunications
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$10B high-bandwidth fiber
backbone and digital network
Cultural adaptability
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Deregulated
telecommunications industry
Strong customer service
orientation
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Power
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Large pool of accounting and
business graduates
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Reliable electricity with excess
capacity over current demand
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Highly trainable
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Real Estate
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Cost effective
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Low rental rates with favorable
terms
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High level of commitment and
loyalty
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Dedicated IT parks in urban
areas
The Philippine Offshoring and Outsourcing Industry
Question 4
FOLLOW UP RESEARCH
Segment Breakdown
Cost Effective Labor
http://www.bpap.org/bpap/index.asp
http://www.dti.gov.ph/dti/index.php?p=134
http://en.wikipedia.org/wiki/Business_process_outsourcing_in_the_Philippines
http://www.mckinsey.com/mgi/publications/Philippines_offshoring.asp
Industry Growth
Question 5
FOLLOW UP RESEARCH
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GE’s Core Finance Sectors include
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Capital Solutions
Corporate Financial Services
Healthcare Financial Services
Real Estate
http://gecommercialfinance.gecapsol.com/cms/servlet/cmsview/ComFin_Cor
p/prod/en/main/index.html
Why Focus Healthcare Financial Services in China?
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Population of USA 303,824,640
https://www.cia.gov/library/publications/the-world-factbook/print/us.html
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Population of China 1,330,044,544
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Number of hospitals in the USA 5,708
http://www.aha.org/aha/resource-center/Statistics-and-Studies/fastfacts.html
Number of hospitals in China 12,599
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1 Hospital for every 53,000 people in USA
1 Hospital for every 106,000 in China
Question 5
FOLLOW UP RESEARCH (CONT.)
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Why Focus Healthcare Financial Services in China? (Cont.)
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China is changing its Healthcare approach
China considering a revamp of Healthcare system
Moving from Government run to private
China imports of medical equipment at 2Billion annually
http://www.chinabusinessreview.com/public/0411/chindex.html
China has been open about healthcare problems and the need to
update it.
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Inefficient
Corruption
Lack of quality standards
Poor service
Just not enough hospitals
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And China is ready for change
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Announced that it intended to spend $123 billion by 2011 to establish
universal health care for the country’s 1.3 billion people
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http://www.nytimes.com/2009/01/22/world/asia/22beijing.html
Question 6
FOLLOW UP RESEARCH
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GE consumer electronics divisions are:
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Best Destination: China
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Computer Accessories & Home Electronics
Digital Cameras
Generator Systems
Holiday Lighting
Telephones
http://www.ge.com/products_services/consumer_electronics.html
China’s outsourcing market is growing at 30% annually
Substantial market opportunities to sell in China
Good Universities with strong training producing intelligent students
Better Infrastructure than India
5 Times cheaper than India
English skill swiftly progressing
Much lower labor cost over US
http://www.randomwire.com/2008/01/01/china-101-why-outsource-to-china/
By 2025 every Chinese under 25 will speak English
http://blogcritics.org/archives/2004/07/23/200238.php
Question 6
FOLLOW UP RESEARCH (CONT.)
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Other Reasons to Look to China:
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To capitalize on the opening market in China:
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Population of China 1,330,044,544
Most lack American basics of home electronics
Becoming more open to Western culture
New laws allowing foreign ownership
https://www.cia.gov/library/publications/the-worldfactbook/print/us.html
Focus on Computer Accessories & Home Electronics division
Why establish GE’s Computer Accessories & Home Electronics
in China?
1.3 Billion people becoming exposed to western culture
As the people of China gain wealth Home Electronics market will
explode.
 GE needs to be positioned in China to take advantage of this market
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Question 7
FOLLOW UP RESEARCH
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China would be the best outsourcing choice for GE
Healthcare. GE Healthcare develops and
manufactures a wide variety of health related
technology, products and services. It achieved $16.9
billion in revenues in 2007, with R&D expenditures
being ~$1 billion.
(http://www.gehealthcare.com/usen/about/ge_factsheet.html)
This indicates that efforts towards outsourcing should
support lowering general labor costs and not R&D
costs. GE Healthcare needs a large labor pool to
assemble its medical products, work in pharmaceutical
factories, and support its IT business. China
has the labor pool to provide inexpensive labor
for large plants and IT service call centers.
Question 7
FOLLOW UP RESEARCH (CONT.)
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$0.84 – cost per hour, compared to $2.21 cost per hour in Mexico.
(Exhibit 8)
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Labor is 33% cheaper than India (Exhibit 17)
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China had 9.5% GDP growth in 2004, compared to Mexico, 4.4%, and
India, 6.8%. (Exhibit 18)
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Highest FDI(Foreign Direct Investment) Confidence Index score –
2.03 (Exhibit 19a)
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China had more attractive FDI attributes than India in 13 out of 20
categories. (Exhibit 19b)
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A large amount of China’s citizens are moving from rural areas to
cities, estimated 12 million every year by 2050. (GE Aligns Its
Development to that of China, ChinaDaily.com.cn, 10/30/2007)
http://www.ge.com/ar2007/pdf/ge_ar2007_full_book.pdf
Question 8
RELATION TO THE COURSE
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Globalization – IT call centers, programming, R&D, etc. Technology now
allows the integration of cultures. This creates an environment where work
can be performed and accepted anywhere.
New Economy – Physical borders/barriers are no longer an issue. Items can
be sold electronically and customer service can be administered from
anywhere.
Business-to-Business – Buying and selling outsourced products throughout
the supply chain before a product reaches the end user. A business (A) has the
ability to outsource production and sell at a price lower than before to another
business (B) downstream in the supply chain. This potentially increases
profits and lowers costs for both A and B.
Business-to-Consumer – Outsourcing affects the end user. Outsourcing
allows for goods to be sold for less, increasing the well-being of the customer.
Outsourcing all changes interactions with end users (ie. Customer service
centers in India)
Electronic Privacy – Outsourcing forces sensitive information to be
transmitted over the internet. This creates an opportunity for personal
information to be pirated.
Question 9
CONCLUSIONS
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The increase in technology has provided the
backbone for outsourcing to occur on a level never
before achieved. Through improved
communication channels, everyone in the world
is potentially only a phone call or email away.
Through improved transportation infrastructure,
raw materials and finished goods have the ability
to be manufactured and distributed anywhere on
the planet. This development has sparked strong
growth within poor nations, such as Mexico,
India, and China, but also pose a severe threat to
the U.S. job market.