American Outsourcing
Helene Bergeman
Libor Cech
Gary Franklin
Introduction
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American jobs are being lost to overseas workers
US wages are being beaten down due to the competition.
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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.
Destination: Mexico
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Labor-intensive assembly operations
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Electronics
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Pharmaceuticals
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Hewlett-Packard, IBM, Phillips, GE
Merck
Apparel
Business Services
Destination: Mexico
Advantages
 Close regional proximity to
the U.S.
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Inexpensive shipping
Reduced transit times
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Ease of communication
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Spanish / English
Time Zones
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Disadvantages
 Higher Wages
Intellectual property &
patents enforced by the gov’t
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Sunday holiday pay
Limited working hours
Mandatory social benefits
Lower overall productivity
compared to China
Higher utility costs
Vulnerable currency rate
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…
Destination: India
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Favorable governmental laws
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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
Destination: China
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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.
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25% more hours than the average Mexican
committed to maquilas.
Product Failures: Made in China
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Pet food
Toothpaste
Seafood
Blood thinner Heparin
Infant formula tainted with melamine.
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54,000 children injured; 4 dead
Sources:
http://www.latimes.com/news/opinion/la-ed-melamine1-2008oct01,0,3593047.story
http://www.usnews.com/articles/news/world/2008/10/09/the-story-behind-chinas-tainted-milkscandal.html
http://www.time.com/time/world/article/0,8599,1844750,00.html
General Electric: Globally
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Mexico
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China
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Manufacturing: Capacitors, electric motors, control devices,
lighting
Real Estate
Financing
High-technology: medical systems, plastics, light, aeronautics
Research & Development
Leasing
India
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Capital Services: transaction processing, finance & accounting
services, Call Centers, Data Modeling
Manufacturing: Engines, plastics, power systems
What if GE had to choose?
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Get out of China…
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Less overall investment in capital to-date
Difficult barriers to entry in the local market
R&D discoveries could result in corporate theft
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India provides more quality opportunities for growth; low cost
manufacturing for Asian markets; educated employee base
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Mexico provides lower cost manufacturing in close proximity to
US; largest int’l GE operations; friendly economic ties; gov’t
investment in education
Outsourcing Elsewhere
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Pharmaceuticals
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Czech Republic
Poland
Source:
http://www.polishmarket.com/index.php?item=free_articles&id_form=407
Czech Republic & Poland
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Low Barriers to Entry
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Well developed chemical research facilities
Favorable Gov’t regulations
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English commonly spoken
Lower level of corruption
Counterfeiting discouraged
Centrally located in Europe
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Ease of travel, distribution hub
GE Financial
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Located in 47 countries worldwide
Offering
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Banking
Loans
Leasing Solutions
Insurance
Doing business in India since 1994
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4500 outlets in 60 locations
Sources:
http://www.cwalocal4250.org/outsourcing/binarydata/GE%20India.pdf
http://www.enterblog.com/200411090747.php
http://genpact.com/Genpact/section.aspx?menu=about&section=1
GE Financial: the best locale
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Advantage India
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Linguistic edge over China & Mexico
GE’s financial operation is primary resource in
India
But – GE’s long term plan for growth includes
focusing on Chinese market & current economic
environment meant big losses for GE India in
2008
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-considering-ge-893
Where should the CE division of GE
end up?
China
“…Fine Silicones were in Shenzhen, Shenjang and Shanghai…”
“China exhibited a synergy…the areas of electronics, telecommunications…” p14
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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.”
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Based in Oklahoma City, Jasco currently has offices in Shenzhen, China.
Sources:
http://www.appliance.net/2008/ge-delays-sale-of-appliance-division-945
http://www.associatedcontent.com/article/1106358/the_consumer_electronics_division_of.html?cat=55
http://www.jascoproducts.com/
http://www.answers.com/topic/general-electric-company
GE Healthcare - $17B industry
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Diagnostic equipment manufacturers
Deployment of (GE’s) medical imaging and
diagnostics equipment
Patient monitoring systems
Biopharmaceutical manufacturing
technologies.
GE’s Best Choice - India
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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/idINIndia-37310520090106
Relation to Coursework
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Offshore outsourcing – Use of vendors in other countries, usually where labor is
inexpensive, to do programming or other system development tasks.
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Information systems – A physical process that supports an organization by
collecting, processing, storing, and analyzing data, and disseminating
information to achieve organizational goals.
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Transaction processing system – An information system that processes an
organization’s basic business transactions such as purchasing, billing, and
payroll.
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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.
Outsourcing – Benefit or Detriment?
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FDI incentives coupled with a lowcost labor market drain jobs from
U.S.
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Companies choose to outsource
labor-intensive jobs to Mexico &
China.
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An educated, low-cost employee
pool in India siphons away highpaying IT jobs from the U.S.
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Stable and/or falling prices of
consumer goods in U.S. as lower
cost production is passed to the
consumer.
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Rising standard of living for
emerging industrial societies.
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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.
...but still…