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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.
Destination: Mexico
Labor-intensive assembly operations– Electronics
Hewlett-Packard, IBM, Phillips, GE
– Pharmaceuticals Merck
– Apparel– Business Services
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 gov’t
Disadvantages Higher Wages
– Sunday holiday pay– Limited working hours– Mandatory social benefits
Lower overall productivity compared to China
Higher utility costs Vulnerable currency rate
Destination: India
TransportationCustomer Service, Baggage tracking
Information TechnologyPC Technical Support (HP, Compaq….)
FinancialCredit Card, Billing, Tax Preparations
HealthcareX-Ray after-hours assessments
EducationOn-line and VOIP tutoring, On-line small business consulting…
Service-oriented outsourcing
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
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.
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-melamine1-2008oct01,0,3593047.storyhttp://www.usnews.com/articles/news/world/2008/10/09/the-story-behind-chinas-tainted-milk-scandal.htmlhttp://www.time.com/time/world/article/0,8599,1844750,00.html
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
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– R&D 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 int’l GE operations; friendly economic ties; gov’t investment in education
Outsourcing Elsewhere
Pharmaceuticals– Czech Republic – Poland
Source: http://www.polishmarket.com/index.php?item=free_articles&id_form=407
Czech Republic & Poland
Low Barriers to Entry– English commonly spoken
Well developed chemical research facilities Favorable Gov’t regulations
– Lower level of corruption– Counterfeiting discouraged
Centrally located in Europe– Ease of travel, distribution hub
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/GE%20India.pdfhttp://www.enterblog.com/200411090747.phphttp://genpact.com/Genpact/section.aspx?menu=about§ion=1
GE Financial: the best locale
Advantage India– 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
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-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
Diagnostic equipment manufacturers Deployment of (GE’s) medical imaging and
diagnostics equipment Patient monitoring systems Biopharmaceutical manufacturing
technologies.
GE’s 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/idINIndia-37310520090106
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 organization’s 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.
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.