Globalization and How It Affects Arizona

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Globalization and How It Affects Arizona

• Roger A. Dale, Managing Principal
• The Natelson Company, Inc.
• Yorba Linda, CA

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Globalization and How it Affects Arizona

• International Outsourcing and Arizonas Prospects
  for Job Growth
• The California Connection
• Workforce Development in an Era of Globalization

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Outsourcing

• Whats happening and why?
• How big is the impact?
• How much bigger could it get?
• How vulnerable is Arizona?
• Is it really a bad thing? What are the upsides?

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Whats happening and why?

• Free markets are forever seeking efficiency
• Trade cost savings through specialization
• White Collar outsourcing is latest
  manifestation
• Recent media attention on tech jobs

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Attributes of Jobs Outsourced

• No face-to-face customer service
• High information content
• Work is telecommutable and Internet enabled
• Low setup barriers
• Low social networking requirement
• High wage differentials with destination country
• Source Fisher Center (UC Berkeley)

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Wage differentials can be huge
Occupation Hourly Wage, US Hourly Wage, India
Telephone Operator 13 Under 1
Medical Transcriptionists 13 2
Payroll Clerk 15 2
Paralegal 18 7
Accountant 23 6-15
Financial Analyst 34 6-15
Source Fisher Center Source Fisher Center Source Fisher Center
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Average Salaries of Programmers
Country Typical Salary
USA 70,000
Ireland 28,500
Israel 26,500
Canada 28,000
China 9,900
India 8,400
Malaysia 7,200
Philippines 6,500
Poland 6,400
Russia 6,300
Source Fisher Center Source Fisher Center
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How big is the impact?

• Data challenges due to simultaneous events
• Recession and jobless recovery
• Bursting of the high tech bubble
• Outsourcing

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Some numbers

• Percentage of jobs lost in heavily outsourced
  sectors since 2001
• Software publishers - 10
• Accounting/payroll - 10
• Call Centers - 11
• Computer Systems Design - 14
• Computer/Electronics Products - 24
• Source Fortune Small Business

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Some numbers

• 11 of U.S. jobs are at risk (Fisher Center)
• That translates to 14 million jobs
• 3.3 million jobs will be lost to outsourcing by
  2015 (Forrester Research)
• July 2003 25,000 30,000 jobs outsourced to
  India
• Offshoring accounts for nearly 1/3 of lost
  manufacturing jobs since 2000 (Goldman Sachs)

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How vulnerable is Arizona?

• Using Fishers formula, we estimate 12 of
  Arizona jobs are at risk.
• That translates into approximately 279,000 jobs
• But thats not the whole story

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What are the benefits of outsourcing?

• Cost savings result in lower inflation, increased
  productivity
• This boosts business and consumer spending
• This increases overall economic activity and
  creates jobs in other sectors

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NET Impact of IT Outsourcing
INDUSTRY SECTOR Net New Jobs by 2008 Net New Jobs by 2008
Arizona U.S.
Natural Resources Mining 13 1,182
Construction 2,283 75,757
Manufacturing 308 25,010
Wholesale Trade 784 43,359
Retail Trade 604 30,931
Transportation Utilities 1,165 63,513
Publishing, Software Communications -802 -50,043
Financial Services 656 32,066
Professional Business Services 743 31,623
Education Health Services 826 47,260
Leisure, Hospitality Other Services 243 12,506
Government 87 4,203
Total Employment 6,909 317,367
Source Global Insight, Inc. and NAICS Source Global Insight, Inc. and NAICS Source Global Insight, Inc. and NAICS
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Outsourced jobs arent always gone for good the
Call Center example

• Outsourcing is still experimental
• New phenomenon that may already be coming full
  circle
• Dell a notable example of call center
  repatriation

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How can Arizona benefit from Californias
situation?

• What are Californias points of vulnerability?
• What are the opportunities for Arizona, and does
  the outsourcing issue change them?
• How California may reposition itself the Arnold
  factor

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Some of Californias challenges

• Costs of doing business
• Energy
• Workers compensation
• Real estate
• Regulatory environment

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Some of Californias challenges

• Attractiveness to workforce
• Housing costs
• Educational quality
• Other quality of life issues

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Some of Californias challenges

• Fiscal constraints
• Infrastructure investment
• Quality of government services
• ED investment at all levels

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Can California reposition itself?
Key Issue Can California Improve?
Energy Costs Not realistically in short term
Workers Compensation Hopefully plan underway
Regulatory environment Improvements possible, but will likely remain a significant disadvantage
Housing Costs Not realistically, will likely remain an overall disadvantage
Fiscal Crisis Budget can be balanced, but fallout may be severe
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What does it mean for Arizona?

• For foreseeable future, California remains a ripe
  target
• Outsourcing may undermine some opportunities

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Workforce Development in an Era of Globalization

• Why its more important than ever
• Expanding range of workers facing transitions
• Workforce is increasingly important part of an
  areas product

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ED and WD merging the cultures

• Balancing perspectives
• people prosperity
• versus
• place prosperity

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The ED Product and Message

• What drives industrial location decisions? Land
  (costs) vs. workers
• How does Arizona really want to position itself?

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Shifting Priorities in the New Economy
In the old economy, people believed that In the New Economy, people believe that
Being a cheap place to do business was key. Being a place rich in ideas and talent is key.
Attracting companies was key. Attracting educated people is key.
A high-quality physical environment was a luxury that stood in the way of attracting cost-conscious businesses. Physical and cultural amenities are crucial to attracting knowledge workers.
Regions won because they held a fixed competitive advantage in some resource. Regions prosper if organizations and individuals have the ability or skill to learn and adapt.
Economic development was government-led. Only bold partnerships among businesses, government and the non-profit sector can bring about change.
Source Progressive Policy Institute
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What does it all mean for Arizona Economic
Developers?

1. One sure thing about economic forecasts theyll
   be wrong!
2. Economic trends tend to be unpredictable and/or
   inevitable
3. Economic developers especially at the local
   level arent so much in the business of
   changing global trends, but being poised to
   pursue the opportunities they present

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What does it all mean for Arizona Economic
Developers? (continued)

1. Innovation is key
2. Economic developers need to be continually
   thinking about their product and their
   message
3. Clusters are as important as ever, and an ideal
   framework for addressing new challenges

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What does it all mean for Arizona Economic
Developers? (continued)

• ED is not just about marketing attention to
  foundations (people, institutions, and
  infrastructure) is what makes marketing
  successful over the long term
• Cost and value are not synonymous at the end of
  the day, value and innovation win!
• Youre on the right track!

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Some Useful Publications on this Topic

• The Comprehensive Impact of Offshore IT Software
  and Services Outsourcing on the U.S. Economy and
  the IT Industry by Global Insight (USA), Inc.
  Executive Summary is available free online at
  http//www.itaa.org/itserv/docs/execsumm.pdf
• The New Wave of Outsourcing by Ashok D. Bardam
  and Cynthia Kroll, Fisher Center for Real Estate
  Urban Economics. Available online at
  http//www.haas.berkeley.edu/news/Research_Report_
  Fall_2003.pdf
• Series of articles in the San Franciso Chronicle
  http//www.sfgate.com/news/special/pages/2004/off
  shoring