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Outsourcing by Dr Michael Pitts Lecture
Slides
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Not really how the US sees the New World
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See Anything Similar?

• The surplus society has a surplus of
• 
  similar companies, employing
• similar people, with
• similar educational
  backgrounds, coming up with
• 
  similar ideas, producing
• similar things, with
• similar
  prices and
• 
  similar quality.
• 
  
• Kjell
  Nordstrom and Jonas Ridderstrale, Funky Business

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And The Road Ahead IsClear ?
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The New World Holds A Promise
FREE TRADE
OUTSOURCING
BETTER LIVING
GLOBALIZATION
POLITICAL STABILITY
SPREAD OF WEALTH
(Silicon. com ,March 2004)
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The New World-Is a Faster World

• It is something you cant (nor want to) avoid-
• Even if we stop, our competitors wont.
• CSIS Report
• It is irreversible.
• It is a product of free tradeit adds value to
  shareholders.
• Requires a society that can imagine and invent
  the future demand.
• Means we must go to high touch/high concept jobs
• and away from high tech jobs
• Daniel Pink

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A World With Lions and Gazelles

• Every Morning in Africa, a gazelle wakes up.
• It knows it must run faster than the fastest lion
  
• or it will be killed.
• Every morning a lion wakes up.
• It knows it must outrun the slowest gazelle
• or it will starve to death.
• It doesnt matter whether you are a lion or a
  gazelle
• When the sun comes up,
• YOU BETTER START RUNNING!
• African Proverb

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A World Aimed at Advantage
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Tomorrow isperhaps Chinas World

• Threats (China)
• Produces 52 of Science and Engineering grads
• Europe aging yet China has 50 under age of 25
• A question of trust-who sees what? (No agency
  relationship)
• 80 of CEOs say they will sell there
• They are getting richer
• (BBC News, January 24,2006)
• Threats (to America)
• Falling education standards
• Falling number of scientists,engineers,et.al
• A question of trust-who sees what? (No agency
  relationship)

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but Definitely Not Britneys

• In China today, Bill Gates is Britney Spears.
• In America today, Britney Spears is Britney
  Spears
• and that is our problem.
• Thomas Friedman

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A New World Where, Capitalism Has Won (Yea,
Capitalism !)

• No more cold war(s)
• But perhaps cyber wars
• And definitely competitive wars

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Where are You Strong in this World?
China
Ireland
India
USA
Rule of Law Openness IP Protection Capital
Market Innovation
English Legal Framework Communications Infrastr
ucture Skilled Workers

Potential Potential Potential
Potential
English Education Nighthawks Wages Desire
Devitt
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Outsourcing is

• A free market thing
• A Special form of international trade (CES IFO
  Institute ,Germany)
• A matter of polarized public debate (European
  Foundation for ILWC,2004)
• About your core
• A question of trust
• Unevenly dispersed on the globe (yet growing)
• Generating fear (fear of change?- Cochrane,2004)
• A relationship and arrangement
• Partner quality

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What An Alphabet

• Offshoring Transferring Activities to
  another country by hiring local subcontractors
  or by building a facility in an area where
• labor is cheap (er).
• Outsourcing Delegation of non-core
  operations from internal production to an
  external entity.Sharing organizational
  control.
• Offshore Outsourcing When transferring an
  organizational function to a third
  party who is located in another country.
• Nearsourcing Similar to offshore (yet close
  distance). Example
  BMW to Bulgaria
• Insourcing Domestic outsourcing/Increased
  FDI
• Best Sourcing Associating with the best of
  the best (Tom Peters)
• Reverse Outsourcing Becoming an ex-pat by
  being hired by a country to
• whom you outsource . Example US pilots who
  once flew for US airlines now being hired by
  airlines in India.

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The Arguments

• For
• Its good for our firm (only 12 of CEOs believe
  it has negative effect)
• (BBC NEWS January 24,2006)
• High Non-wage cost of doing business in US
• Legal costs
• Raw Material Feedstocks prices (e.g. Natural Gas)
• Corporate Tax Burden
• US Still Ranked First in Manufacturing
• Our exports (70 are manufactured goods) only
  15 GDP from Import
• 25 World Share
• 150 larger than China
• 90 of US Trade Deficits with countries where no
  trade agreements exist.
• Where they doNAFTA,Chile,Australia,Jordan,Signapo
  re,Israel we have only a 6 deficit while having
  43 of our mfgd.exports are with these seven
  countries)
• US Tariffs average only 3 (world average is 30)
• Unemployment only 5
• Economic Policy Institute

Weintraub (2004)

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Martin Says

• US legislators need to take a grip of
  themselves. Attacking cheap imports of services
  is no more logical than bewailing rising
  productivity. The US, they should remember,
  benefits from both.
• Martin Wolf in Financial Times,
  February 25,2004

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The Arguments (continued)

• Against
• Losing jobs
• Trust
• Loyalty
• Poor Results
• Only 19 of US firms have an
• outsourcing strategy (RTTS Web,2006)
• Security and Access to Sensitive areas
• States pass legislation
  banning the exportation of any
  government jobs (ex-New Jersey)

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Even A Singaporean Must Worry

• He/She costs as much as
• 3 workers in Malaysia
• 8 in Thailand
• 13 in China
• 18 in India
• 
  Source The Straits Times (August 18,2003)

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A (Depressing) Thousand Words
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Why Offshore Deals Fail

• Unrealized cost savings
• Loss of productivity
• Poor commitment and communications
• Cultural differences
• Lack of offshore expertise and readiness

IDG News Service, June 22, 2005
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What About Europe?

• It is a West v. East Dividing Line
• East
• Hungry
• Growing
• Works longer hours
• For less pay
• Has one of the BRIC countries (Russia)
• West
• Still Protectionist
• National Job Protection Legislation
• Collective Wage Agreements
• Welfare state provisions
• Inflexible labor markets

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Which Europe Will Show Up?

• 2006-European Year of Workers Mobility
• Europe is not losing jobs (EMCC Report)
• EU is growing (2007 Admissions)
• EU is rapidly aging (31 elderly by 2050)
• TUPE (UK driven yet found in EU)
• Council directive on Acquired Rights
• Council Directive 2001/23/EC
• New Directive on Portability of Pensions

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So, What Do You and I Really Want?

• Luxury ?
• A better life(style) ?
• Comfort ?
• Those Chinese Nikes?
• That Swedish cell phone?
• That German automobile ?
• Your Google?
• Your Sky Digital ?
• How about your .well, you get the point.
• Then are you willing to put up with
• Creative destruction?
• Always learning?
• Risk of the unknown?

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And Why Do We Bother?

• Money
• Money
• Money
• Wellyou guessed it, money

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Seriously now - Why?

• See previous slide

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Seriously (Part II)

• To free up energy to be used elsewhere
• For the sake of efficiency
• For adding value
• For stakeholders
• To focus on core competencies
• Do you know your core?

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So, The New World Means

• You can be mediocre and earn good wages
• BUT
• Youd better have tall and strong walls!
• Brand Yourself . (Tom Peters)
• Upgrade Yourself (Thomas Friedman)
• Be an untouchable instead
• (One who cannot be outsourced)

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As There Is No Crystal Ball

• You are the leaders to beyet
• What is your future?...and
• How do you become
• A Brand
• or better yet a Lovemark

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So, Dont Be Like Forrest

• " An ignorant person is constantly surprised"
  (Forrest Gump)

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Rather , Be Like Steve (Jobs)

• Stay Hungry
• Stay Foolish

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And Undergo a Metamorphosis(Apologies to Kafka)

• Be
• Special (ex-Bill Gates)
• Have a global market for your services
• Specialized
• Your work cannot be easily digitized
  (ex-Surgeons technique)
• Anchored
• Location specific requiring face-to-face
  contact. BUT even
• Parts here can be fungible.
• Really Adaptable
• Grow your skillsyou may have to move
  horizontally but growth creates new specialties
• Friedman, The World Is Flat

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But Never Forget

• If you are unemployed, then the unemployment
  rate is 100 !!