AMERICAN OUTSOURCINGJason Harris

Brandon Eudy

Joe Elko

Tim Chenier

CASE INTRODUCTION 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 third-party.

Outsourcing Destinations: Mexico India China

Question 1

JOBS OUTSOURCED TO MEXICO 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, product-

design, & 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

Employee benefits Higher wages Transportation Food subsidies Affordable housing

Question 2

JOBS OUTSOURCED TO INDIA

Intellectual Capital – readily available and inexpensive skilled labor

R&D hub for a wide range of industries Software engineers Call centers

Question 2

WHY INDIA IS A GOOD LOCATION

Inexpensive skilled labor Readily available intellectual capital All sectors privatized

Question 2

JOBS OUTSOURCED TO CHINA

Special Economic Areas – created to attract foreign investors, create jobs, and generate exports.

Manufacturing jobs

Question 2

PROBLEMS WITH CHINA

Milk http://news.bbc.co.uk/2/hi/asia-pacific/7720404.stm

Pet Food http://www.newscientist.com/article/mg19426023.600

Toys http://en.wikipedia.org/wiki/2007_Chinese_export_recalls#Toys

Heparin http://www.nytimes.com/2008/03/06/health/06heparin.html?_r=

1

Question 2

COMPANIES THAT OUTSOURCE

Mexico Production of capacitors, electric motors, control

devices and lighting products with significant market share in real estate and financing.

China High technology industries, aircraft engine

maintenance facilities, training, and component manufacturing.

India Human capital emphasis resulting in the successful

sourcing of products, services, and intellectual talent from India’s 100 million well educated English speaking citizen

Question 3GE’s World Presence

COMPANIES THAT OUTSOURCE (CONT)

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.

Question 3GE’s World Presence

FOLLOW UP RESEARCH Quality Human Capital

Abundant labor force of 32 million

English proficiency

Cultural adaptability

Strong customer service orientation

Large pool of accounting and business graduates

Highly trainable

Cost effective

High level of commitment and loyalty

World Class Infrastructure

Telecommunications

$10B high-bandwidth fiber backbone and digital network

Deregulated telecommunications industry

Power

Reliable electricity with excess capacity over current demand

Real Estate

Low rental rates with favorable terms

Dedicated IT parks in urban areas

The Philippine Offshoring and Outsourcing Industry Question 4

FOLLOW UP RESEARCH

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

Cost Effective LaborSegment Breakdown

Industry Growth

Question 4The Philippine Offshoring and Outsourcing Industry

FOLLOW UP RESEARCH GE’s Core Finance Sectors include

Capital Solutions Corporate Financial Services Healthcare Financial Services Real Estate http://gecommercialfinance.gecapsol.com/cms/servlet/cmsview/Com

Fin_Corp/prod/en/main/index.html

Why Focus Healthcare Financial Services in China? Population of USA 303,824,640 https://www.cia.gov/library/publications/the-world-factbook/print/us

.html Population of China 1,330,044,544

Number of hospitals in the USA 5,708 http://www.aha.org/aha/resource-center/Statistics-and-Studies/fast-f

acts.html

Number of hospitals in China 12,599

1 Hospital for every 53,000 people in USA 1 Hospital for every 106,000 in China

Question 5

FOLLOW UP RESEARCH (CONT.) Why Focus Healthcare Financial Services in China? (Cont.)

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. Inefficient Corruption Lack of quality standards Poor service Just not enough hospitals

And China is ready for change

Announced that it intended to spend $123 billion by 2011 to establish universal health care for the country’s 1.3 billion people http://www.nytimes.com/2009/01/22/world/asia/22beijing.html

Question 5

FOLLOW UP RESEARCH GE consumer electronics divisions are:

Computer Accessories & Home Electronics Digital Cameras Generator Systems Holiday Lighting Telephones http://www.ge.com/products_services/consumer_electronics.html

Best Destination: China 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.) Other Reasons to Look to China:

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-world-factbook/

print/us.html

  To capitalize on the opening market in China:

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

Question 6

FOLLOW UP RESEARCH 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.) $0.84 – cost per hour, compared to $2.21 cost per hour in

Mexico. (Exhibit 8)

Labor is 33% cheaper than India (Exhibit 17)

China had 9.5% GDP growth in 2004, compared to Mexico, 4.4%, and India, 6.8%. (Exhibit 18)

Highest FDI(Foreign Direct Investment) Confidence Index score – 2.03 (Exhibit 19a)

China had more attractive FDI attributes than India in 13 out of 20 categories. (Exhibit 19b)

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 7

RELATION TO THE COURSE 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 8

CONCLUSIONS

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.

Question 9