Posts Tagged ‘Offshoring’

IT Outsourcing Provider Infosys Gets Facelift With New CEO

June 24th, 2014

Last week’s announcement that SAP executive Vishal Sikka would be taking the top spot at Infosys may be an indication that the Indian outsourcing provider is capable of making fundamental changes in an attempt to regain its prominence in the offshore IT services industry. After all, Sikka will be the first non-founding CEO in the company’s history.Outsourcing_9a

“Something needed to change — and fast,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research. “He is new blood. He has youth on his side. He gives them the immediate facelift they were craving.”(Disclosure: SAP is a client of Stephanie Overby.)

In recent days, the Bangalore-based company also announced a dozen new executive appointments.

But it will take more than a few new faces to transform Infosys. While these executive appointments are important, says Thomas Reuner, principal analyst within Ovum’s IT services practice, what’s required is a complex orchestration of changes in a very competitive environment.

IT outsourcing, IT outsourcing, IT offshoring, Indian outsourcing, Infosys

Founded in 1981, Infosys became the face of India’s booming post-Y2K IT outsourcing industry. New York Times columnist Thomas L. Friedman credited Infosys co-founder and former CEO Nandan Nilekani with inspiring his 2005 business best seller, The World is Flat.

But in recent years, Infosys has struggled to keep pace with its Indian and western rivals. “Despite a pretty decent financial performance in the market over the last 18 months — though lagging its major Indian counterparts — it was still abundantly clear that Infosys was struggling to break from its legacy past and make the changes necessary to rebuild company morale, reinforce strategic direction, and reinvigorate the whole company culture,” says Phil Fersht, CEO of outsourcing analyst firm HfS Research.

“The firm was getting squeezed and executives continued to leave the firm at a frequent clip — some voluntarily, but most forced out,” Fersht says. Infosys had come to be considered an old school offshore outsourcing provider by some.

New Infosys CEO, Vishal Sikka, Has His Work Cut Out For Him

Sikka is well-connected and well-liked by CIOs, say observers. But he will have his work cut out for him, most immediately in improving the deal pipeline at Infosys. “His first task is to fix the sales engine,” says Reuner.

Infosys has been overly dependent on smaller projects rather than large outsourcing relationships. “If you depend on discretionary spending, you’re in trouble when you encounter economic headwinds,” Reuner says. “They need a healthy percentage of their income to be predictable. We haven’t seen them win many large deals of late.”

Infosys also needs to further strengthen its platforms strategy, according to observers. “You only need to look at the acquisitions made by the likes of Accenture and IBM over the last couple of years to realize that cloud-based platforms that underpin analytical, consultative value-add services are the long-term future of services.” Infosys’ recent investment in its end-to-end Edge platforms were a step in the right direction. But “they’ve been struggling to execute on that,” says Reuner. Sikka’s technology product background could help.

Software executives, however, can struggle to make the transition to services. Consider Leo Apotheker’s short stint at hardware and services firm HP. “While we laud the bold approach Infosys is making by putting a technology products innovator at the helm, the firm is still primarily a services business with a services culture,” says Fersht.

“However which way we look at this, services is about people first. The CEO needs to understand what make millennials tick, how to develop training programs, how to keep wages low and morale high, how to develop succession plans and ‘up and out’ models that work, how to inject analytical and creative thinking into its staff.” Sikka must make the company’s front-line employees happier and stabilize the organization, agrees Reuner.

At the same time, Infosys needs to embrace increased automation. “This is more of a threat to current IT services and BPO delivery models, where advances in robotic automation software are enabling clients to reduce their already offshored services by a further 20 to 30 percent by replicating manually operated processes in robotic software solutions,” says Fersht.

“As robotics become more mainstream, because of client requirements, those providers with strong ability to replace labor with robotic process automation are going to be at an advantage.” Last year, Infosys struck a revenue-sharing partnership with robotic automation provider IPSoft, an indication that it recognizes that need to accelerate its automation option, says Reuner.

Time Will Tell if New CEO Will be Capable of Transformational Change

Sikka doesn’t take over until August. So it’s too soon to say whether the new CEO will be capable of making such transformational change. “Stabilizing the company is one thing,” says Reuner. “Catching up with peers who put in stellar results quarter after quarter is another. Even if you fix the internal problems, you still have the competitive pressure.”

While co-founder N R Narayana Murthy has officially stepped down, he could remain involved in decisions behind the scenes, which could thwart turnaround efforts, adds Renuer. “I don’t see him just playing golf.”

“Sikka needs to balance the realities of the present world with the one we’re moving into. Infosys isn’t IBM; isn’t at the sheer size and scale that it can throw all its eggs into the cloud basket and take its eye off the ball with its existing business. Infosys needs to keep one foot firmly planted in the reality of today’s business, while also developing for the future,” says Fersht.

“Vishal needs to take a pragmatic view of the pace at which Infosys can really change and evolve,” says Fersht. “Coming up with the big vision is one thing. Executing on it is another.”

Source:http://www.cio.com/article/754571/IT_Outsourcing_Provider_Infosys_Gets_Facelift_With_New_CEO?page=1&taxonomyId=3195

Why ‘Nearshoring’ Is Replacing ‘Outsourcing’

June 5th, 2014

I do think that manufacturing has a chance to stage a comeback in the U.S.. The cost discrepancies that made the economics of outsourcing manufacturing to far-flung places have changed dramatically. In the case of China, for instance, rising inflation and wage expectations have decreased the cost advantages the country’s manufacturers enjoyed over U.S. firms and some estimate that by as soon as 2015, the U.S. could be in a cost parity situation with Chinese manufacturers.Outsourcing18

As U.S. firms are becoming increasingly concerned about protecting their intellectual property, “nearshoring”—or bringing production closer to the point of use—becomes attractive as the risk of having important intellectual capital stolen is decreased. Having the capability to manufacture close to where customers are located can also increase customer responsiveness and decrease turnaround times, making the supply chain more predictable.

Being physically close to customers is also very positive for innovation. We’re also seeing a rethink of some of the taken for granted assumptions that led to so much manufacturing outsourcing, for instance, the assumption that a leaner supply chain is always a better one.

Natural disasters such as the Tsunami in Japan can knock out a supply chain that is insufficiently diversified, making redundancy in the system and the capability to manufacture in a number of places more attractive. And as we see advances in automation and digitization, personnel cost as a fraction of total value created can be decreased, again making the economics of offshoring less compelling.

Of course, challenges remain. Companies would have to rebuild their supply chains and identify people with the right skills to handle increasingly sophisticated automated operations. U. S. Tax policy makes firm reluctant to repatriate profits earned elsewhere, making it more difficult to find the resources to invest in manufacturing operations.

Source:http://blogs.wsj.com/experts/2014/06/04/why-nearshoring-is-replacing-outsourcing/

Offshoring more strategic than cost-cutting alone: Sundaram

May 29th, 2014

Most companies using business process outsourcing (BPO) are motivated by the opportunities to expand their client offering and not simply cost-cutting, according to India-based Sundaram Business Services. Outsourcing13

In a white paper published on Sundaram’s website, the outsourcing company, reported that an independent survey of directors of companies using BPO services ranked access to scale and faster processing, as having a higher impact on their businesses than lower cost.

Global Head of Business Development at Sundaram Business Services, Harish Rao, said the perception that offshoring roles was a tool for cost savings for accountancy firms was a “misconception”.

“More professional services firms see BPO as a multi-dimensional business asset and are using it strategically to help drive growth,” he said.

“The idea of BPO as merely a cost-cutting mechanism is fast becoming out-dated.”

Data from the company’s whitepaper cited Accenture’s 2012 Research Report Achieving high performance in BPO, which suggested that high performing businesses tended to be less motivated by cost when considering BPO.

The Accenture report found that two-thirds of high-performance businesses focused on the potential value of business benefits beyond cost alone, when considering adopting BPO.

“Pick up a newspaper or business magazine and the concept of BPO, offshoring or outsourcing is overwhelmingly described as a strategy geared towards cost cutting,” the company said. “But in professional services the reality is often different, and BPO has more strategic aims.

“Professional services firms have other motivations beyond cost for engaging BPO, such as managing a seasonal or fluctuating workload, accessing the security and efficiency benefits of scale and accessing a ready available pool of talent.

“The ability to offshore accounting tasks, while re-orienting staff toward higher value goals aimed at increasing revenues, is where BPO is most powerful.

“This has overwhelmingly been the case in Sundaram Business Services’ experience of SMSF processing, where more accountants and superannuation administrators are outsourcing processing work in order to concentrate on their core business.”

Source:http://www.moneymanagement.com.au/news/financial-services/2014/offshoring-more-strategic-than-cost-cutting-alone

Why offshoring is hotter than ever

May 29th, 2014

While we’re all getting carried away with robots and sexy SaaS solutions replacing our rules-based transactional labor (and all the lovely buzzwords that come with it), something else is going on that is taking these dynamics in a different direction for thousands of Western enterprises’ operations: IT and business processes are increasing their extension offshore at a breathtaking pace.Outsourcing12

Offshoring is an increasingly large component of business operations. Clearly, the offshore option offers immediate savings and firms are getting much more adept, confidant and experienced at managing their processes remotely – whether by an outsourcing provider or their own offshore shared service center.  And – as we’ve lamented on this site since the days when ACS was a market leader and people still used Yahoo! – enterprises are just obsessed with driving out cost – and then figuring our things like “transformation of processes” at some future point in time.

However, the difference today is that most of the perceived “risk” of moving offshore has gone and enterprises are simply doing it as part of their day to day operations.  The evidence from 312 major enterprises in our brand new State of Outsourcing Study, conducted with KPMG, is startling:

The extension of process to offshore delivery is almost as prevalent in shared services as outsourcing.  While a small number of firms are pulling their application development and maintenance back (one-in-ten), close to a third are increasing the offshore component with their service providers, and a fifth with their shared services – a similar trend to IT infrastructure.  Moreover, where the new traction is clearly occurring is with business processes, which are clearly reaching a level of maturity with offshoring – almost three out of every ten enterprises are increasing their offshoring of finance processes with both their service providers and their own shared services operations.  We also seeing similar dynamics with industry specific processes, procurement, HR and customer services.

The Bottom-line:  The story today is about managing integrated services across global operations

1) The game has switched to integrated global operations management.  It was barely 2-3 years’ ago (click to view some older survey data) that the trend was very much moving towards outsourcing, with offshoring as a key component, for many enterprises looking at more radical measures to drive out cost.  What’s clearly transpiring is that many enterprises are clearly also investing in their own internal capabilities to run processes offshore (stay tuned for more hard evidence of this trend shortly).  They can hire offshore staff at wages rates frequently far cheaper than their own providers charge (i.e. not paying their margins), which is nothing new, but clearly they are far more determined and confident to govern their own offshore internal resources themselves.  What’s more, many organizations are clearly not very impressed with the quality of their providers’ resources (again, stay tuned for more hard evidence of this), and have made the decision to look at a more integrated services model to deliver their services to their organization. This is why we’re seeing a heavy push from several of the Big 4 consulting shops, such as Deloitte, KPMG and PwC, to push their own managed governance and Global Business Services options, while Accenture is marketing its own flavor of integrated services management called “Integrated Business Services”.  We are even seeing providers with deep offshore specialization, such as Genpact, eager to push their service models and capabilities to clients, often as separate engagements from their existing bread-and-butter outsourcing relationships.

2) Offshore delivery will impact the rollout of the disruptive technologies, such as robotic process automation and SaaS.  While it’s not rocket science to see how impactful these disruptive technologies will likely be to labor-based services (read earlier post), the more that gets extended offshore, the more challenging it may become for enterprises to shift the model away from these linear labor-based services that are so dominant today.  Quite simply, offshore outsourcers with predictable FTE-based annuity contracts are in no hurry to disrupt their own sources of recurring revenues, while enterprise operations leaders may not have genuine incentives from their leaderships to substitute their own offshore labor for technology driven alternatives.

Net-net, offshoring provides a very durable BandAid for many organizations, and we’re still yet to witness a slowdown in the amount of offshoring that is taking place – in fact, the data shows quite the opposite trend is happening. We actually predict it will be more those organizations which have yet to do a lot of offshoring, which will look to move straight to automation and SaaS models as the ROI to reduce high onshore costs, as opposed to much cheaper offshore costs, is going to be so much higher.  Eventually, competitive pressures will force all (surviving) leading providers to shift a much larger proportion of their labor-driven models onto technology-based platforms (where IBM has already placed its bets), however, the attractiveness of the high cost-savings benefits that locations such as India and the Philippines can provide is still on an upward trajectory and likely to remains this way for several years to come, despite the hype that screams otherwise.

3) Offshore capability has often moved in tandem with the globalization of the revenue for an enterprise.  Part of the offshoring movement over the last twenty+ years has been in support of the increasing globalization of enterprises in their pursuit of the next Dollar, Euro, Peso, Yen or Yuan.  Shared services delivery capability has often been co-located with manufacturing, distribution or sales facilities whether in Latin America, Asia, Central Europe or Africa.   As global revenues have risen and more complex operating models for tax management have emerged in the last several years, there is little incentive to pull back from offshored business process or IT delivery when the rest of the business is staying put.

Source:http://www.horsesforsources.com/offshoring-hotter-than-ever_052814

Robots Are Starting to Make Offshoring Less Attractive

May 13th, 2014

The hype around robots taking jobs is reaching a crescendo, in response to an insightful new book The Second Machine Age by Erik Brynjolfsson and Andrew McAfee, as well as an Oxford Martin School study: ‘The Future of Employment: How susceptible are jobs to computerization?‘ The former states outsourcing38that digital technology and robotics are advancing at such a pace that: “Professions of all kinds — from lawyers to truck drivers — will be forever upended. Companies will be forced to transform or die.” The latter claims that up to 47 percent of American jobs are susceptible to robots and automation within the next seven to 10 years.

Despite the doom and gloom, advances in robotics and associated technology are having a positive impact on local manufacturing and services and both sustaining and creating jobs. In developed economies, they have even sparked a trend toward the return of jobs from overseas, or “botsourcing.” This new wave of bringing production back home through robotics automation may be the single biggest disruptive threat to India’s $118 billion information technology industry. The more processes can be automated, the less it makes sense to outsource activities to countries where labor is less expensive.

The threat is being taken seriously elsewhere in Asia as well. Foxconn, the world’s largest contract electronics manufacturer best known for manufacturing the iPhone, has recently announced it will spend $40 million at a new factory in Pennsylvania, using advanced robots and creating 500 jobs.

Thanks to one of the most advanced robotic manufacturing facilities in the world, Tesla Motors builds its electric cars entirely in the US.

In each of these cases, the combination of advances in robotics and automation and rising wages in developing countries has upended the promise of cost reductions through outsourcing. Sutherland Global Services, an outsourcing company in Rochester, NY, says it can reduce costs for its clients between 20 and 40 percent by shifting IT work to a developing economy, but it can reduce costs by up to 70 percent if it uses automation software coupled with its U.S.-based employees to complete tasks involving high volumes of structured data.

Nobel Prize-winning economist Paul Krugman writes in his book The Age of Diminishing Expectations: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

The same is true of business: profits increase (or decrease) in proportion to the output per worker. Shifting work to places where labor is cheaper is one way to improve this in the short term. But over time technology is a far more reliable path to increased productivity.

In March 2012, Amazon announced the $775 million cash acquisition of Kiva Systems, a warehouse automation robotics company. By October 2013, Amazon CEO Jeff Bezos noted that they had “deployed 1,382 Kiva robots in three Fulfillment Centers.”  Yet Amazon continues to significantly grow its number of employees in these fulfillment centers, adding 20,000 full-time employees in the U.S. last year. This year, when the company announced that it was hiring an additional 2,500 full time U.S. fulfillment staff, it emphasized that the jobs had a 30 percent pay premium over traditional retail jobs. Technology done well doesn’t just replace workers, but makes them more productive.

For managers, the trend toward botsourcing will require a shift in thinking. Rather than moving operations to wherever work costs the least, consider which pieces can be automated, and how best to combine human and robotic expertise.

Source:http://blogs.hbr.org/2014/05/robots-are-starting-to-make-offshoring-less-attractive/

Offshoring from Sea to Shining Sea

July 30th, 2013

The year 1979 may very well have been the year when the middle-class in America had first began it’s long decent into oblivion.  According to a U.S. Bureau of Labor Statistics report, manufacturing in the U.S. peaked in 1979 when we had over 19.6 million manufacturing jobs in a labor force of 104.6 million. In 1979 manufacturing was 21.6% of all jobs. Now manufacturing is only 9,9% of jobs in America. Today we have 155.8 million in the labor force with 11.8 million workers unemployed. That’s because manufacturing has left our shores, and it has been on a downward trend ever since — with no end in sight. Outsourcing1

The year 1979 was also when mergers among the labor organizations began increasing — when the total number of union members had peaked at over 22 million. This is also the year when the U.S. broke off formal diplomatic relations with Taiwan and established full diplomatic relations with China. There is no coincidence here. All roads lead to China.

Lewis Franklin Powell Jr. wrote his famous “manifesto” on August 23, 1971 just before he was nominated by President Nixon to sit on U.S. Supreme Court. Less than two years later on March 29, 1973 Master Sgt. Max Beilke was officially designated the last American combat soldier to leave Vietnam. Soon afterwards major U.S. companies initially responded to “heightened competition” from Japanese and European multinational corporations by opening factories abroad during the 1970s (which may have involved using the Laogai labor camps in China). The American multinationals manufactured goods that were formerly produced by comparatively well paid, often unionized, factory workers in the U.S.

According to one technical publication, A Brief History of Outsourcing, the current stage in the evolution of outsourcing is in the development of “strategic partnerships”, which was first pioneered by Eastman Kodak with their decision to outsource their information technology systems in 1989.

Kodak was quickly followed by dozens of major corporations, whose managers had determined that it was not necessary to own the technology to get access to the information they needed. All throughout the 1990s the offshoring of jobs had escalated — mostly tech, call service centers and manufacturing — by companies such as Microsoft, Apple, Hewlett-Packard, IBM and Dell. (During the last presidential campaign, Bain Capital was often mentioned.)

In 1999 Bill Clinton signed the controversial trade agreement with the People’s Republic of China. The trade agreement was the result of more than a decade of negotiations, and lowered many trade barriers between the two countries.

It’s unclear how many jobs were offshored between 1979 and 2001, but data shows there were 398,887 private manufacturing establishments of all sizes in the United States during the first quarter of 2001, and by the end of 2010, the number had declined to 342,647 — a loss of 56,190 factories. So the onslaught has continued for the past 35 years.

And as Robert Oak at the Economic Populist pointed out, according to a study by the Economic Policy Institute, over the last decade (from 2001 to 2011) the United States has lost 2.7 million jobs to China alone (and this is a conservative estimate). The China PNTR trade agreement was signed by President Clinton on October 10th, 2000 and China entered the WTO in 2001. Since then our massive trade deficit has skyrocketed, stunting our economic growth and costing America millions of jobs.

And that doesn’t even include the multiplier effect (when one job generates another job that is dependent on that job). A study by University of Illinois at Chicago concluded that one manufacturing job in the Windy City leads to 2 more. And on a national scale, the multiplier for a manufacturing job is 4.6 — higher because of a larger geographic scope for supply chains and induced spending. So those 2.7 million jobs lost to China over just those ten years alone could theoretically equate to 4 or 6 million more.

Robert Oak goes on to note:

“Of the people who lost their jobs through offshore outsourcing, plant closures, business failures and layoffs during 2009-2011, by January 2012 only 56% of them had gotten another job. These are people who held the job they lost for three years or longer, and there were a whopping 6.12 million of those people in this category.

In an updated BEA summary on sales, investment and employment by Multinational Corporations for 2011, we have a 0.1% increase in hiring for jobs in the United States while MNCs increased their hiring abroad by 4.4%.

From 1989 to 2011, U.S. MNCs decreased their employment in the United States by 3.3 million workers while expanding employment abroad by 6.5 million employees.  The share of employment by MNCs in the United States went from 79% of their total employees in 1989 to 66.3% by 2011.  Multinational corporations are clearly doing their hiring abroad.”

“During the recent great recession since 2007, many observers wrote the American Manufacturing Obituary, claiming that American could no longer be regarded to be a world leader because of intense competition from low-cost competitors. Trade liberalization has increased the economic interdependence among nations. Multinational corporations in the U.S. have established operations in developing counties where labor is cheaper. One consequence of this increased globalization of manufacturing industry has been movement of  jobs and production from the U.S. to Low Labor Cost (LLC) countries (which are often less developed countries) for higher corporate profits. This practice is called offshoring, and is a direct consequence of Monopoly Capitalism, where the prime motive is corporate profits without consideration of job losses for people in the home regions. Globalization works to the detriment of American workers and reinforces unfair labor competition because of lower wages and inadequate working conditions existing in developing nations.”

And this is not because Americans lack skills. This has been the “public relations” spin put out by corporate America in defense of their corporate strategy. Alan Blinder, a professor of economics and public affairs at Princeton and a former vice chairman of the Federal Reserve Board, has stated that:

“Contrary to conventional wisdom, the more offshorable occupations are not low-end jobs, whether measured by wages or by education. The correlation between skill and offshorability is almost zero.”

His conclusion supports the research of a December 17, 2012 Congressional report on offshoring. Alan Blinder was quoted on page 10 as saying a moderate estimate of 25.6% of all U.S. jobs are most susceptible to offshoring — and his more aggressive estimate totals almost 40 million, or 29.0% of all U.S. jobs.

A Washington Post article notes that many people believe that Boeing’s troubles with its 787 Dreamliner jets is because of outsourcing. Critics have long charged that Boeing was far too reliant on offshore suppliers for the 787′s production. More than 30 percent of the jetliner’s components came from overseas.

In his recently published book, After the Music Stopped, Alan Blinder gives the U.S. the post-recession’s macroeconomic performance a failing grade:

Total jobs losses were just under 8.8 million, over a period during which we should have added about 3.1 million more, creating a cumulative job deficit of about 12 million by February 2010. Then the job deficit rose even higher in 2010-11 as job creation fell short of the 125,000/month required to keep up with population growth. By August 2012 total employment was only back to April 2005 levels — for a zero net growth over a period exceeding seven years. In an average month during 1948-2007, less than 13% of the unemployed were jobless for over 6 months; by April 2010, it was over 45% — and is only slightly less today.

And, despite the cost of labor rising in some Asian nations, there are many others (Nike, etc) whose low wages continue to draw U.S. jobs, such as Vietnam. Many American fast food operators (Starbucks, KFC, etc) have also opened businesses there. McDonalds’s also has plans to open soon in Ho Chi Minh City (formerly called Saigon, the city Sgt. Max Beilke vacated.)

From Nike’s website: “When we look at our overall impact on the world, the needs of nearly one million workers in Nike’s contract supply chain overshadows any other group.” And Nike is but one of many examples (albeit, a very classic example) of globalization. It’s a pity that those one million workers in Nike’s supply chain are in Asia, not America.

On May 12, 1998 Nike’s CEO Phil Knight gave a speech at the National Press Club where he spoke of Nike’s reasons for moving factories out of the United States and into mainly third world countries in Asia. “During the 1990s, all our experiences have caused us to really believe in the benefits of international trade. The uplifting of impoverished people, the better values for consumers in industrialized nations, and most of all, the increased understandings between peoples of different cultures.”

That seems to be the morality and mindset of a typical globalist, someone who advocates a policy of placing the interests of the entire world above those of individual nations. As one major American hedge fund manager had privately admitted:

“The U.S.-based CEO of one of the world’s largest  hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter.

His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade.”

But then again, are they really so concerned about lifting the poor out of poverty in third world nations, or is it just a simple matter of plain old fashion greed, and they are just using these humanitarian excuses (as a public relations matter) as a cause for their actions?

Since the 1990′s many major U.S. companies have been criticized for offshoring jobs. Businesses in the manufacturing, tech and apparel industries, such as Apple and Nike (to name just a very few) have often been targeted for using cheap labor in very unsafe and slave-like working conditions abroad.

In their book, Producing Prosperity, Harvard Business School professors Gary Pisano and Willy Shih writes:

“For years–even decades–in response to intensifying global competition, companies decided to outsource their manufacturing operations in order to reduce costs. But we are now seeing the alarming long-term effect of those choices. In many cases, once manufacturing capabilities go away, so does much of the ability to also innovate and compete. Manufacturing, it turns out, really matters in an innovation-driven economy. Companies must reinvest in new product and process development in the US industrial sector. Only by reviving this ‘industrial commons’ can the world’s largest economy build the expertise and manufacturing muscle to regain competitive advantage.”

Edward Alden at the Council of Foreign Relations writes:

“They [Gary Pisano and Willy Shih] demolish the comforting story that many economists have offered to dismiss concerns over the shrinking role of manufacturing in the U.S. economy. The conventional argument goes like this: It makes more economic sense to locate the actual production of goods in lower-wage countries, while the United States maintains the skilled parts of the supply chain (R&D, branding, marketing, etc.)

The classic example here is Apple: most of the value of an iPhone or iPad comes from the design, software, branding and retailing, not from the assembly. Therefore, U.S.-headquartered Apple can become the most valuable company in the world, even while making virtually nothing in the United States.”

The World Trade Organization cites a report from 2000 by the U.S. Department of Labor (Displaced Workers Survey) that used data from 1975 to 1995. It found that rates of job losses were particularly high in sectors with high levels of imports and sectors with high import growth.

The Bureau of Statistics Displaced Workers Summary from August 24, 2012 reports there were a total of 12.9 million displaced workers from 2009 to 2011. The prior survey, which covered 2007 to 2009, numbered 15.4 million. The previous survey reflected the steep decline in jobs associated with the Great Recession that began in December 2007 and officially ended in June 2009. According to the Center on Budget and Policy Priorities, 8.7 million net jobs were actually lost during the last recession.

Prior to the last recession, there appeared to be enough job growth to compensate for most of the lost jobs due to offshoring, although, many Americans were forced into taking lower paying jobs (such as in the retail and fast food industries) and most often without any benefits (such as healthcare and pension plans). And many times they only found part-time or temporary positions, which set them on a never-ending course of “job hopping”.

But since the recession, long-term unemployment has been a huge drag on the economy — and according to the Bureau of Labor Statistics, with 11.8 million unemployed Americans, and 8.2 million working part-time, and another 7 million working multiple jobs to make ends meets, all those millions of offshored jobs are looking even more appetizing.

Since the Great Recession major attention has again returned to the subject of offshoring (some are now saying “reshoring”) — and in conjunction to the Occupy Wall Street movement, an ever increasing focus has also been on wealth inequality, income disparity, corporate greed, CEO pay, stagnate wages and the minimum wage. And then it all comes back again full circle — back to offshoring for cheap labor.

Meanwhile, corporate cash is once again at a record high. According to a report by the research firm Audit Analytics, large U.S. companies have boosted their offshore earnings by 15 percent last year — to a record $1.9 trillion, while avoiding hefty tax bills by keeping their profits abroad (rather than invest in American workers). Their overseas earnings stockpile has climbed by 70 percent over the past five years, but most American workers aren’t sharing in the corporate booty. Millions are either under- or unemployed. Now 50% of the work force who are working take home $27,000 a year or less. And instead of seeing a pay increase, they saw the biggest drop in hourly pay on record. It seems workers haven’t been reaping the same rewards as their employers — when “worker productivity” once meant something to the workers too. The Heritage Foundation thinks workers must be more productive.

No…Nike is NOT an American Icon, but it is a typical a job creator…overseas.

Wall Street Journal (June 27, 2013) Nike’s profits are up again — their fourth-quarter profits jumped 22%. Nike also expects overall profits for fiscal 2014 to rise in the low double-digits as sales are expected to climb, helped as Nike gears up for the 2014 World Cup in Brazil. Margins are expected to strengthen throughout the year, helped by higher selling prices. Demand for athletic gear in the U.S. has also been strong in recent years, and Nike’s sales have been bolstered by apparel tied to a contract with the National Football League.

“Nike’s grand strategy for reaping in huge profits every year is really quite simple: just don’t pay workers. That’s how they sell a shoe for $180 that only costs just $5 to manufacture.”

The people who are laboring to make that $180 pair of shoes, and other Nike gear and apparel, are mostly young women, ages 16-24 (Although, in Pakistan, children were once sewing Nike soccer balls for $0.60 a day.) In Vietnam the average worker is paid about $0.20 an hour, or $1.60 a day. (While the cost of eating is reportedly $2.10 a day).

And workers in Vietnam are forced to work 65 hours a week. Not only are they forced into overtime without compensation, the 65 hour work week is in clear violation of Vietnamese labor laws. In the Sam Yang factory in Vietnam there is only one doctor who works two hours a day to service 6,000 workers.

Employees in Vietnam have stated that verbal abuse and sexual harassment are frequent and that corporal punishment is often used. Supervisors have been reported to frequently grab the women’s breasts and buttocks.

Nike has reportedly responded to many of these allegations by widely publishing their Code of Conduct in the factories — but in Vietnam, few workers have even heard of such a code, nor ever learned what provisions were within it.

As of 2013 (from Nike’s interactive map) Nike has 777 factories in 43 Countries employing 1,009,496 workers. Just in Vietnam alone Nike has 71 factories with 311,548 workers, mostly female, with an average age of 30. (For a complete list of Nike’s factories and employees, download the PDF from Nike’s website or the Excel version.)

As with many other major corporations, the Vanguard Group is the largest institutional investor of Nike — followed by many other banks and private equity firms.

Although Nike argues that they enter a country only when it is ready to make shoes, and then leaves when it has developed past this point, the data suggest a different story. Nike’s movement directly correlates with a increased standard of living and increased union bargaining power. When the pressure for wage increase is put on, just like with most other American-based multi-national manufactures, Nike moves on.

This corporate strategy allows for the cheapest labor costs and bargains with the worst governments. The result? Companies like Nike can keep manipulating their stocks, dodging corporate taxes and making shoes for only $1.60 a day — just so that Nike’s CEO can earn $96,000 a day. Heaven forbid if American workers ever made Nike shoes, or else Nike’s CEO might only earn a measly $10,000 a day (unless Nike raised the price on their cow leather and rubber shoes to $500 a pair.)

And Nike is just but ONE of many U.S. corporations that operate like this. That’s how they can afford to pay their CEOs too much. Here’s a list of the top paid CEOs from Forbes and what they earn in just ONE year — many of them on the back of cheap and exploited foreign labor, at the expense of the American worker.

In a letter from Rep. Mark Pocan and others to Rep. Sander Levin expressing concern about the TPP and Fast Track Authority.

“As the economy continues to recover from the greatest financial crisis since the Great Depression , we can all agree that we cannot afford to have American production and American jobs sent offshore because of unfair trade agreements that undermine our economic growth. When jobs and production factories are offshored, American wages are lost, American-made products decline, and our international interests are compromised.”
In his economic speech at Knox College, President Obama acknowledged the role of unfair trade in stagnant wages and growing inequality:

“In the period after World War II, a growing middle class was the engine of our prosperity…But over time that engine began to stall, and a lot of folks here saw it…Global competition sends a lot of jobs overseas. It became harder for unions to fight for the middle class…And so what happened was that the link between higher productivity and people’s wages and salaries was broken…So the income of the top 1percent nearly quadrupled from 1979 to 2007, but the typical family’s incomes barely budged.”

So then WHY is Obama planning on extending “free trade” with the TPP trade agreement? Last year’s congressional study on offshoring says 29% of U.S. jobs are prone to outsourcing — and then we can also add in all the new guestworker and H-1B visas with the new immigration bill, flooding an already over-saturated labor market — then on top of that, we can also add over 4 million long-termed unemployed (and the 99ers) that we already have, and there will be plenty of shoe-shine jobs available for a nickel a shine.

Bring jobs back to America and pay workers a “living wage”…no excuses, Just Do It!

Source:http://www.economicpopulist.org/content/offshoring-sea-shining-sea

SA a favoured offshoring destination

July 11th, 2013

Gartner research ranks SA as one of its top 30 software development outsourcing destinations.

Greg Vercellotti, executive director at Dariel Solutions, agrees, noting that SA is increasingly becoming a favoured international location for business process outsourcing (BPO) and offshoring.Outsourcing1

“Information technology (IT) outsourcing is, indeed, a growing business in South Africa. We have a diverse local market, first world know-how and a developing country environment that makes it ideal to test new models and drive innovation,” says Vercellotti.

“IT outsourcing makes up a large portion of the IT services market, and is driven largely by the need to reduce operational costs and support growth strategies for expansion – and this is key for businesses in South Africa.”

While there are those opposed to outsourcing, there are many who laud its advantages, which include the favourable exchange rate, high rates of English fluency and a broad base of management and service provider expertise, he says. Disadvantages focus mainly around loss of control over the process, says Vercellotti, which need not be a factor if open lines of communication and active participation by the client are achieved.

“Ultimately, the decision to do partial outsourcing, majority outsourcing (over 80% of IT is outsourced) or majority insourcing (over 80% of IT is kept inhouse) is a personal one,” adds Vercellotti.

“Businesses need to carefully outline their goals and relay this information to the IT company they decide to outsource to. Choosing a company that has a long-standing record in the South African market as a reputable and reliable provider is very important,”

It is critical that when choosing an IT outsourcing partner, you familiarise yourself with their business model and modus operandi, he concludes. “By aligning yourself with a company that has common philosophies and goals, you are more likely to create a sustainable relationship that results in mutual benefits and really showcases South Africa as the outsourcing destination of choice.”

Source:http://www.itweb.co.za/index.php?option=com_content&view=article&id=65583:SA-a-favoured-offshoring-destination&catid=272

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