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					    Outsourcing:
“The Rise of the East”
Hardware and Software Jobs
 ”Today, if you tell people you’re a programmer, they’ll
  ask you how long you have until your employment
  benefits run out.” – Bill Blunden

 What is the future of American IT jobs?

 What are the softer sciences surrounding IT: the
  economic, the sociological, the cultural?
Outsourcing and Offshoring
 Outsourcing is a major buzzword when it comes to
  American jobs.

 What is outsourcing?
  The migration of tasks or functions from internal
    production to a third party.

 Outsourcing is not necessarily offshoring.
   I.e., offshoring is outsourcing to a third party service
    provider in another country such as India, China, or
    Russia.
Offshoring
Why offshore?
 Most importantly, to reduce the bottom line.
    And why shouldn’t corporations attempt to?


 Fill in for the labor shortage.
    “insufficient qualified candidates (employees) to fill the
     marketplace demands for employment at any price.”


 70% of the US economy is anchored here.

 “What’s good for GM is good for America.” - Charles
  Wilson, General Motors Chief
Proponents cite Industrial Revolution
 Natural process, free market, struggle for innovation.

 Comparative advantage:
    trade in new kinds of products will bring overall improvements in
     productivity and well-being.
    Technology allows for luxury.


 Ultimately, the Industrial Revolution led to a higher
  standard of living and much better working conditions.
    Jobs lost led to better jobs gained.


 Human rights may improve as fast as digitalization.
Outsourcing History
 Chindia is hottest topic in hardware and software.
    “The new competitors, India and China are unlike any
    competitors we have seen in our lifetime.”
    -Jeffrey Immelt, GE, in 2006

 Began with manufacturing jobs

 Outsourcing possible because of infrastructure:
    Education
    Networking technology
    Collaboration tools
    Modern software technology
What is being outsourced?
 Basically anything.
    Esquire writer testing the limits outsourced reading email,
     fighting with his wife and reading to his son.

 Which IT positions are most popular for outsourcing?
    trouble ticket/help desk operations
    hardware and network operations
    end-user support
    disaster recovery and power backups


 By 2010, 30 percent of Fortune 500 companies will
  source from three or more countries

 60% of world IT out sourcing goes to India.
Salaries of Foreign IT Workers
 Why organizations outsource:
   Country             Average
   USA                 $75,000
   Singapore           $33,504
   Ireland             $23,000 - $34,500
   China               $8,852
   India               $5,880 - 15,500
   Russia              $5,000 - $7,500
   Mexico              $1400
International Outsourcing Pros and Cons

 Development
     Annual foreign direct investment(FDI): $37.5 billion to $60.33
      billion.
     India $6 billion.
     China spent $119 billion on IT needs and India $33 billion in
      2005 and the money spent was on expanding infrastructure.


   Establish business relationships and gain reputation.


   Luxuries of globalization available.
International Outsourcing Pros and Cons

 Human rights:
   Just 12% of S&P 500 companies have formal codes to
    address labor issues.
   Yahoo giving up name of Chinese labor organizer.
   June 17th, 2002 : 20,000 internet cafes closed in China


 Environment:
    Globally, top 100 companies account for 57% of all carbon
     emissions.
Lifestyle Changes
 Globalization
    For example, there are 363 million mobile phone users in China.
     US has only 181 million.

 American fashion, music, fast food.

 IT hubs: where social landscape centers around
  technology parks.
    Today approx 10,000 small IT companies in China.

 Matrimonial: “Alliance invited for Kshatriya boy, 28,
  software engineer in US, arriving in
  December. Fair graduate girl willing to go to US?”
Innovation Overseas
 China 2004 spent 24.6 billion on science and technology
  to improve innovation.
    Planning to spend $46 billion in 2010.
    E.g., Beijing R&D lab where 1/3 of researchers hold American
     PhDs.
    E.g., Motorola has 16 research labs in China.
 India houses R&D operations for countless corporations
  which regularly produce patent applications including:
    Intel
    GE
    Texas Instruments
    Cisco
 Mexico is also performing skilled labor: largest 3 exports
  are auto parts, automobiles and electronics.
Relations with America
 Policy of “made in China” becomes made by China.

 Though they rival American companies in talent,
  creativity and innovation, all successful Indian and
  Chinese companies do not advertise as such.


 In America, Indians possess the second highest
  income of any ethnic group.
   Yet a fast-growing economy and improved living
    conditions are drawing Indians back home.
Growing Pains
 China offers basically subsidized manufacturing:
  cheap land, subsidized fuel and low taxes.

 Each country has its own issues to deal with.
  China’s issues, for example:
    Government
    Domestic instability
    Aging population and population itself 340 million to 1.1 billion in
     last 60 yrs.
    Retain competitive advantage as salaries rise.

 Offshore destinations now include Latvia, Uruguay, Mauritius,
  Lithuania, Sri Lanka, Pakistan, Morocco, Senegal, and Ukraine.
Proponents cite Industrial Revolution
 Natural process, free market, struggle for innovation.

 Comparative advantage:
    trade in new kinds of products will bring overall improvements in
     productivity and well-being.
    Technology allows for luxury.


 Ultimately, the Industrial Revolution led to higher
  standard of living and much better working conditions.
    Jobs lost led to better jobs gained.


 Human rights may improve as fast as digitalization.
Farm changes
 Then those farmers who were not good shopkeepers lost their land to good
  shopkeepers. No matter how clever, how loving a man might be with earth
  and growing things, he could not survive if he were not also a good
  shopkeeper. And as time went on, the business men had the farms, and
  the farms grew larger, but there were fewer of them.

 Now farming became industry, and the owners followed Rome, although
  they did not know it. They imported slaves, although they did not call them
  slaves: Chinese, Japanese, Mexicans, Filipinos. They eat rice and beans,
  the business men said. They don’t need much. They couldn’t know what to
  do with good wages. Why, look how they live. Why, look what they
  eat. And if they get funny--deport them.

 And all the time the farms grew larger and the owners fewer. And there
  were pitifully few farmers on the land any more. And the imported serfs
  were beaten and frightened and starved until some went home again, and
  some grew fierce and were killed or driven from the country. And farms
  grew larger and the owners fewer.
American effect
 H1 visas are creating overseas workers.
    Foreign companies, like Infosys and Wipro garner 1/3 of
     visas.

 Vast amount of innovative, intellectual work done
  overseas.
    Drop in senior software engineering salaries.


 Flight capital:
    America’s brightest minds leaving in leaps and bounds.

 Other countries are using America as a “technological
  colony,” but really a consumer colony.
American Effect
 Americans are losing jobs and not getting them back.
    Can’t pay for reeducation, mortgage, insurance, retirement.
    From 1979 – 1999, through deindustrialization, 37% didn’t
     find new work. 63% showed average 13% drop in salaries.

 CEOs and investors make money.
    Tax havens
    Divide between rich and poor.

 Cycles of offshoring:
    Corporations force prices down and more outsourcing.
 What is effect of current recession?
Vested Interests
 Role of the lobbyist

 Do McKinsey and NASSCOM possess biases? How
  malleable is the information that think tanks generate?

 Other countries best interest to keep America
  complacent, we buy products, so quote how necessary it
  is to have an American affiliate, even if it’s not a benefit.
    Deceptive tactics like accent neutralization.
McKinsey Profile
 From Bain partner about competing with McKinsey:
    “They have these deep relationships with senior management
     that lead companies to return to McKinsey, unquestioned, time
     and time again.”


 Non-American majority controls shareholder committee.

 The Firm derives 60% of its revenue -- and probably
  even more of its profit -- from outside the U.S.

 Expects future growth to be fueled by such fledgling
  markets as Russia, Eastern Europe, China, and India.
Who’s to Blame?
 Do Americans impel complacency themselves?

 Education system
    About half of all math and hard science PhDs are foreign-born.
    Less than 5% of Americans get engineering degrees.
    In one study ranking best performing graduates in math and
     science, America came in 19th, behind Latvia.

 Lower standards
    Counter lower standards by lowering standards.
    Bauerlein and education

 Eroding values drive foreigners away
  from our culture.
    “A culture with no culture.”
Future of American Jobs
 According to “Ahead-of-the-Curve Careers” from
  U.S.News:

 Regarding strong expected growth, globalization fuels
    “demand for business development specialists, helping U.S.
     companies create joint ventures with Chinese firms.”

    “Offshoring managers are needed to oversee those
     collaborations as well as the growing number of offshored jobs.”
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