If you are reducing costs and increasing your profits by reducing
costs/wages are you developing markets, creating consumers, and increasing
the size of the total economic pie? Or are you cannibalizing for the sake
of profits and actually shrinking the size of the total economic pie.
Absolutely your company may temporarily become more profitable. One thing
that is certain while profits may be up overall pricing power will
decrease. All Companies ultimately need disposable income in the hands of
consumers. If a company is to grow and have pricing power these
consumers need money. Cost reduction is the easy way out. In fact cost
reduction is the lowest of the low hanging fruit used to return a company
to profitability.
The bottom line is LONG TERM growth is only sustainable by developing new
markets.
It used to be that economic downturns were used to reduce the froth created
during the overheated periods of economic expansion. A company would
reduce costs - the largest of these savings where always through layoffs,
subsequently profits would improve and a company would start to spend these
profits on capital improvements and the hiring of new employees. Now what
happens if these profits are spent on foreign products and foreign workers.
We have the jobless recovery that so many are claiming we are having now.
Globalization will over time develop new markets - how much time - is
anyones guess. One thing is for sure the effects of the new global economy
will be painful to some (the current haves) and enjoyable for others(for
the current have nots) .
Will globalizing the economy expand the size of the pie or merely
reallocate it?
How many Mercedes or for that matter Nike cross trainers are those coders
in Bangladesh or those assembling the Nike cross trainers buying.
This is a highly complex issue.
What drives profits. I would say demand I do not subscribe to some of our
political leaders supply-side economics BS.
I personally believe over time Globalization will be a good thing. However
during this time of transition and uncertainty we should all admit no one
really knows definitively what the long term effects will be on the US
economy. The government while maybe not inacting protectionist legislation
should at least monitor the situation and not act as if nothing is going on
here.
This loss of jobs hits the government doubly hard... all the while the
government is spending money on unemployment and at the same time
collecting ZERO payroll taxes and ZERO income taxes from the jobs lost.
I believe a slow steady as she goes approach maybe the best approach.
This would give all those involved time to adjust. Just as any of you that
as a youngster grew too rapidly you probably experienced growing pains.
The economy may infact if not artificially regulated experience devastating
structural affects. We all have seen the madness business's and
businessmen are willing to subject themselves, their companies, and their
employees lives to - just look back to the craziness of the internet
bubble.
Capitalism can go a stray directed by greed.
So in the mean time government regulation or intervention might just buy
enough time for the effects of these uncertain times to become more
thoroughly understood - which would not be a bad thein in my opinion. For
years through immigration quotas we have regulated the people entering the
US job market now through our technology we have open a new can of worms
that allows jobs to be lost without physical immigration to just open this
door completely has never been what the US has done.
Darren Douch
<[EMAIL PROTECTED] To: [EMAIL PROTECTED]
om> cc:
Sent by: MQSeries Subject: Re: Outsourcing - my
observations after my trip to
List India
<[EMAIL PROTECTED]
N.AC.AT>
09/02/2003 02:18
PM
Please respond to
MQSeries List
I'm not a historian but this has been happening since the industrial
revolution and probably throughout all human history - industries decline
and (hopefully) other things arise to replace them. Britain's textile
industry declined as cheap labour in the far east took over, our coal
industry declined because it was cheaper to mine it elsewhere, our
manufacturing base has been in decline for 20 years, etc, etc. Maybe IT
will be the next industry to decline in the West in the face of cheap
labour in the East, maybe it wont. That depends upon how much
protectionism the West puts in place and whether or not we are satisified
with the quality of the work the East does - we're happy with the quality
of the Nike trainers they make in Malaysia, so why not the quality of the
code they write in Bangdledesh? Yes it's tough on those that lose their
jobs, but I thought the US was a lover of free trade and the global
economy. Actually that's a lie, I didn't think the US was a lover of free
trade - they just like it when it suits them.
Capitilism is about profits, one half of the profit equation is reducing
costs - if companies can get the same goods / labour more cheaply somewhere
else then they will. Some will send too many jobs, or the wrong jobs,
abroad, will struggle then bring them back, or will fold. Others will get
it right and their shareholders will cheer them on. Of course in some
respects creating jobs in '3rd world' countries is good - their standard of
living increases and makes them better potential markets for western goods
and services.
Do you want a global economy or not? The answer is 'yes', 'no', or 'just
when it suits me'.
Obviously, these opinions are just my own...
Darren.
----- Original Message -----
From: Christopher D. Fryett
To: [EMAIL PROTECTED]
Sent: Sunday, August 31, 2003 6:38 PM
Subject: Outsourcing - my observations after my trip to India
-----Original Message-----
From: Christopher D. Fryett
Sent: Sunday, August 31, 2003 12:30 PM
To:
Subject: RE: Outsourcing - my observations after my trip to India
Zafar:
Thank you for the detailed report you acquired from India. Although I
don't completely agree that the outsourcing is 1% of the GDP based on the
Indian colleagues I am currently working with right now who say the
continued trend will help the 4 primary states of India which are the
Southern states. I can't remember them directly but Bombay, New Delhi
(sp?), Bangeldesh (sp?), and one more from what my colleagues say are the
key technology cities that fuel India's economy.
It is true other countries are gaining outsourcing revenue from the U.S.
like China, Taiwan, Russia, and the Balkans (sp?), but for the I.T. market
India is pretty much it. It is morning time so my spelling is another
part of the brain which is still asleep :-)
Some of the major software manufactures are moving their work overseas
because it cost them a fraction of the U.S. worker's salary. Is the
quality better, no. It does not matter if it is a Mexican, Indian,
Russian, Chinese, or Canadian because overall the training for certain
aspects of that company's business is not there. For example, Dell moved
their support over to India. Before, the majority of it was in the U.S.
I can say personally that support has gone down hill since the move
overseas. I can also say from speaking with others that support has taken
a 180 dive south (going to the crappers), because of language barriers,
miscommunications, lack of training, and overall dedication. Now the last
one being dedication is of the mind which U.S. workers pride heavily in.
I don't discount our colleagues overseas from having dedication. It just
means something in the U.S. different, in my opinion. Take for example
some of the wars the U.S. has been involved in, especially WWII and
post-9/11. We put our pride, dedication, and hard work into creating a
stronger nation that supported our infrastructure. Now, some of the 9/11
changes, which I hate, but you'll see my @ss taking a bullet for another
American if the opportunity lends itself. Look at the electronic industry
and automobile. We got tired of Japan being ahead of us, and we took a
piece of those industries. I drive a Ford and Chevrolet with pride even
though Toyota and Nissan are stronger sellers in the U.S. I have owned a
Toyota 4-runner and Celica, but being from Montana I needed a real
truck/SUV and that was not a foreign vehicle. Today I am sure they are
better, but my belief is in the American way and yes I know there are
foreign parts in my vehicles just not as many as others. I will buy U.S.
products even if they cost me a little more, because I believe in
supporting our U.S. workers and manufactures.
Now lets get back to our problem in the U.S. We have endured a major
ripple affect that has not rebounded yet. We had a wonderful life in the
mid-1990s, but people got too carried away with the vaporware of DOT.COM.
We had major corporations and investors that put their money into
companies that had nothing to show for themselves. The few smart ones,
like Warren Buffet, must have a grin on their face for the major down fall
they saw in the late 1990s. They saw a problem with investing in that
market, so they held back. The smart ones invested, made a ton of money,
and got out. While the majority did not follow this and started the
ripple. Telecommunications, Insurance, and Energy industries who invested
heavily started to shutdown projects which in turn put more consultants
and their companies in a world of hurt. This started in late-2000 if I
recall and then accounts with those industries started to dry up. No one
was buying, so that created a large surplus of supplies that distributors
had in warehouses. Nothing was moving so the layoffs began. This also
created the other ripple in the Airline, Restaurant, and Hotel industry.
Companies where not traveling, and that caused problems. The planes were
not full, the hotels where nearly empty (I know because I saw it ), and
Restaurants had more empty seats and were closing during off-peak times.
Then early 2001 if I recall correctly we had the major beginnings of
scandals going public. Enron, Tyco, MCI, QWest, and so on had major
accounting problems. That created another ripple affect because now all
the vendors that supplied them for their daily business was cut off
completely. What came next was a massive layoff throughout the U.S. and
also other aspects of the world. Then towards the end of the summer-2001
we had a breather. The layoffs were settling down, and some of the
businesses where spending money cautiously. Then the big hit of 9/11 with
the terrorist occurred. That created the clamp down of all time, because
Americans didn't know what was next. The U.S. government was clamping
down on everything, i.e. profiling certain nationality and taking some of
our treasured freedoms away from us. As Americans the majority of us had
no issue with it because we were scared sh!tless. We were extremely angry
also, so we said destroy all who get in our way without thinking about any
repercussions. When someone got out of their seat in an airplane they
were watch carefully, and if they made an attempt towards the cockpit
their @ss had 10 or more people on them. The people who flew first class
can no longer enjoy the luxury they paid for even today. The airlines all
of a sudden came crying for government money (our tax dollars) to bail
them out before going under. Wish I could do the same when I get in a
crunch! We sent billions of dollars to the major airlines and the
executives still took hefty bonuses and salary, and then declare layoffs
in great quantity. Now, the second major wave of layoffs started to
occur. The Enron's, majority of the Airlines, pretty much the telecom,
and now other manufacturing companies. So, we have millions of people out
on the street with a large population of software/hardware specialists
being a part of that population. If you lost your job, finding another
one is tough. For us software developers we could find another job within
a week before 2000. Now we have to wait for months. Wish the government
could bail out those Americans who lost their jobs!
The trend now is to move the work overseas for corporations to save
money. What you don't see is most of the executives of those corporations
are not taking pay cuts, refraining from bonuses, and obtaining some perks
although others like obtaining loans from the corporation are looked down
upon now. They figured we'll survive for ourselves and screw the rest of
them, of course this is my opinion only. Don't they realize that in order
to stimulate our market further they have to create jobs and
opportunities. This can not occur by moving operations overseas to India,
Mexico (haven't heard this but I trust you know what companies), Canada,
Russia, and China. Where is the American heart of contributing to a great
nation that encourages people to do the best they can within this nation.
We have become the worse capitalistic country in the world, and it may
destroy ourselves. I don't agree we should send jobs overseas because it
hurts our infrastructure, i.e. tax revenue, job opportunities, and overall
growth within our nation. The only strength the U.S. currently has is the
military. The problem with that is we're potentially making the same
mistake Russia is by putting large amounts of money into it instead of
other needed areas. I agree we need to rid the world from terrorist, but
I don't see the rest of the world taking this on as greatly as we are, so
why should we. Look at India who promised to contribute several thousand
soldiers to Iraq. They bailed out because they didn't want to get shot
at, so on a daily or at least weekly basis a soldier gets killed and it
could be my brothers. I support my brothers and our military 100%, but I
have a serious problem with the rest of the world who is unwilling to
commit soldiers besides our closes allies, i.e. U.K., Australia, and
Spain.
So, while our companies are sending jobs overseas, and India is the
greatest taker in the I.T. market we sit and do nothing. I will be
sending this to my congressman and president as I do other issues as I see
fit, and so should you. Remember, if you are a citizen of this country or
trying to become one those jobs going overseas are your jobs, so write
your government official. This includes local and state also, because
they can put laws in place that make life more difficult for corporations
from exporting our jobs. A quiet voice means you agree with what is
occurring! Also, when you become a citizen of the U.S. you need to put
your effort into this country. Your heritage is from your homeland, but
you have declared your commitment to this country so dual citizenship
should not be allowed. Again, this is just my opinion.
Sincerely,
Chris
-----Original Message-----
From: Zafar
Sent: Friday, August 29, 2003 1:06 PM
To:
Subject: Outsourcing - my observations after my trip to India
Hi:
I just returned from India (Hyderabad) after a 3 week vacation.
Here are some of my observations on the issue of outsourcing that I
gathered from various magazines and newspapers from India. There is
a
good chance that by the time you finish reading this report most of
the information in this report could be outdated :-)
First of all I think the paranoia that this phenomenon is generating
is largely due to the dearth of information on this subject. One
thing to note is that the entire IT industry (plus this outsourcing
industry) accounts for less than 1% of India's GDP). Therefore, in
terms of its significance to India's financial health it is pretty
miniscule.
The business process outsourcing to India currently stands at $2.3
billion. It employs 171,000 professionals. According to Nasscom
figures a vast majority of the 310 start-ups for outsourcing are
headed for dead-end. It no longer remains a game for small time
players as big players are stepping it up big time.
Major Indian outsourcing companies
1. WiproSpectramind has 5000 employees and has 80:20 Voice:
Non-
voice business
2. Daksh eServices has 4000 employees and has 70:30 Voice: Non-
voice business
3. Office Tiger has 1000 employees and has 0:100 Voice: Non-
voice business
4. HCL Technologies has 2364 employees and has 90:10 Voice:
Non-
voice business
HCL Technologies has British Telecom (BT) as its biggest customer
with a contract of over $160 million. It has several other big
clients with contracts running into hundreds of millions.
What is being outsourced to India?
If you think that only Candle's L1 kind of work is being outsourced
to India, you are in for a shock. The following are being outsourced
to India:
1. Banking, Financial Services and Insurance
2. Telecom
3. Healthcare
4. Human Resources
5. Retail
6. Hospitality/Travel
Other players in this arena:
The Philippines: currently has outsourcing revenues of about $350
million. Has good number of talented software engineers who speak
English and are familiar with American culture. The country has good
infrastructure. Cost savings are 30-50% over the US operations but
wages are nearly 12% more than in India.
Canada: Biggest advantage is its proximity to the US and also is
much
closer culturally. Has good infrastructure and low economic and
political risks. Negative points: Cheaper than the US but much
higher
costs compared to India. Clients can save up to 25% in Canada.
Suited
for complex businesses that require proximity to the US.
Brazil and Mexico: Have an edge because of their time zones and
proximity to the US. Although the labor costs are low, language is a
huge drawback. US companies have saved 25-40% by outsourcing their
work to Mexico.
China: Greatest strength is low-cost labor (like India). With China
making it mandatory for public school students to learn English, it
could effectively pull the rug from India's feet in near future. Big
players like Microsoft, HSBC etc are already investing big time in
China.
South Africa: Emerging destination for outsourcing. Robust English
based education system. Costs are 25% lower than in Europe. Main
drawback is the lack of adequate skilled workers.
What threatens the Indian based outsourcing companies face?
1. Over-dependence on the voice business could be a recipe for
disaster. As noted above, China could pull the rug under India's
feet
in this arena as soon as its first English speaking grads come out.
2. Intense competition is driving down prices and hence a lot
of
these companies face extinction if they don't move into value-added
business.
3. Rising costs
4. High attrition/turnover rates (over 40%)
5. Invasion of multinationals like Accenture, EDS, CSC,
Convergys Corp etc. For instance, Convergys set up operations in
India in Nov 2001. Just 19 months later, it has 4700 employees,
growing 40 per week! EDS set up a 700-seat center in Mumbai in May
and is on a hiring binge. US-based $11.2 billion CSC has set up a
1000 person facility in India. Accenture is hiring like crazy. These
multi-nationals have the advantage of financial muscle to drive down
prices. One Indian executive remarked that "When EDS, CSC, Accenture
get moving in a serious way (which they already are!), they will be
playing for such large contracts that a single order would be bigger
than most of the companies in the Top 10 outsourcing companies in
India!"
I think we need to look at this whole thing in a much wider context
and not get too emotional about it. A lot of countries in the world
have been bilked throughout history by various countries and this
phenomenon acquires various shapes and forms and this continues even
in this age and times. The bottom line in this sad saga has been
profits and this is exactly what is driving the corporations to
outsource. Blaming the Indian industry for the economic malaise here
is way off the mark. With the way the multinational companies are
moving into this arena, there may no longer be many indigenous
Indian
companies in the outsourcing business.
High time we start looking for solutions rather than gripe about
this
issue. As usual, just my 2c worth.
Zafar
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