Global View: Globalization & Outsourcing of jobs

7-30-2006 5:51:26 PM

This is an election year in the United States, and the outsourcing of jobs is proving politically contentious. The case against outsourcing policy has a lot of populist appeal. The opponents of outsourcing argue that we are shipping good American jobs to undeserving foreigners. America has tried before the Smoots-Hawley protectionism policy and it has long been viewed as one of the main contributing factors to the Great Depression of the 1930âs. Furthermore during the 1990âs, the economic performance of the US economy added 20 million jobs. These jobs were created by businesses that were made more compebreastive globally and there was no sucking sound of lost jobs. I also agree with the economic viewpoint by the reputable Deloitte research firm that far from destroying jobs, outsourcing even high paying white collar jobs to developing countries will make the USA more productive, while raising wages and profitability. What gets outsourced will be the easy to define business processes that in time will become commodities. What will remain will be value added business processes that are not easily defined, involve personal relationships or special knowledge.

Making the right outsourcing decisions requires answering the following which enables the companies to compete globally with overall compebreastive strategy: (a) What to outsource, (b) Whom to outsource it to, (c) How to structure the outsourcing deal.

As the speed of globalization accelerates, companies will no longer be able to take refuge in hometown advantages or protectionist regulations. Compebreastors need to restructure their organizations to match the skills of the worldâs best players÷or find themselves out of the game. Outsourcing is unlikely to create any sudden discontinuities in overall levels of employment and wages in developed countries. Both companies and countries can take specific measures to help clear supply and demand more efficiently in this nascent global market.

During the 1880âs, the introduction of the railroad and the expansion of US trade with Europe opened up vast new markets for American businesses. The conventional wisdom says that China is the biggest story of our time. Perhaps, India is the next big story. I believe US companies must have a strategy for China and India (combined population of 2.3Billion) including the risks and opportunities of doing business in each country, their future, and the likely impact they will have on global business. The good news about globalization is that it gives ambitious companies access to the best capital, talent, markets, and resources that the world has to offer. The bad news÷for some companies, at least÷is that every organization is essentially competing against the best in the world.

Global corporations and the emerging markets where they invest have symbiotic objectives. Globalization brings broadly positive economic benefits to developing economies, which in turn represent the best hope for the future of global companies. Both sides should recalibrate their approach. The integration of global labor market tends to produce what amounts to a single market for jobs that can be performed remotely. Today the global market is small. But as it grows, the demand for offshore labor from the developed worldâs companies will increasingly affect wage rates and employment levels in the developing world.

Unlocking the value of globalization should be the focus of the companies to sustain profit from continuous optimization. Outsourcing has a bright future if it can be kept away from the populist who through misdirected policies seeks to limit the ability of companies to reduce costs, improve productivity and expand the benefits of economic development globally.