OFF-SHORING

December 27, 2012


Logistics Management, April 2012 was used as one resource for this posting.

Off-shoring is a word that has recently “popped up” in literature to describe moving jobs from one country to another, generally countries with lower cost of labor.   I retired from a Fortune 500 firm that mandated 33 % of all components and assemblies be purchased from LCCs; i.e. low cost countries.  The meaning was obvious, LCCs operated with labor rates significantly lower than those rates found “at home” and the company wanted to capitalize upon those low rates to increase profit.   The “going rate” for an engineer in India–$15,000, Mexico– $12,000, whereas in the United States—approximately $83,000.  Similar situations exist with CAD operators, draftsmen, assembly workers, etc.   This trend will not be reversed easily or soon.  Corporations in the United States and Europe will move an additional 750,000 jobs in IT, finance, and other business related services to India and other low-cost geographies by 2016, according to new research from The Hackett Group, Inc.   As noted in Supply Chain Management Review last year, researchers were trying to determine if levels of additional off-shoring in these areas would begin to decline by 2014.   That group’s off-shoring research, which examined available data on 4,700 companies with annual revenue over $1 billion headquartered in the U.S. and Europe, found that by 2016, a total of 2.3 million jobs in finance, IT, procurement, and HR will have moved off-shore.  This represents about one third of all jobs in these disciplines.  India is by far the most popular destination, with nearly 40 percent of the jobs being off-shored headed there.  The Hackett Group’s research sees additional off-shoring levels in business services, which are currently at around 150,000 new jobs each year, leveling off or declining after 2014.  They also found  that of the 5.1 million business services jobs remaining on-shore at U.S. and European companies in 2012, only about 1.8 million have the potential to be moved off-shore with  750,000, as mentioned above, moving by 2016.   Within the next eight to ten years, the traditional model of lifting and shifting work out of Western economies into low cost countries will cease to be a major factor driving business services job losses in the U.S. and Europe.  Automation and other productivity improvements will have caused the elimination of 2.2 million business services jobs at these companies between 2006 and 2016 and these factors are currently driving the elimination of round 200,000 jobs annually.  Companies must improve processes and to a great degree automate those processes in order to survive.  Our tax codes are not favorable to companies within the U.S. and companies must compensate for that fact.  “In the U.S. and Europe, off-shoring of business services and the transformation of shared services into Global Business Services, have had a significant negative impact on the jobs outlook for nearly a decade”, said The Hackett Group Chief Research Officer—Michael Janssen.  “That trend will continue to hit us hard in the short-term”.            

What we are saying—don’t’ look for much relief, if any, for the next few years.

Advertisements

This blog was inspired by an article published in “Business Finance”, written by Eric Krell, 3 October 2012

 Corporate relocation has been transformed in recent years, giving rise to new threats and certainly new opportunities.  Traditional three-year expatriate assignments are not the only options now available and desired by companies needing talent in a quick and effective manner.   We are all aware of those countries where travel is prohibited by our federal government; i.e. North Korea, Iran, Cuba, etc. but there are other countries that have made the list of “highest-risk destinations.  The International SOS is a global firm that provides local expertise, preventative advice and emergency assistance to clients with employees abroad.  The highest-risk countries on their list include: Nigeria, Pakistan, India, Mexico and Russia.  (Having been to several countries in the Middle-East, I would definitely say that any country in that region MUST be included as a very risky destination.)  The nature of international business risks is changing, as is the male/female ratio of international business travelers.  A recent International SOS survey indicates that European-based international travelers reported a higher occurrence of threats related to travel-related infections and road accidents during the past three years.   Global business involves more germ-related illnesses and much more aggressive driving relative to conditions in the United States and Canada not to mention threats involving kidnapping and ransom.

The number of female business travelers is rising at a tremendous rate.  Women now comprise forty-five (45) percent of the corporate travel market.  International SOS reports a twenty (20) percent increase in the number of female travelers calling its centers for medical and travel-security advice from 2011 to 2012.   

A 2012 KPMG survey of one thousand one hundred and fifty (1,150) senior leaders in mid-sized companies in the United States, Canada, Brazil and Mexico find that:

  • Seventy-five (75) percent of mid-market executives believe global expansion is integral to their company’s growth strategy.  That figure is up fifty-three (53) percent in 2009 and thirty-seven (37) percent in 2007 previous KPMG surveys on the topic.
  • Eighty (80) percent of U.S. mid- market executives think their global expansion plans have been successful in the last two years.
  • Seventy-eight (78) percent of U.S. executives say they plan to increase non-domestic revenues from foreign operations and customers.  This is an increase of sixty-six percent from 2009.

The allure of global operations is boosting the frequency of international assignments. Fifty-seven (57) of the one hundred twenty-two (122) mobility managers indicate they expect to increase relocation volumes during the next two years.  This fact was reported by Cartus 2012 Trends in Global Relocation.  This travel generally involved three categories, as follows:

  1. Commuter Assignments:  Travel between home and destination countries for a specified number of work days per month.
  2. Extended Business Travel:   International travel of o ne to three weeks in duration.
  3. Rotational Assignments:  A series of two or more assignments, which last one to three months.

It is imperative that risk management personnel develop specific strategies relative to travel by their most valuable personnel.  The following list is an excellent place to begin:

  • Increased awareness
  •  Plan with key stakeholders
  •  Expand policies and procedures
  •  Conduct due diligence
  •  Communicate, educate and train
  • Assess risk prior to every employee trip
  •  Track traveling employees at all times
  •  Implement an employee emergency  response system
  •  Implement additional management controls
  • Ensure vendors are aligned

I think, for health reasons alone, traveling “solo” can be tremendously risky. One of the huge issues existing in today’s global travel is the inability to communicate.  (How many U.S. citizens speak Mandarin or Cantonese?)  At any rate, pre-planning is an absolute necessity.

THE PRIVATE SECTOR

June 14, 2012


You will notice my blogs, just about always, deal with education and technology.  I am very comfortable with these subjects and certainly enjoy writing about R&D and technological developments affecting our daily lives.   I actually know a little about these having been there, done that, got the “T” shirt.  I stay away from “hot button” topics such as abortion, contraception, gay marriage, etc. because I feel these subject are extremely personal and, quite frankly, why would you want my opinion?   Politically, I’m a registered Independent.  I vote for the person and not the party.  Definitely conservative when it comes to all matters financial.  I do not have a “base”.  My hero, Sir Winston said: “If you aren’t a liberal by the time you’re 20 you don’t have a heart.  If you aren’t a conservative by the time you’re 40, you don’t have a head”.  (His words not mine.)   There is a great deal of truth to that statement.

I’m going to “break ranks” right now and voice an opinion relative to a statement made the other day by President Obama.

“The private sector is doing just fine”

Again, his words—not mine.  Ladies and gentlemen the private sector is NOT fine, not fine at all.  I do consulting work for a company that has two manufacturing locations in the same southern city and travel between them two or three times per day; checking on robotic processes for a critical assembly.   I have been amazed over the last three months to see men and women canvassing the roadways for discarded cans, setting up “flea market” locations in their yards and just walking the streets going door to door seeking one day odd jobs.  Two days ago I was headed to “plant two” and noticed my gas tank was nearing empty.  I stopped for fuel and while filling up, a gentleman came up to the island and started looking through the trash cans.  Now this guy did not look to be homeless.  He was dressed in a fairly nice fashion; was wearing a knit pullover Polo shirt; had on a pair of kaki pants AND shoes.   I ask him if he was OK.  “Just looking for scrap metal I can sell to get a little money.  I was laid off several months ago.  My wife and I are scratching to keep things together.”   I offered to give him five dollars but, much to my surprise, he said no—not after handouts. 

 I have a buddy who has been out of work for eight months and is now selling his household belongings on eBay.  He holds a BS in accounting from a four year university.  Fifty-eight years old and been around the block more than once—definitely not a rookie.  Make no mistake, in this economy; you’re behind the “8-ball” if you are over fifty and looking for a job.   I have another friend who is a machinist by trade.  A remarkably talented individual, forty-eight years old with twenty-nine years of experience.  He has been out of work for eleven months.  The company he worded for relocated to Mexico.  OK, one more example and I’m done.  Another friend of mine owns a metal fabricating operation in Chattanooga.  They specialize in fabricating stainless steel piping and stainless steel assemblies for power utilities and the pulp and paper industries.  Two years ago, he employed fifty-seven people and worked two shifts.    Today, he has a crew of twelve people and desperately tries to give them five days per week. 

I don’t want to be mean about this, but I feel what President Obama really meant was,  he is just fine, Congress is just fine, the lobbyist are just fine, the Wall Street types are just fine, investment bankers are just fine, but the private sector—I don’t think so!

%d bloggers like this: