The document discusses globalization and outsourcing, particularly to China. It notes that China now has 13% of world GDP and is expected to have 20% by 2015. Many large US companies outsource white collar jobs to places like China where labor costs are much lower, from 50 cents to $1 per hour compared to US wages. China exports over $600 billion annually, including $200 billion to the US, and the US-China trade deficit is approaching $150 billion. Economists disagree on the effects of these trends on developed countries like the US. Strategic issues include how and where companies decide to operate globally based on full costs and coordination challenges.
The document discusses globalization and outsourcing, particularly to China. It notes that China now has 13% of world GDP and is expected to have 20% by 2015. Many large US companies outsource white collar jobs to places like China where labor costs are much lower, from 50 cents to $1 per hour compared to US wages. China exports over $600 billion annually, including $200 billion to the US, and the US-China trade deficit is approaching $150 billion. Economists disagree on the effects of these trends on developed countries like the US. Strategic issues include how and where companies decide to operate globally based on full costs and coordination challenges.
The document discusses globalization and outsourcing, particularly to China. It notes that China now has 13% of world GDP and is expected to have 20% by 2015. Many large US companies outsource white collar jobs to places like China where labor costs are much lower, from 50 cents to $1 per hour compared to US wages. China exports over $600 billion annually, including $200 billion to the US, and the US-China trade deficit is approaching $150 billion. Economists disagree on the effects of these trends on developed countries like the US. Strategic issues include how and where companies decide to operate globally based on full costs and coordination challenges.
The document discusses globalization and outsourcing, particularly to China. It notes that China now has 13% of world GDP and is expected to have 20% by 2015. Many large US companies outsource white collar jobs to places like China where labor costs are much lower, from 50 cents to $1 per hour compared to US wages. China exports over $600 billion annually, including $200 billion to the US, and the US-China trade deficit is approaching $150 billion. Economists disagree on the effects of these trends on developed countries like the US. Strategic issues include how and where companies decide to operate globally based on full costs and coordination challenges.
service company • The public policy issue– e.g. is offshoring to China hurt or help a country such as the U.S.? • Implications for strategy – extent of offshoring and whether and how to stay in an advanced economy The extent of offshoring is enormous,
particularly with the case of China
• China has 13% of world GDP now, 20% in 2015
(Business week). • Most of 1000 largest US companies will do white collar outsourcing, resulting in 3.4 million job losses by 2015 (Forrester). • Labor cost ranges from 50 cents to a dollar, with comparable differences for skilled designers and developers. (They develop 5X U.S. engineers - NYT) • China exported $600 billion in 04 (BW), $200B to US (Boston Globe) • US-China deficit could approach $150 billion this year (BW). • EMS (e.g Flextronics) are $31 billion in China
Extent (continued)
• The U.S. imported 163 billion dollars from China
in 03. Walmart represents 12% of China’s exports and 1% of its GDP. (NYT) • Balances have gone from surpluses to deficits of $25 billion in computer hardware, $23 billion in electric machinery and parts, $12 billion in furniture, etc. (BW) • Surpluses are in aircraft and computer chips but also in commodities such as grain and pulp. General patterns of
development
• Compete on factor costs and industrialize
rapidly. • Raise the standard of living and transition to higher-value innovative products. • Move out of competitive commodities.
This pattern occurred in Japan, Taiwan,
Korea, Hong Kong, and Singapore
Why China is different
• Rapidly developing high tech
competitiveness • Potential domestic market
• While the standard pattern of development
will hold (labor and standard of living will go up), there is generally an enormous supply of labor (500 million workers on farms – Tshingua U). • Note that productivity is not uniformly high
The economists are split on how the latest
trends affect developed countries
• Many cite the economics of comparative advantage
• Much job loss arises from improved productivity
(comparison with agriculture, in US this has gone from 25% in 70 to 10% today. The Economist, 10/1/05) • Standards rise from the importing of very low costs of goods • And the US still has much of the world added value in manufacturing (23.8% in 04 vs. 24.6% since 82 – NY Times, 9/4/05) • But, standards could go down for a number of reasons
– Wages are driven down for skilled workers such as in
software and could extend to a large expanse of the workforce – Export prices could decrease due to competition • Not to mention the disruption that shifting causes • There is also concern that “hollow” corporations will