Offshore Jobs and McKinsey Global Institute - Essay Example

Offshore Jobs The trend of outsourcing i.e. sending across a range of jobs across the countries and continents seems to have become an industry in itself. While on the one hand the pioneering changes brought about by Information Technology has made this possible, the increasing levels of competition in the globalization regime has made companies all the more conscious about the cost benefit ratios. As the profit margins are heading southwards, multinational corporations around the globe have started looking for locations where they could shift some of their non-strategic jobs in order to cut costs. China, India, Philippines, South Africa, Thailand, Russia, Poland, Mexico, Indonesia, Vietnam etc. are some of the countries where MNCs from USA, UK, Germany and other developed nations have started outsourcing the jobs. This trend has picked up in a big way in the last 15 to 20 years. In fact, as this trend kept growing, a debate also started in the political spheres about the job losses taking place in USA, Germany, UK etc. In the recently concluded Presidential elections in the USA, outsourcing became a big issue, with the candidates spelling out their own versions of the truth on outsourcing by many companies. But as per the indications available the trend appears unstoppable in the immediate future. The high turnover rates amongst IT staff in some of the Indian cities points towards the availability of opportunities in this sector which propels the staff to switchover jobs from one company to another looking. The research conducted by McKinsey Global Institute (MGI) points out that even after a huge hike in salaries in the outsourcing destinations, the salaries are still quite low as compared to the cities in the America and leading EU nations. While the criteria of selecting the sites depends on a variety of factors like, work culture, infrastructure availability, talent pool etc. besides the wages; the study points out that many companies have preferred to go for tried and tested nations like India and China. Though the infrastructure is far from satisfactory in some of the cities of India, still some of the companies have expressed their confidence in these cities based on their past experience and the availability of other similar companies in the vicinity. At the same time, the study points out that many companies like Amazon.com, Telefonica, Intel and Sakonnet Technology have preferred offshore centers in the African cities like Cape Town, Tangier, Cordoba, Rio de Jenerio etc. But in general it has been found out that some of the hot spots have become favorites of companies which have followed the trend observing the 'first mover's cost advantage'. But this trend also results in overheating of the job market in those cities and the infrastructure too starts deteriorating. Citing the example of Gurgaon, a place near the capital city of India the study finds out that the area has become very populous with many shopping malls, multi-story apartments etc. when leading companies set up their operational units in these cities. But gradually it has started taking its toll with paralyzing traffic congestions, frequent power cuts, communication network breakdowns etc. But, the fact that so far the reverse trend has not started, points towards the cost advantage still being favourable to the MNCs. The availability of huge numbers of unemployed educated youth at offshore hot spots makes these locations all the more attractive. MGI studied 28 low-wage countries and figured out that about 6.4 million young professionals are available in 2003 for far less number of jobs. It has been projected through the study that supply of college educated talent will continue to outstrip the demand from MNCs offshore operations for many-many years to come. In general some of the key factors identified for choosing a location include Cost, availability of skills, suitable political and legal environment; market potential of the region or country; risk factors; and infrastructure. Though destinations like Dubai have also been trying hard to invite the attention of MNCs, but the higher levels of wages and communication cost coupled with certain political risks have not being able to sustain the advantages of a robust infrastructure and the flow continue to be mainly towards the Asian subcontinent. In the near foreseeable future, the outsourcing phenomenon will continue to be a major strategic decision for MNCs because of the indications that the universities in the developing world are producing graduates at an average rate of 5.5% per annum as compared to just about 1% in the developed world. Therefore, it also needs to be emphasized that besides the cost advantages, the skills availability is a major factor in outsourcing decisions. Therefore while on the one hand offshoring decisions resulted in enrichment of job markets in the developing world, this trend is unlikely to affect the wage levels in the developed world because the outsourced jobs form a miniscule percentage of the overall job market. And the study points out that even if the wage levels increase in the developing world, the cost advantage is sure to remain at least 40% from the existing 80% in the next 2-3 decades. McKinsey Global Institute advises has come out with a set of steps for assisting companies in deciding about the offshore location. These steps are; i. Draw up a list of possible locations: This requires looking around for locations competing companies have been flocking to and the kind of experience they've had. ii. Define the decision criteria: Here the company is supposed to decide for factors like availability and cost of labor, infrastructure robustness, political dispensation, legal framework, companies brand equity requirements etc. iii. Collect data for each potential location: Relevant data can be collected either through some local agencies or international agencies. iv. Give more weight to the criteria that matter the most to your company: Each company has a distinctive requirement, which needs to be given adequate weightage for such decisions. v. Rank locations in order of their attractiveness to your company: In the end all the locations are ranked as per the facilities etc. and then the company decides to go for the best ones. vi. Assess the dynamics of the labor pool: The sustainability of the skilled labor pool for a reasonable time period also needs to be factored for outsourcing the jobs. Read More