Fundamental Changes in the Workplace on a Global Basis - Essay Example

Corporate restructuring, downsizing and layoffs have led to fundamental changes at the work place on a global basis. Senior executives and corporate leaders around the world agree that outsourcing is good for the world economy. These executives also realize that outsourcing can deliver more than just labor cost savings (Daga & Kaka, 2006). While in all markets executives think outsourcing is better for the world economy rather their own markets, the issue has become politically sensitive in America (P&P, 2004). The issue has become highly emotional because of two dramatically different effects – while some claim that it will result in layoffs and dislocation for many US workers, most economists believe that it will ultimately strengthen the US economy (Otterman, 2004). Outsourcing should not be restricted as it will be good for the US economy in the long run. With the US economy still recovering from recession, some economists feel that this is not the right time to send jobs overseas. High technology companies have been contracting out many of their software development projects to overseas software companies, particularly to India. Outsourcing has always been a part of the American economic regime. Gradually outsourcing is being done in more and more sectors. It is fueled by a combination of quality services at affordable prices both by the service providers and the consumers. The developed countries could venture into outsourcing as the developing countries have demonstrated the required skills and upgraded the technology in communications (Sourirajan, 2004). Despite claims of job losses no one really knows how many service jobs have been outsourced overseas as companies are not required to maintain such statistics. According to a Forrester Report, US will export 3.3 million US jobs by 2010 and most will be in the IT software development sector (Sourirajan, 2004). By 2015, Forrester predicts, roughly 3.3 million service jobs will have moved offshore, including 1.7 million "back office" jobs such as payroll processing and accounting, and 473,000 jobs in the information technology industry (Otterman). This according to economists is a very low figure as the United States employs some 130 million non-farm workers. Despite the recent economic downturn, according to a McKinsey Analysis, the U. S. economy created an average of 3.5 million new jobs in the private sector per year (Otterman). Outsourcing helps to stimulate the economy, argue some economists. The loss of jobs can be attributed to other factors like the bursting of the tech bubble and its effects on Wall Street, the consolidation of retailing under giants like Wal-Mart, and the after math of September 11 and other events. Hence there is no evidence that outsourcing has caused the recession and there is no evidence that it is making it worse. Outsourcing has been in the news recently because of the numerous debates and the view points that it has attracted. The Bush administration is convinced that shifting the white collar jobs to the developing countries might cause short term pain but is a part of the positive transformation that will enrich the US economy over time (Vieth & Chen, 2004). Outsourcing is not just a new way of doing international trade; it has also opened up new areas and products that can be traded. The Information Technology Association of America (ITAA) also agrees that while outsourcing while collar jobs may have throw some Americans out of jobs, it will ultimately lower the inflation, create jobs, and boost productivity (MSN Money, 2004). Venkatraman (2004) asserts that outsourcing business process at lower costs and without significant loss of quality is increasingly becoming viable. Though this has resulted in downward pressure on domestic salaries, companies should not feel guilty as offshoring is the key element in the next generation business model. The former labor Secretary under President Clinton too states that blocking jobs from moving overseas would amount to 1930s style protectionism and also make the companies less competitive (BusinessWeek, 2003). Two decades ago when the high paying manufacturing jobs were outsourced, there were cries of hollowing out the US economy but strong economic and innovation created far more and better jobs (Businessweek, 2003). As the US economy evolves, it leads to more jobs. As low-skilled jobs move out of US, the world economy benefits as the living standards around the world rises. As the imports in US increase, the US citizens can buy goods cheaper than what they would cost if produced at home. As the third world countries are developing, even writing software code is not more the expertise of Americans. It thus makes sense for US firms to outsource such routine work which can be done at one third the cost it would require in US. Global realignment across different skills has always taken place. When the power of computer and communication technologies increased in the 1900s, reengineering in large corporations resulted in restructuring of middle management jobs (Venkatraman, 2004). The jobs that were lost were compensated by job creation due to internet revolution and supported by venture capital inflow. BusinessWeek however reports apprehensions whether the latest shift in jobs is qualitatively different from past offshore movements. Venkatraman further reports that in 1990s America needed to import high skilled labor to meet the shortage and a few years later we are crying about the need to protect jobs. At this point it is essential to exploit and recognize the emergent network of such competencies. It is important to exploit the power of the internet. This is third wave in the design and operations of the corporations have traveled beyond borders. Digitized business processes like order processing, billing, customer service and payroll processing, including insurance claim processing, can be carried without regards to physical location. Cost has been a major driver for outsourcing business processes. According to NASSCOM, American banking, financial services and insurance (BFSI) companies have saved $6 billion in the last four years by offshoring to India (Bandi & Srinivasan, 2005). This has resulted in quality and productivity gains of 15-20% and customer satisfaction of almost 85%. Apart from this, The McKinsey Global Institute estimates cost savings on factor costs up to 45-50% and 30-40% savings on task and process level improvements. Overall outsourcing to India has led to savings of 25-60%. McKinsey & Co. estimates that every dollar of US cost assigned overseas will generate $1.12 to $1.14 in additional value for the American economy as good and services become cheaper and the companies become more competitive. King (2005) states that low and mid level IT jobs would continue to migrate away from US but this scenario has positive aspects. This would result in a changing mix of IT jobs and educational opportunities. Indian vendor firms have become very capable and moved up the value chain in terms of what they can handle. India and China are fast catching up with information and technology. U.S. has to ensure a broadly educated workforce that keeps learning. Support is essential from all quarters – companies must have continuous training and development programs; the government must support the displaced workers for training to enhance the job and career prospects (BusinessWeek, 2003). This according to King translates into a greater need in relationship and contract management, risk assessment, vendor and technology assessment, systems implementation and integration, and integrated business and IS planning. For successful IT offshoring close contact has to be maintained between the client and the vendor. Globalization of IT products boosted the US GDP by $230 billion over the past seven years and Catherine Mann believes the same would happen with IT services (Sourirajan). Packaged and custom software is now being produced globally. The US software companies are now creating what is called the industry-vertical solutions. These solutions are specific to business domains like financial services, retail and the pharmaceutical companies. U.S. still commands the biggest market in terms of finished IT solutions. All these stress upon the fact that jobs in US are becoming highly specialized which requires support of professional training. This in itself implies that the economy is strengthening and the workforce becoming highly educated and qualified. Tax credits for those who do not offshore jobs are not the solution. Attention should be paid to educating the workforce. According to Ernsberger (2005) of Newsweek International, economists do not feel that the next wave of offshoring will lead to massive loss of jobs. Those attributable to low cost foreign competition are well under ten percent. All are unanimous that the benefits of outsourcing considerably outweigh the costs. Globalization helps to keep the consumer prices low, raises corporate productivity, frees up the money for investment in new technologies and industries. America’s strength lies in its innovation and entrepreneurship. America will have to follow the same strategy as before – climbing the value-added product ladder. In addition employing workers at low cost allows the U.S. companies to be m ore productive and efficient as they develop the capability to produce more goods at cheaper rates. This lowers the price of the goods, strengthens the companies, and frees the workers for other tasks. These savings in fact allow the U. S. companies to stay afloat in the competitive global market. About 70 percent of the U.S. economy is not vulnerable to offshoring as the retail, restaurants, healthcare, hotel sector and other services that take place locally (Otterman). While some jobs have been lost in the past, it is not alarming. Thus, a review of the various opinions suggests that offshoring has not caused the downturn in the economy nor is there evidence that this would happen in the future. On the contrary, offshoring increases the competitiveness of the US companies as they learn to apply technology to produce more at cheaper rates. Besides, about 70 percent of the jobs are in services which are provided locally and each of these sectors is booming. America has always been innovation and a leader in technology and it needs to capitalize on this strength. To stay ahead, to offer more career opportunities,. U.S. needs to step up its education and training. With baby boomers due to retire soon, there would be enough shortage of workforce, and it is essential that the new generation is encouraged to undergo technical training. Just as the IT products had led to increase in the U.S. GDP, even the It services will move in the same direction. Globalization has boosted the world economy and there is no reason why the U.S. economy should face a downturn. This in fact would only result in a highly specialized workforce as suggested by King. Annotated Bibliography Bandi, R.. K., & Srinivasan, V., (2005), Jobs on the Move: De-localisation and Relocation of eWork — Discussion, IIBM Management Review, June 2005 In this article the authors discuss the movement of jobs across different nations. They identify the motives, the enabling technologies, the barriers, the process of relocation, the type of jobs that are normally outsourced and the threats and opportunities that it poses to the SMEs. They have considered inter-continental and intra-continental outsourcing apart from inter-country job relocation. They emphasize that low-cost is the not the only driver of outsourcing. BusinessWeek Online (2003), Commentary: Outsourcing Jobs: Is It Bad? 04 April 2007 Two economists discuss whether outsourcing is good or bad for the economy. Outsourcing though may appear to be good but as nations develop, they may overtake US in education and skills and this is what US has to be conscious of but the proponents of outsourcing argue that US leads in innovation and this will continue to create new high paying positions. Daga, D., & Kaka, N. F., (2006), Taking offshoring beyond labor cost savings, The McKinsey Quarterly, 04 April 2007 Apart from the costs, the authors highlight that outsourcing generates new revenues, increases capital productivity and manages risks. They highlight on the benefits that different service sectors and particularly the airlines stand to gain through outsourcing. Ernsberger, Richard, Jr. "The Big Squeeze; A second wave of offshoring could threaten middle-income, white-collar and skilled blue-collar jobs.(Cover Story)." Newsweek International (May 30, 2005): 48. British Council Journals Database. Thomson Gale. 3 Apr. 2007 The author elaborates on the economic and trade pressures due to globalization and states that this would lead to second wave of outsourcing. They highlight the apprehensions that skilled labor force from developing nations could be a threat to the white-collar, skilled labor. The article also gives figures and statistics on the layoffs referring to studies by Forrester and McKinsey Groups. They conclude with a light of hope that US will remain at the top primarily because of its innovative culture. King, W. R., (2005), Outsourcing and Offshoring: The new IS Paradigm? Journal of Global Information Technology Management, Vol. 8 No. 2 pp. 1-4 In this editorial, the author affirms that low and middle level jobs would continue to migrate but this will open up new areas for employment which requires extensive training and education to prepare them for reemployment. These new areas would be highly specialized areas like risk assessment and US being innovation leaders, would easily be able to take the challenge. MSN Money (2004), Outsourcing actually creates U.S. jobs, study finds, 04 April 2007 Authors refer to a study by the Information Technology Association of America (ITAA) and contend that even though people have fears, in the long run, outsourcing will not have a negative impact on jobs. It is not responsible for the weaknesses in the US labor market. Citing examples from various sources and studies, the authors contend that this is another form of trade and trade does not weaken the economy. Otterman, S., (2004), TRADE: Outsourcing Jobs, Council on Foreign Relations, 04 April 2007 Otterman in this article discusses why the issue has become political and the reasons why it has been in the new recently. The figures are also quoted and they state that outsourcing was not behind the downturn in US. They quote some economists who also confirm that re-employment takes place and some changes o the domestic polices in regard to education and training is essential. P&P (2004), The McKinsey Global Survey of Business Executives , March 2004, The McKinsey Quarterly, 04 April 2007 The McKinsey Group conducted a global survey of the executives to take opinions on outsourcing and found that most executives believe that outsourcing is good for globally. Sourirajan, S., (2004), GLOBALIZATION and OFFSHORE OUTSOURCING A Tale of Two Realities, 04 April 2007 In this article the author highlights the reason for outsourcing and discusses the costs, benefits, including the politics and economics of outsourcing. With continuous development in internet tools and techniques, outsourcing will continue to forge ahead. They have taken a global view and emphasize that outsourcing is a strategic mechanism which will create a global workforce and maximize corporate profits. Venkatraman, N. V., (2004), Offshoring without Guilt, MIT Sloan Management Review, Spring 2004 Vol. 45 No. 3 Venkatraman discusses the ethics of offshoring and highlights that jobs have always been restructured. Protecting domestic jobs through tariffs and quotas is not the framework that would help nations. Offshoring helps to focus on core competencies in the global competitive market. Corporate worldwide procedures and rules have to be strictly adhered to. Vieth, W., & Chen, E., (2004), Bush economic report praises outsourcing jobs, 04 April 2007 While citing the positive approach that the Bush administration has of outsourcing, the article suggests domestic framework and other structural changes to meet the challenges that outsourcing has posed. The authors in this article argue that outsourcing in beneficial to the US economy in the long run. They also discuss that the concerns of the smaller companies differs significantly from the bigger companies. Read More