Transcript Outsourcing… - Natelson Dale Group

Globalization and How It
Affects Arizona
Roger A. Dale, Managing Principal
The Natelson Company, Inc.
Yorba Linda, CA
Globalization and How it Affects Arizona
• International Outsourcing and
Arizona’s Prospects for Job Growth
• The California Connection
• Workforce Development in an Era
of Globalization
Outsourcing…
• What’s happening and why?
• How big is the impact?
• How much bigger could it get?
• How vulnerable is Arizona?
• Is it really a bad thing? – What are the
upsides?
What’s happening and why?
• Free markets are forever seeking
efficiency
• Trade: cost savings through
specialization
• “White Collar” outsourcing is latest
manifestation
• Recent media attention on tech jobs
Attributes of Jobs Outsourced
• No face-to-face customer service
• High information content
• Work is telecommutable and Internet enabled
• Low setup barriers
• Low social networking requirement
• High wage differentials with destination country
Source: Fisher Center (UC Berkeley)
Wage differentials can be huge…
Occupation
Hourly Wage, US
Hourly Wage, India
Telephone Operator
$13
Under $1
Medical
Transcriptionists
$13
$2
Payroll Clerk
$15
$2
Paralegal
$18
$7
Accountant
$23
$6-15
Financial Analyst
$34
$6-15
Source: Fisher Center
Average Salaries of Programmers
Country
Typical Salary
USA
$70,000
Ireland
$28,500
Israel
$26,500
Canada
$28,000
China
$9,900
India
$8,400
Malaysia
$7,200
Philippines
$6,500
Poland
$6,400
Russia
$6,300
Source: Fisher Center
How big is the impact?
Data challenges due to simultaneous
events:
• Recession and “jobless” recovery
• Bursting of the high tech bubble
• Outsourcing
Some numbers…
Percentage of jobs lost in heavily outsourced
sectors since 2001:
• Software publishers
10%
• Accounting/payroll
10%
• Call Centers
11%
• Computer Systems Design
14%
• Computer/Electronics Products 24%
Source: Fortune Small Business
Some numbers…
• 11% of U.S. jobs are “at risk” (Fisher Center)
• That translates to 14 million jobs
• 3.3 million jobs will be lost to outsourcing by 2015
(Forrester Research)
• July 2003: 25,000 – 30,000 jobs outsourced to India
• Offshoring accounts for nearly 1/3 of lost
manufacturing jobs since 2000 (Goldman Sachs)
How vulnerable is Arizona?
• Using Fisher’s formula, we
estimate 12% of Arizona jobs are at
risk.
• That translates into approximately
279,000 jobs
• But that’s not the whole story…
What are the benefits of outsourcing?
• Cost savings result in lower inflation,
increased productivity
• This boosts business and consumer
spending
• This increases overall economic activity
and creates jobs in other sectors
NET Impact of IT Outsourcing
INDUSTRY SECTOR
Net New Jobs by 2008
Arizona
Natural Resources & Mining
U.S.
13
1,182
2,283
75,757
Manufacturing
308
25,010
Wholesale Trade
784
43,359
Retail Trade
604
30,931
1,165
63,513
-802
-50,043
Financial Services
656
32,066
Professional & Business Services
743
31,623
Education & Health Services
826
47,260
Leisure, Hospitality & Other Services
243
12,506
87
4,203
6,909
317,367
Construction
Transportation & Utilities
Publishing, Software & Communications
Government
Total Employment
Source: Global Insight, Inc. and NAICS
Outsourced jobs aren’t always gone for
good – the Call Center example
• Outsourcing is still experimental
• “New” phenomenon that may
already be coming full circle
• Dell – a notable example of call
center “repatriation”
How can Arizona benefit from
California’s situation?
• What are California’s points of
vulnerability?
• What are the opportunities for Arizona,
and does the outsourcing issue change
them?
• How California may reposition itself –
the Arnold factor
Some of California’s challenges…
Costs of doing business
• Energy
• Workers’ compensation
• Real estate
• Regulatory environment
Some of California’s challenges…
Attractiveness to workforce
• Housing costs
• Educational quality
• Other quality of life issues
Some of California’s challenges…
Fiscal constraints
• Infrastructure investment
• Quality of government services
• ED investment at all levels
Can California reposition itself?
Key Issue
Can California Improve?
Energy Costs
Not realistically in short term
Workers’ Compensation
Hopefully – plan underway
Regulatory environment
Improvements possible, but will
likely remain a significant
disadvantage
Housing Costs
Not realistically, will likely remain an
overall disadvantage
Fiscal Crisis
Budget can be balanced, but
“fallout” may be severe
What does it mean for Arizona?
• For foreseeable future, California
remains a ripe target
• “Outsourcing” may undermine
some opportunities
Workforce Development in an Era of
Globalization
Why it’s more important than ever
• Expanding range of workers facing
transitions
• Workforce is increasingly important
part of an area’s “product”
ED and WD – merging the “cultures”
Balancing perspectives:
“people prosperity”
versus
“place prosperity”
The ED Product and Message
• What drives industrial location
decisions? – Land (costs) vs. workers
• How does Arizona really want to position
itself?
Shifting Priorities in the New Economy
In the old economy, people believed
that:
In the New Economy, people believe
that:
Being a cheap place to do business was
key.
Being a place rich in ideas and talent is
key.
Attracting companies was key.
Attracting educated people is key.
A high-quality physical environment was
a luxury that stood in the way of
attracting cost-conscious businesses.
Physical and cultural amenities are
crucial to attracting knowledge workers.
Regions won because they held a fixed
competitive advantage in some
resource.
Regions prosper if organizations and
individuals have the ability or skill to learn
and adapt.
Economic development was
government-led.
Only bold partnerships among
businesses, government and the nonprofit sector can bring about change.
Source: Progressive Policy Institute
What does it all mean for Arizona
Economic Developers?
1. One sure thing about economic forecasts –
they’ll be wrong!
2. Economic trends tend to be unpredictable
and/or inevitable
3. Economic developers – especially at the local
level – aren’t so much in the business of
changing global trends, but being poised to
pursue the opportunities they present
What does it all mean for Arizona
Economic Developers? (continued)
4. Innovation is key
5. Economic developers need to be continually
thinking about their “product” and their
“message”
6. Clusters are as important as ever, and an ideal
framework for addressing new challenges
What does it all mean for Arizona
Economic Developers? (continued)
7. ED is not just about marketing – attention to
“foundations” (people, institutions, and
infrastructure) is what makes marketing
successful over the long term
8. Cost and value are not synonymous – at the
end of the day, value and innovation win!
9. You’re on the right track!
Some Useful Publications on this
Topic:
“The Comprehensive Impact of Offshore IT Software and Services Outsourcing on the U.S.
Economy and the IT Industry” by Global Insight (USA), Inc. Executive Summary is
available free online at: http://www.itaa.org/itserv/docs/execsumm.pdf
“The New Wave of Outsourcing” by Ashok D. Bardam and Cynthia Kroll, Fisher Center for Real
Estate & Urban Economics. Available online at:
http://www.haas.berkeley.edu/news/Research_Report_Fall_2003.pdf
Series of articles in the San Franciso Chronicle:
http://www.sfgate.com/news/special/pages/2004/offshoring