Outsourcing

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By: cnovoa1 (46 month(s) ago)

Gresat information. Would like to use it to demonstrate Outsourcing info to a class

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OUTSOURCING to China Fort Wayne Rubber & Plastics Group: 

OUTSOURCING to China Fort Wayne Rubber & Plastics Group John F. Wellington, Ph.D. IPFW School of Business and Management Sciences February 10, 2005

Make in China for: 

Make in China for Chinese markets Other Asian markets US markets Rest of world.

Statistics China: 

Statistics China Information on the following slides is taken from: Pocket: World in Figures 2005 Edition The Economist

China: 

China Population: 1.3 billion Population < 15 years: 25% Population > 60 years: 10% Life expectancy: Women (73) Men (70) Birth rate: 14.5 per 1,000 Death rate: 7.0 per 1,000 Adult literacy: 91%

Chinese Economy: 

Chinese Economy GDP: $1.27 bn Growth in real GDP 1992-2002: 9.3% GDP per capita: $980 Origins of GDP (%): Agriculture (15), industry (51), services (34). Manufacturing (18) Employment(%): Agriculture (50), industry (23), services (27)

Trade ($bn fob): 

Trade ($bn fob) Principal Exports Principal Imports Apparel & clothing 41 Electrical mach. 55 Office equipment 36 Petroleum prod. 17 Telecom equip. 32 Office equip. 17 Electrical mach. 32 Other mach. 16 Footwear 11 Telecom equip. 14 Total 326 295

China: Export / Import Destinations (%): 

China: Export / Import Destinations (%) Exports Imports U.S. 22 Japan 18 Hong Kong 18 Taiwan 13 Japan 15 S. Korea 10 S. Korea 5 U.S. 9 Germany 4 Germany 6

Rubber & Plastics News November 15, 2004: 

Rubber & Plastics News November 15, 2004 “Be in China or be gone.” “Big companies, particularly in the automotive sector, are flocking to China and demand their component suppliers come too.”

Manufacturing Objectives: 

Manufacturing Objectives Make it: Cheaper, faster, better With improving reliability Be agile and flexible Variety of products, volumes, terms Absorb cost of related services

Manufacturing Strategies: 

Manufacturing Strategies Same or more output with fewer resources Outsource labor / assembly intensive processes Concentrate on core (value added) processes Grow where your customers grow

What is Outsourcing?: 

What is Outsourcing? Transferring operation(s) with management responsibility to another party for well defined deliverables. Offloading. Something comes back. A locus is maintained.

Outsourcing : 

Outsourcing Manufacturing BPO Human resources / employee services Payroll, accounts receivable, etc. Travel Call centers IT Research & development

Offshoring: A type of outsourcing: 

Offshoring: A type of outsourcing Shift of production from U.S. Domestic disconnection, shutdown. Increase in foreign direct investment, from U.S. Capacity and cash

Offshoring by other names: 

Offshoring by other names Near-shoring Right-shoring Best-shoring Any-shoring.

Why Offshore? : 

Why Offshore? Cost savings. New markets, changed markets. Supply chain. Restructured organization takes you there. Prevailing business model.

U.S. Experience Offshoring: 

U.S. Experience Offshoring What work went offshore Where lost in the U.S. Where does it go offshore Quantity and quality of the work shifted Impact Trends

U. S. Experience: 

U. S. Experience Where’s the data? Who is collecting the data? Is the data reliable? What does the data say? There is no data. No government mandated reporting and disclosure.

U.S. Experience Studies Consulted for This Talk: 

U.S. Experience Studies Consulted for This Talk BLS Mass Layoff Statistics Program Diamond Cluster (2004) Wyatt (2004) Deloitte, Touche, Tohmatsu (2004) TAA and WARN “What accounts for decline in manufacturing”, CBO (2004) Conference Board Media sources

U.S. Experience Plant Closings1: 

U.S. Experience Plant Closings1 Chemical products 81 Electronics 124 Environmental 8 Food 114 Glass and cement products 19 Metal products 308 Plastics products 98 Pulp and paper 68 Refined products 11 Textiles 68 Tobacco products 2 Wood products 63 Other 37 Total 1001 Publication of PCN began on 2/1/03. As of 1/1/04, PDS has reported on more than 500 industrial plant closures. These reported plant closures are detailed below by industry and location.

U.S. Experience Statistics USA : 

U.S. Experience Statistics USA Who / when are jobs shifting Number of jobs shifted Characteristics of companies Characteristics of jobs shifted Destinations

U.S. Experience Who’s Counting: 

U.S. Experience Who’s Counting “The Changing Impact of Corporate Restructuring: The Impact of Production Shifts on Jobs in the US, China, and Around the Globe” K. Bronfenbrenner, Cornell U. S. Luce, U. of Mass., Amherst For US-China Economic and Security Review Commission, October 13, 2004

How They Did the Study: 

How They Did the Study 2001 study Replicated in January – August, 2004 Media sources Exhaustive study of announcements, impact, destination, confirmation. Quality of work shifted.

Slide24: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide25: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide26: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide27: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide28: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide29: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide30: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide31: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

Slide32: 

Source: “The changing nature of corporate global restructuring: The impact of production shifts on jobs in the US, China, and around the world.” US – China Economic and Security Review Commission, October 14, 2004, K. Bronfenbrenner, S. Luce

U.S. Experience: Summary: 

U.S. Experience: Summary In 2001-04, increase in production shifts out of U.S. 2001: 204,000 jobs. 2004: 406,000 jobs. 99,000 to China 140,000 to Mexico Shifts from U.S. to multiple offshore destinations.

U.S. Experience: Summary: 

U.S. Experience: Summary Broader cross section of sectors shifting jobs to China. Large, U.S., publicly held, highly profitable, and well established companies shifting. Midwest has lost most. Illinois, Michigan, N. Carolina, Ohio, California, Indiana.

U.S. Experience: Summary: 

U.S. Experience: Summary U.S. is primary source of production shifts to China, followed by Europe, Japan, Taiwan, Philippines, Singapore Shifts from Asian countries into China concentrated in electronics, electrical equipment, textiles, metal fabrication.

U.S. Experience: Summary: 

U.S. Experience: Summary ● Production shifts from high-wage countries to multiple low-wage countries. ● Near shore and off shore (Mexico and China). ● No government mandated reporting. ● Impact on US workers and US economy

China’s Experience: 

China’s Experience Benefits and costs of world’s offshoring destination Economic, social, and political consequences Following is from the Conference Board

China’s Experience: 

China’s Experience Reallocation process Movement of workers to higher value jobs Away from labor-intensive manufacturing Away from SOE

China’s Experience: 

China’s Experience In the textile industry—the processing of raw materials to make cloth—China has experienced a 44% drop in jobs In the apparel industry—in which textiles are transformed into final products—jobs grew by 160,000 between 1995 and 2002.

China’s Experience: 

China’s Experience 14% annualized growth during 1995–2002 Growth in productivity due to increased efficiency from automation and technology. Attributed to offshoring of U.S., European, and Japanese firms.

China’s Experience: 

China’s Experience One recent estimate, based on several state sources, places China’s national unemployment at 23%. Corresponds to 168.5 million workers in 1999—a number greater than the total number of employed persons in the United States.

Slide42: 

Manufacturing job losses and gains in China Type of ownership* -8 -6 -4 -2 0% 2 4 6 Annualized growth Collectively owned -12,102 Joint-stock (shareholding) 5,943 State-owned -1,345 -13.45 million jobs lost 8.93 million jobs gained 901 460 669 742 219 Joint ventures (Hong Kong, Taiwan, Macau) Joint ventures (foreign) Wholly owned (foreign) Domestic private Other * All charts in this report are based on data from 1995-2002. Note: Numbers on bars indicate absolute growth in each category (unit = 1,000 jobs) Source: National Bureau of Statistics of China and TCB

China’s Experience 1995 - 2002: 

China’s Experience 1995 - 2002 State-owned and operated firms lost 12.1 million jobs. State employment dropped from 81% to 49%. Influenced in part by the government furloughing millions of factory workers (referred to as xiagang) 1 For a detailed description of the difficulties in counting xiagang, see Dorothy J. Solinger, “Why We Cannot Count the ‘Unemployed,’” China Quarterly 167, 2001.

China’s Experience 1995 - 2002: 

China’s Experience 1995 - 2002 Difficult to accurately estimate the number of Xiagang Many workers remain affiliated with their plant (and thus stay officially employed) Counted as having retired early and are not included in unemployment number.

China’s Experience: Summary: 

China’s Experience: Summary Problems that accompany rapid development and transition. Corruption when assets with weakly defined ownership rights are privatized. Pollution of the air and water. Bank reform - non-performing loans remain an issue

China’s Experience: Summary : 

China’s Experience: Summary Rapid growth in foreign and foreign-funded firms Domestic private commercial enterprises (non-shareholding) are small but fast-growing Private firms did not add as many jobs as the SOEs lost. 1 See Dougherty and McGuckin, Restructuring Chinese Enterprises, for a detailed analysis of the conversion process.

China’s Experience: Summary : 

China’s Experience: Summary Joint-stock companies showed a net gain of 5.9 million workers over the 1995–2002 period. Many are reorganized SOEs converted to shareholding structure - state remains the sole or majority owner. This source of employment growth probably reflects more classification change than real economic expansion.

Your Experience: 

Your Experience Rubber & Plastics News Institute of Supply Management

Rubber & Plastics News November 15, 2004 Offshoring in China : 

Rubber & Plastics News November 15, 2004 Offshoring in China Infrastructure building - in progress Limited to coastal areas Ownership of intellectual property is not embraced Proprietary property has two-year shelf life Reverse engineering is common

Rubber & Plastics News November 15, 2004 Offshoring in China : 

Rubber & Plastics News November 15, 2004 Offshoring in China Challenge of gaining entry Need reliable, trustworthy partner(s) with track record Understand the Chinese market Theft of technology leads to new competitor On-time deliveries the norm? Sufficient business to make a profit?

Northeast Indiana: 

Northeast Indiana Kathleen Randolph Northeast Indiana Workforce Investment Board (NIWIB)