University:
Massachusetts Institute of Technology
Course:
15.992 | S-Lab: Laboratory for Sustainable Business
Academic year:

2023
Views:

382

Pages:

7
Author:

Serena Bailey

Globalization and outsourcing: framing the debate • Introduction, data and trends • Making decisions as a manufacturing and 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 So what are the issues for strategy? • How to decide whether and where to go – – – – Global markets and presence Full costs Dynamics Coordination • How to consider public policy issue and how to stay in developed countries if appropriate