Mantra: Outsource or Perish

It's really cost -- Low-Cost Countries --  but guilt is assuaged by a view that American workers are not as good as they once were.

The Indian
Saturday, July 03, 2004         
Outsource to India, China or perish: BCG report
WASHINGTON, JULY 2 A report by an influential consulting firm is exhorting US companies to speed up ‘‘offshoring’’ operations to China and India, including high-powered functions such as research and development.

In blunt terms, the report by the Boston Consulting Group warns American firms that they risk extinction if they hesitate to shift facilities to countries with low costs. That is partly because the potential savings are so vast, but the report also cites a view among US executives that the quality of American workers is deteriorating.

‘‘The largest competitive advantage will lie with those companies that move soonest,’’ the report stated. ‘‘Companies that wait will be caught in a vicious cycle of uncompetitive costs, lost business, underutilised capacity, and the irreversible destruction of value.’’

Boston Consulting, which counts among its clients many of the biggest corporations in the United States, admonishes them that they have been too reluctant rather than too eager to outsource production to ‘‘LCC’s,’’ or low-cost countries. ‘‘Successful companies ask themselves, ’What must I keep at home?’ rather than ’What can I shift to LCC’s?’ ’’ the report stated. ‘‘Their question is not ‘Why outsource to LCC’s?’ but ‘Why not?’’’

The report, released in May, has gone almost unnoticed amid generally upbeat news as strong economic growth has begun fuelling an increase in jobs, diminishing public debate about offshoring.

But the report’s conclusions underline the intensifying pressures on corporate America to shift jobs overseas. Although many economists believe the trend will benefit the US economy overall by improving productivity, and that new job creation will more than compensate for the jobs migrating to China and India, the study suggested that the movement of jobs abroad is likely, if anything, to accelerate strongly in coming years.

Particularly troubling is the report’s information about confidential discussions with executives at Boston Consulting’s client companies, many of whom conveyed low opinions of their American employees compared with labour available abroad. According to the report, not only are factory workers in low-cost countries much cheaper but they quickly achieve quality levels that are ‘‘equivalent to or even higher than ... (the) best plants in the West.’’

The report cited General Electric Co, Motorola, Alcatel and Siemens AG as examples of companies that have set up research and development centres in both India and China ‘‘to leverage the substantial pools of engineering talent that are based in the two countries.’’

The report undercuts the view that R&D jobs in the west will increase even as low-skill jobs migrate to China and India.



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