“The country who has suffered the worst due to economics of globalization is United States of America”
True or false?
False
Make yourself useful, Matsui. Educate the masses.
I read this long article in the news, which built a case that all the huge number of jobs moving from America into countries like China and India suggest two things: #1 that these jobs are not going to come back, and #2 US has suffered the worst due to prematurely embracing the globalization trends allowing its corporations to cut down American jobs and in turn create a lot of overseas jobs.
Gosh Faisal, I was waiting for a large cut and paste. atleast give your opinion yaar... khair...
Globalization is a two way street. Those jobs lost to low end manufacturing to mexico and china or low end services to India probably would not have lasted. IN my opinion, over a period of time non customer facing jobs become commoditized. Whether IT or Billing or making shoes. These functions will continue to move to lower cost centers of ops, you will see manu move from china to southeast asia/africa/India....services move from India to places like china and even ghana...Durnig this same period demand for US goods and services will rise in these countries. To give a current state example, Mckinsey just stated that for every $1 sent offshore, US comanies make $1.12 in services and goods sold to India + savings+ROI.
While the writer is correct in identifying short term negatives for the US. It is historically untrue that jobs won;t come back. Same scare tactics were there in late 70's and 80's with the Japanese and east asian influx of capital and outsourcing of manuf.
US will remain the greatest economy in the world for the foreseeable future (say 100+ years) because of 3 simple concepts. Innovation....culture...political system. No country in the world has a system of rules and regulations, drive towards individual political and economic freedom than the US. THis environment is the sole reason why the US is and will be the leader in innovation, thereby the leader in global economics.
In 2050, when china is the largest economy and per capita GDP is $44k a year...it will still be almost half of the US. Food for thought!!!!
I can't give an opinion, Matsui, cz I am in the learning mode right now. :)
So you say, its low end jobs that are moving to India? What I read Andy Grove (Intel) say is that India's booming software industry, which is increasingly doing work for U.S. companies, could surpass the United States in software and tech service jobs by 2010.
Just for comparative purposes, look at steel. In the case of steel, U.S. US companies never recovered, dropping from nearly 90 percent of worldwide market share to roughly 10 percent. The semiconductor industry faced similar challenges in the 1980s, when it began its drop from 90 percent to 40 percent of the world market before aggressive trade and other U.S. policies helped it recover and stabilize at about 50 percent.
So while Dell moved out its Tech Support from India due to customer satisfaction issues (small item, as far as I can see), recently I was talking to a guy in high-tech industry and he said Microsoft is planning to stop expansion in India and move to other markets, bcz Indians are jacking up prices. So while we can talk on end about India's gains/losses in terms of globalization, the core question remains did USA really gain either in the short term or in the long term by having its huge corporations move their operations to cheaper locations.
My experience is primarily in high-tech, so I know biggest players in OEM manufacturing (Solectron and Sanmina) have moved majority of their operations to Asia. Tech Support functions has all gone to India. Other manufacturing is gone to China, India etc. What remains in US is R&D, but that is also swiftly going to Israel and India, among others.
What will US companies be doing here? The cost-benefit of moving to cheaper places will remain unless those places don't remain so cheap. Didn't US suffer the most due to the huge job losses then? I really doubt if many experts are buying that McKinsey conclusion without a pinch of salt (no offence to McK)
Chalo..let's analyze
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*Originally posted by Faisal: *
I can't give an opinion, Matsui, cz I am in the learning mode right now. :)
So you say, its low end jobs that are moving to India? What I read Andy Grove (Intel) say is that India's booming software industry, which is increasingly doing work for U.S. companies, could surpass the United States in software and tech service jobs by 2010.
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*Originally posted by Faisal: *
IT is still a back office function. Work that is going offshore for companies like Intel is still the development portion of the project cycle. I am not an IT person but most successful offshore IT engagements have phases done in INdia and some doen in the US. Even if bulk of development goes offshore, there is still a huge need for Business analysts, most R&D, is still done here in the US and will be because it is a core competency of companies like Intel.
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Just for comparative purposes, look at steel. In the case of steel, U.S. US companies never recovered, dropping from nearly 90 percent of worldwide market share to roughly 10 percent. The semiconductor industry faced similar challenges in the 1980s, when it began its drop from 90 percent to 40 percent of the world market before aggressive trade and other U.S. policies helped it recover and stabilize at about 50 percent.
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*Originally posted by Faisal: *
And in the mean time everyother industry gained global marketshare. What is the point? IN the 16th century france was the largest producer of cotton softgoods. Byt the 17th, Britain totally deccimated it with the American colonies. These things are par for the course not an indictment or negative repurcussions of globalization. Those country that can innovate the best will dominate.
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So while Dell moved out its Tech Support from India due to customer satisfaction issues (small item, as far as I can see), recently I was talking to a guy in high-tech industry and he said Microsoft is planning to stop expansion in India and move to other markets, bcz Indians are jacking up prices. So while we can talk on end about India's gains/losses in terms of globalization, the core question remains did USA really gain either in the short term or in the long term by having its huge corporations move their operations to cheaper locations.
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*Originally posted by Faisal: *
Dell is an isolated scenrio...they are idiotic in their offshore strategy. I alreadygave you the answer how US gainedfrom the MCkinsey analysis.
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My experience is primarily in high-tech, so I know biggest players in OEM manufacturing (Solectron and Sanmina) have moved majority of their operations to Asia. Tech Support functions has all gone to India. Other manufacturing is gone to China, India etc. What remains in US is R&D, but that is also swiftly going to Israel and India, among others.
What will US companies be doing here? The cost-benefit of moving to cheaper places will remain unless those places don't remain so cheap. Didn't US suffer the most due to the huge job losses then? I really doubt if many experts are buying that McKinsey conclusion without a pinch of salt (no offence to McK)
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*Originally posted by Faisal: *
When 60% of your GDP comes from consumer spending...you worry about the top line, not the bottom line. OPs need ot be flexible, taking them offshore allows for that flexibility. When companies offshore their call center, they don;t offshore the entire process, this provides them with flexibility in lean times. A little humble Mckinsey mantra. Most experts wish they could work at Mckinsey. :)
Short term inpacts are deflation not an economic meltdown. Let me give you an example on how to do it right. When an equity research analyst makes $200K in the US and Same talent level makes $50k in India, there is operational pressure during lean times to drive the cost down by shifting more work offshore. But this is the worng strategy. You need to reengineer the process so that the India arm does the low end work, "daily call reports, analytics etc..and the analysts here rely on that to make the recommendations. Thereby creating the win win.
Thanks for asking...this is what I do . :)
Matsui, the way you have quoted, everything you have said seems to be coming from me. :)
Anyway, McKinsey have given their conclusion, but I am not privy to how they got to that answer. And knowing McKinsey, I suspect they'll charge somewhere around 2 million bucks to provide a copy of this report, so I'll give it a pass for now. Its difficult to read or discuss a report which is not publicly available. If it is, let me know.
That gets us back to the question, which is actually the core issue... are the sales of American products in Asia increasing at the same rapid pace as the American jobs are moving into Asia out of America. Cz this seems to be the main assumption. Importantly, how much of that are then 'American products' anyway? Meaning, if Levi's is making jeans in Indonesia and selling it in India, how much of that is benefitting America. Yeah, so the Company revenues are increased, but I don't think they are paying that much in taxes in US on worldwide income and stockholders don't get all that back so the money is reinvested in Indonesia and Ghana for more manufacturing plants. You see my drift.
America is not getting anything back. May be a Company which was originally established in the US, and is now incorporated in Delaware or Cayman Islands is getting profitable, but for US and US workers its neither here nor there.
On to your second point, yes, for now, its back office jobs which are moving out, but if the core customer-base is also moving to Asia and Europe (which is basically what McK is alluding when they talk about more sales out of US) then pretty soon front office will also be moving out with it. That remains high-tech R&D. The historic assumption was that since US is home to some of the finest universities and so top-class R&D can only happen in US. True, but since most top-schools are increasingly taking more and more foreign students who may infact move back (the brain gain is already happening in China and India) so that myth is also being shot. Not only that, but institutes like IIT are taking a huge share of world wide reputation in terms of quality of students (not sure about their high end R&D), so point is, the high-end R&D may also go out of US.
The key is cost of living. In US and Europe its too high compared to Asia and Africa. As long as the competitive advantage remains that way, US will see a continuous drain of jobs into cheaper countries, and that will put more pressure on its welfare system and its consumer base. For the moment, US may hang on to technical superiorirty, but I am still unable to see what you forsee as the future main thrust of US operations for most companies. Will they just be selling their products and services to jobless Americans?
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*Originally posted by Faisal: *
Matsui, the way you have quoted, everything you have said seems to be coming from me. :)
Anyway, McKinsey have given their conclusion, but I am not privy to how they got to that answer. And knowing McKinsey, I suspect they'll charge somewhere around 2 million bucks to provide a copy of this report, so I'll give it a pass for now. Its difficult to read or discuss a report which is not publicly available. If it is, let me know.
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I will send you the report. After 4 yrs of service, those fkers owe me.
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*Originally posted by Faisal: *
That gets us back to the question, which is actually the core issue... are the sales of American products in Asia increasing at the same rapid pace as the American jobs are moving into Asia out of America. Cz this seems to be the main assumption. Importantly, how much of that are then 'American products' anyway? Meaning, if Levi's is making jeans in Indonesia and selling it in India, how much of that is benefitting America. Yeah, so the Company revenues are increased, but I don't think they are paying that much in taxes in US on worldwide income and stockholders don't get all that back so the money is reinvested in Indonesia and Ghana for more manufacturing plants. You see my drift.
America is not getting anything back. May be a Company which was originally established in the US, and is now incorporated in Delaware or Cayman Islands is getting profitable, but for US and US workers its neither here nor there.
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If levis is selling in Indonesia it doesn;t mean it is not selling in the US and europe. Reinvestment of profits depends on strategic plans...some years you issue a dividend some years you don't. Share price would be driven more by marketshare and profitablity, which in the case of US, sales would be at higher margins than those in India or Indonesia. As far as Taxes are concerned, why would the share of US tax revenue grow down if the Indonesian marketshare goes up for US companies? There seems to be an inherent calculation on your part that US marketshare for LEvis is decreasing while it's global marketshare increases. Taxes might be the same.
Offshore shelters as tax havens are not the norm but the exception. Any publicly listed company has to declare that on it's balance sheet and it is taxable revenue. At least in financial servivces, dunno about soft goods manuf
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*Originally posted by Faisal: *
On to your second point, yes, for now, its back office jobs which are moving out, but if the core customer-base is also moving to Asia and Europe (which is basically what McK is alluding when they talk about more sales out of US) then pretty soon front office will also be moving out with it. That remains high-tech R&D. The historic assumption was that since US is home to some of the finest universities and so top-class R&D can only happen in US. True, but since most top-schools are increasingly taking more and more foreign students who may infact move back (the brain gain is already happening in China and India) so that myth is also being shot. Not only that, but institutes like IIT are taking a huge share of world wide reputation in terms of quality of students (not sure about their high end R&D), so point is, the high-end R&D may also go out of US.
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Sales are driven geographically. You don;t move sales for the US out of the US. When American companies invest to bring products to India and Pakistan, they hire feet ont he ground, don;t bring ops from abroad.
I simply do not see mission critical processes like R&D going offshore. Subcomponents might, but entire processes would never go offshore. Another reason, such processes don;t move offshore is because they are capital intensive. And no country gives the best access to capital markets than the US. Talent goes where the money is. yes...it is that simple.
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*Originally posted by Faisal: *
The key is cost of living. In US and Europe its too high compared to Asia and Africa. As long as the competitive advantage remains that way, US will see a continuous drain of jobs into cheaper countries, and that will put more pressure on its welfare system and its consumer base. For the moment, US may hang on to technical superiorirty, but I am still unable to see what you forsee as the future main thrust of US operations for most companies. Will they just be selling their products and services to jobless Americans?
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Same mutterings were there when manuf left these shores. For the three reasons I mentioned in the previous posts, and mainly innovation, US will be fine. Comparing US to the Eu is not a apples to apples comparison. The growth dynamics are different, Eu population would have an avg. age of 52 at the current birthrate adn Immigration standards by 2030, US will be 32. See...innovation. :)
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*Originally posted by Matsui: *
If levis is selling in Indonesia it doesn;t mean it is not selling in the US and europe. Reinvestment of profits depends on strategic plans...some years you issue a dividend some years you don't. Share price would be driven more by marketshare and profitablity, which in the case of US, sales would be at higher margins than those in India or Indonesia. As far as Taxes are concerned, why would the share of US tax revenue grow down if the Indonesian marketshare goes up for US companies? There seems to be an inherent calculation on your part that US marketshare for LEvis is decreasing while it's global marketshare increases. Taxes might be the same.
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Taxes! Now, finally, it seems I am on a somewhat familiar territory. :)
No, I didn't say if a "US Company" is selling in Indonesia or India, then it is selling less in US... what I am saying is that if "US Companies" (quote-unquote) are selling in Indonesia or India, how much of that sales actually makes it way back to US? You see, the reason companies move out their manufacturing is to take advantage of dual-tax treaties. This is what the globalization drive of early-to-mid 90's was all about. So, if a Company is generating profits selling products and services in India, they will pay appropriate taxes in India, and will not add it to their worldwide income to pay taxes again in the US for the same income. So, first the jobs moved out to manufacturing in Indonesia, and the taxes on the sales in India never moved back in. The only way some money is coming back is through stockholder dividends, but its unlikely many of these Companies are paying out, instead they'd rather be reinvesting into more manufacturing, which is again outside US.
So, question is how American is Levi's now? Their American CEO and COO might be getting extremely rich because they are sitting on worldwide profits (with salaries and bonuses), but neither the jobs nor the taxes nor the re-investment is coming back to the US.
So US consumer is still buying Levi's (made in Indonesia), and so the Levi's Company is still paying taxes (Sales tax and Income tax) here on that, but the purchasing power of the customer is based on unemployment percentage. On a macro level, minor technical corrections here and there, notwithstanding (8.2% growth in Q3), what are the basic indicators about the long term prospects of US economy? Which areas are seeing job growth? And if we don't have job growth, then after the horrible lay-offs of the last 36 months, where are the customers going to get their purchasing power?
I am quite familiar with the IT sector here, and the situation here is not pretty at all. Low-end jobs and medium-end R&D is all moving out rapidly. Outsourcing has started to take big steps in taking high-end R&D out too, and its just a matter of time before the big corporations will start to take notice and strategize to keep the top level R&D inhouse, but it will still move out of US. US, will then become just a sales spot for the same products and services, and this is not a good picture for US economy. If the low-end and middle management is all wiped out of US economy, the consumer base is definitely going to suffer.
Its probably not a melt-down, but if you read the predictions of some of the high tech gurus in their speeches, they can already see where the spiral is going. Maybe Banking and Insurance will not be impacted in the short-term, and that is why you are not seeing an impact, but IT definitely is going away. And its not coming back.
In order to keep herself relevant, pretty soon US will have to reinvent the core strengths once more. The tech bubble seems to have burst completely. And the market dynamics seems to be against a revival there. They will just have to figure out where the job growth is going to be.
I think a lot of companies have a variety of strategies as I mentioned earlier related to their plans whether to offer dividends or reinvest in R&D. One of the reasons why companies decide to reinvest in those countries is also because regulations don;t allow for taking back the profits to the motherland.
I think we can make so many tangential arguments for or against this that it will become convoluted. As far as transparency of officers and companies in general, US is still far better than mopst countries in the world.
Unemployment is definitely a worry but I think that is a short term issue.
As far as IT is concerned, I think as you put it, a bubble is exactly what those inflated salaries were. In my opinion, java programmers at $200/hr were overpaid by 500% in those times. IT became the driver the not enabler for business inthose times and thank god,reality has crept back in. IN such commodity services,outsourcing should be the norm. I knew bankers who took programing courses and all of a sudden wanted to be e-bankers. 
Maybe you are right in that it is sectorally dependent. But then the answer is what it has always been…Innovation.
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*Originally posted by Matsui: *
Unemployment is definitely a worry but I think that is a short term issue.
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I will agree it is short term issue if you can speculate where the job growth is going to be? I don't think its IT and I don't think its manufacturing. Agriculture, may be, although I'd be surprised if farm subsidies won't become a burning issue very shortly (it should be next after steel tarrif issue is resolved this week). Small business will be the mainstay due to enterprenural nature of Americans, but they can only accomodate so much. Other assorted products and services won't grow at any rate if the unemployment and deflationary trends continue. Doesn't it seem like a complete circle?
Nanotechnology may be one area, but I doubt it will spread like the high-tech of 90's. Its a relatively niche field and fairly capital intensive.