IBM and the Rebirth of Offshoring
Time.com Business & Tech ran an article that parallels the discussion Bob had with the WSJ today. The article explains that offshoring may be making a big comeback as word leaked that IBM would cut about 5,000 jobs in the U.S. and move the work to India. This may be the beginning of a new wave of moving work to developing countries which have large pools of well-educated workers.
India's GDP grew at a rate of 7% or better the last two years. The IBM news is troubling because labor costs in the U.S., even among highly educated adults, are falling. American workers should be available for employment at salaries much lower than they were two years ago. It appears that IBM has elected to move jobs offshore rather than keep them in the U.S. despite the trend of more tech workers losing their jobs here. But, the cost of labor in India, which was already below that in the U.S., is likely to be falling even faster than it is in the U.S. While labor prices drop in the U.S., they are probably dropping faster in countries like India and China. India's official unemployment rate is 8.2%, but is expected to rise throughout the balance of the year.
IBM clearly arbitraged the joblessness in the U.S. and India as it made its decision about where to employ several thousand people. To put it crassly, IBM is looking for the equivalent of the lowest cost bidder.
Bob has been saying for a long time that the US workforce will need to redefine themselves in order to compete in the global economy. It is a tough realization to come to grips with but it is a fact of life today.
Offshoring Outlook: Latin America
A story posted in CIO.com discusses the growth of outsourcing to Latin American companies. The author states: "With an estimated population of 559 million, a growing percentage of which is multi-lingual and well-educated, Latin America has become increasingly attractive for all types of business. Its IT services sector has grown rapidly—nearly doubling in the past five years. In Brazil alone, IT has become a more than $9 billion per year market. While such growth rates may not be sustainable during the current global economic crisis, Latin America is a logical place for IT to flourish, especially as the services industry scrambles to recover and regroup following the disastrous terrorist attacks and financial scandals in India.
The author does caution the decision makers with the comment: " Now, in all fairness, when it comes to global services outsourcing, Latin America should be considered as playing a complementary—not replacement—role to mitigate what a leading analyst calls "India fatigue." Each Latin-American country presents different opportunities for buyers, and none can meet all needs". As Bob has stated in the past. The right match needs to be made between service providers and the company needing the outsourcing services. We welcome comments on this posting.
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