Globalization and How It Affects Arizona Roger A. Dale, Managing Principal The Natelson Company, Inc. Yorba Linda, CA

International Outsourcing and Arizona’s Prospects for Job Growth The California Connection Workforce Development in an Era of Globalization Globalization and How it Affects Arizona

What’s happening and why? How big is the impact? How much bigger could it get? How vulnerable is Arizona? Is it really a bad thing? – What are the upsides? Outsourcing…

Free markets are forever seeking efficiency Trade: cost savings through specialization “White Collar” outsourcing is latest manifestation Recent media attention on tech jobs What’s happening and why?

No face-to-face customer service High information content Work is telecommutable and Internet enabled Low setup barriers Low social networking requirement High wage differentials with destination country Source: Fisher Center (UC Berkeley) Attributes of Jobs Outsourced

Wage differentials can be huge… OccupationHourly Wage, USHourly Wage, India Telephone Operator$13Under $1 Medical Transcriptionists $13$2 Payroll Clerk$15$2 Paralegal$18$7 Accountant$23$6-15 Financial Analyst$34$6-15 Source: Fisher Center

Average Salaries of Programmers CountryTypical Salary USA$70,000 Ireland$28,500 Israel$26,500 Canada$28,000 China$9,900 India$8,400 Malaysia$7,200 Philippines$6,500 Poland$6,400 Russia$6,300 Source: Fisher Center

Data challenges due to simultaneous events: Recession and “jobless” recovery Bursting of the high tech bubble Outsourcing How big is the impact?

Percentage of jobs lost in heavily outsourced sectors since 2001: Software publishers-10% Accounting/payroll-10% Call Centers-11% Computer Systems Design-14% Computer/Electronics Products-24% Source: Fortune Small Business Some numbers…

11% of U.S. jobs are “at risk” (Fisher Center) That translates to 14 million jobs 3.3 million jobs will be lost to outsourcing by 2015 (Forrester Research) July 2003: 25,000 – 30,000 jobs outsourced to India Offshoring accounts for nearly 1/3 of lost manufacturing jobs since 2000 (Goldman Sachs) Some numbers…

Using Fisher’s formula, we estimate 12% of Arizona jobs are at risk. That translates into approximately 279,000 jobs But that’s not the whole story… How vulnerable is Arizona?

Cost savings result in lower inflation, increased productivity This boosts business and consumer spending This increases overall economic activity and creates jobs in other sectors What are the benefits of outsourcing?

NET Impact of IT Outsourcing INDUSTRY SECTORNet New Jobs by 2008 ArizonaU.S. Natural Resources & Mining131,182 Construction2,28375,757 Manufacturing30825,010 Wholesale Trade78443,359 Retail Trade60430,931 Transportation & Utilities1,16563,513 Publishing, Software & Communications ,043 Financial Services65632,066 Professional & Business Services74331,623 Education & Health Services82647,260 Leisure, Hospitality & Other Services24312,506 Government874,203 Total Employment6,909317,367 Source: Global Insight, Inc. and NAICS

Outsourcing is still experimental “New” phenomenon that may already be coming full circle Dell – a notable example of call center “repatriation” Outsourced jobs aren’t always gone for good – the Call Center example

What are California’s points of vulnerability? What are the opportunities for Arizona, and does the outsourcing issue change them? How California may reposition itself – the Arnold factor How can Arizona benefit from California’s situation?

Costs of doing business Energy Workers’ compensation Real estate Regulatory environment Some of California’s challenges…

Attractiveness to workforce Housing costs Educational quality Other quality of life issues Some of California’s challenges…

Fiscal constraints Infrastructure investment Quality of government services ED investment at all levels Some of California’s challenges…

Can California reposition itself? Key IssueCan California Improve? Energy CostsNot realistically in short term Workers’ CompensationHopefully – plan underway Regulatory environmentImprovements possible, but will likely remain a significant disadvantage Housing CostsNot realistically, will likely remain an overall disadvantage Fiscal CrisisBudget can be balanced, but “fallout” may be severe

For foreseeable future, California remains a ripe target “Outsourcing” may undermine some opportunities What does it mean for Arizona?

Workforce Development in an Era of Globalization Why it’s more important than ever Expanding range of workers facing transitions Workforce is increasingly important part of an area’s “product”

ED and WD – merging the “cultures” Balancing perspectives: “people prosperity” versus “place prosperity”

The ED Product and Message What drives industrial location decisions? – Land (costs) vs. workers How does Arizona really want to position itself?

Shifting Priorities in the New Economy Source: Progressive Policy Institute In the old economy, people believed that: In the New Economy, people believe that: Being a cheap place to do business was key. Being a place rich in ideas and talent is key. Attracting companies was key.Attracting educated people is key. A high-quality physical environment was a luxury that stood in the way of attracting cost-conscious businesses. Physical and cultural amenities are crucial to attracting knowledge workers. Regions won because they held a fixed competitive advantage in some resource. Regions prosper if organizations and individuals have the ability or skill to learn and adapt. Economic development was government-led. Only bold partnerships among businesses, government and the non- profit sector can bring about change.

What does it all mean for Arizona Economic Developers? 1.One sure thing about economic forecasts – they’ll be wrong! 2.Economic trends tend to be unpredictable and/or inevitable 3.Economic developers – especially at the local level – aren’t so much in the business of changing global trends, but being poised to pursue the opportunities they present

What does it all mean for Arizona Economic Developers? (continued) 4.Innovation is key 5.Economic developers need to be continually thinking about their “product” and their “message” 6.Clusters are as important as ever, and an ideal framework for addressing new challenges

What does it all mean for Arizona Economic Developers? (continued) 7.ED is not just about marketing – attention to “foundations” (people, institutions, and infrastructure) is what makes marketing successful over the long term 8.Cost and value are not synonymous – at the end of the day, value and innovation win! 9.You’re on the right track!

Some Useful Publications on this Topic: “The Comprehensive Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the IT Industry” by Global Insight (USA), Inc. Executive Summary is available free online at: “The New Wave of Outsourcing” by Ashok D. Bardam and Cynthia Kroll, Fisher Center for Real Estate & Urban Economics. Available online at: Series of articles in the San Franciso Chronicle: