1. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Prof. Jerry Haar Department of Management & International Business and Knight Ridder Center for Excellence in Management College of Business Administration Florida International University MAN 6930 Lecture November 18, 2006

2. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Outsourcing When a firm subcontracts a business function to an outside supplier, foreign or domestic. Offshoring Location of services or physical production overseas, including foreign direct investment.

3. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Advantages of Outsourcing 1.20-50% cost savings 2.The ability to have a 24x7 operation 3.Lower production costs 4.Repatriated earnings 5.Redeployed labor 6. Superior product quality 7. Superior work ethic 8. Lower cost of benefits 9. Fewer liabilities 10. Increased productivity 11. Increased profits

4. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management 1.Distance 2.Time zone differences 3.Cultural differences 4.Language barriers 5.Unknown suppliers 6.Uncertain legal rights 7.Geopolitical instability 8.Transportation costs Disadvantages of Outsourcing

5. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Privacy laws that restrict transborder data flows Security concerns Government procurement laws Need for further liberalization in services Weak intellectual property protection Tax structures that inhibit sourcing Others: energy policy, health care costs, pension costs Barriers to Outsourcing

6. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Why Companies Outsource Source: Accenture Outsourcing Study

7. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Cost pressures on U.S. companies. Rapid declines in telecom and computing costs. Rapid growth in Internet reliability and functionality. More suppliers with better capabilities Respected onshore suppliers offering offshore services. Successful pioneering by GE and others. Drivers for rapid offshore growth

8. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Activities Most Commonly Outsourced Source: Accenture Outsourcing Study

9. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Candy Cane Manufacturers Adverse Effects of Protectionism Steel Industry Inefficient subsidies for uncompetitive sectors. Higher prices for consumers. Lower rate of return for investors. Preserves jobs in less competitive sectors.

10. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Accounted for 5.4 million U.S. Jobs in 2002. Insourced companies represented 14% of R&D spending in 2002. Insourced companies pay higher wages than US companies. In Florida, there are 245,000 insourced jobs. Insourcing Foreign companies setting up in the US.

11. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Where Does Outsourcing Work? “I lost my job to India and all I got was this lousy T-shirt” The good life in a Bombay call center. Romanian tech boom. Filipino’s way, way back office. E-Loan in India.

12. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Where Outsourcing Does NOT Work Valicert learns key roles must remain in US Interaction problems created. Turmoil between US and Indian workers. Dell and Lehman Brothers pull overseas operations

13. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Precision Response Caribbean Call Center Largest call center company in S. FL. Opened call center in Dominican Republic. Easier to manage since it is close to home. D.R. is popular because of low operating costs. Low employee turnover. Provides backstop for US operations.

14. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management English travel agency Shipping both call-center jobs and the workers to India. Wages are 1/4 th of similar jobs in UK. Recruiting from all over Europe. Roadmap for other multinationals looking to surpass language barriers. ebookers PLC Work Migration to the Developing World

15. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management Less than 5% of components used to build vehicles in N. America come from offshore. Pressure to take advantage of Chinese potential is increasing. Superior Industries Cut Profit Margin? Solution: Build joint venture plant in Shanghai. Big Three Auto Manufacturers

16. Globalization and Outsourcing in International Business Knight Ridder Center for Excellence in Management THANK YOU FOR YOUR ATTENTION!