The Evolution of Outsourcing Michael L. Videira Faculty Sponsor: Dr. James Kroes, Supply Chain Management

Agenda Brief Background of Michael Videira Why This Topic? Brief History of Outsourcing Growth of Outsourcing Reasons for Outsourcing Discussion of the Study Data Collection Process Analysis Findings and Implications

Michael Videira in Brief Cumberland, RI Accounting Major Ernst & Young Printed Circuit Board Assembly Business

Why this Topic? CHINA THIS, CHINA THAT, GLOBALIZATION Traveled to Wuhan, Beijing, Xian, and Shanghai, China in Summer of 08. Problem – Companies choice of country. What to Outsource Where to Outsource Prevent situations such as Mexico and Venezuela

Brief History What is Outsourcing? an act of moving some of a firm’s internal activities to outside providers (Schniederjans 2005). What is Offshoring? Moving a business operation to a foreign country. When did it all start? Before WWI but died out due to the war General Agreement on Tariffs and Trade (1947) 1995 World Trade Organization North American Free Trade Agreement (1992)

Growth of “Globalization” Growth (global outsourcing market) $297 billion in 07 $450 billion in 2010 (“Outsourcing growth to reach 62%”). In 15 years # of mins. of international telephone calls has gone from 40 billion in 1991 to about 135 billion in 2004, (Boudreaux 2007)

Reasons for Outsourcing Cost Savings Labor Gain Outside Expertise CPA or Mechanic Shop Improved Service Able to produce products more quickly Focusing on Core Competencies Competitive Advantage Strengthening Technology Rapid changes. Any Negatives? Only 54% of companies are satisfied with their Outsourcing (Craumer 2002).

The Study Four Categories Technological Does it have the technology to support the outsourcing agreement? Economical Can they provide the capital needed to function? Cultural Are they educated? Will it be easy to start a business there? Language Barrier? Political Is the Government Stable? Mexico, Hugo Chaves

Factors Technology Nokia Siemens Networks Rating - 5 “How governments, businesses and consumers in 50 countries make use of connectivity technology to enhance economic and social prosperity.” Cell Phone User Rating - 1 Communication Internet User Rating - 2 Communication High-Tech Exports - 3 Are they already producing technologically advanced products?

Factors Economical Improved Water Source - 1 Public Utilities Transportation - 3 Moving Products and People around GDP Growth - 4 How is the country doing as a whole? Labor Cost - 5 Are employees expensive? GNI Per Capita - 2 How poor/rich are the citizens?

Factors Cultural Language - 2 Any Barriers Ease of Doing Business - 5 How hard will it be to find employees and operate? Education Level - 3 Educated? Training cost involved?

Factors Political Political Stability - 5 Hugo Chavez? Regulatory Quality - 4 Are they promoting the Private Sector? Control of Corruption - 2 Mexico, Loyal Partners? Rule of Law - 3 Patent Infringement? Corporate Tax - 4 Can I Avoid Taxes?

Data Collection First collected the Data Then made Factors (same source) Good Sources CIA World Factbook The World Bank Group Vital source of financial and technical assistance to developing countries around the world Research Firms Textbooks

Analysis Step 1 Best Country in Each Factor Step 2 Divide stat by itself and every other country by that same “best” stat Step 3 Multiply % by importance Best Country would receive 100% of the points Step 4 Total all points for each Category Step 5 Divide most points by itself and every other country by that same “best” total Step 6 Multiply each category percentage by 25.

Example of Data Analysis EconomyCountry ACountry B GDP Growth %5%10% Best in Class %5/10 = 50%10/10 = 100% Multiply Above by Importance 50% x 4 = 2100% x 4 = 4 Best in Class %2/4 = 50%4/4 = 100% Multiply by

Findings TechnologicalEconomicalCulturalPoliticalOverall 1 Malaysia1. Vietnam1 China1 Chile1 Malaysia 2 Chile2. India2 Thailand2 Malaysia2 Chile 3 Turkey3 Ukraine3 South Africa 3 China 4 Philippines4 China4 Chile4 Turkey4 Vietnam 5 Russia5 Philippines5 Malaysia5 Vietnam5 Argentina 6 Mexico6 Argentina6 Colombia6 Brazil6 South Africa 7 Brazil7 South Africa7 Vietnam7 Ukraine7 Mexico 8 Argentina8 Russia8 Mexico 8 Thailand 9 South Africa9 Mexico9 Brazil9 China9 Brazil 10 Thailand10 Turkey10 Philippines10 Thailand10 Turkey 11 China11 Malaysia11 South Africa11 Argentina11 Ukraine 12 Colombia12 Brazil12 Russia12 India12 Philippines 13 Ukraine13 Chile13 Ukraine13 Russia 14 Vietnam14 Thailand14 Turkey14 Colombia 15 India15 Colombia15 India15 Philippines15 India

Labor Cost Labor Cost Ranking Country 1Vietnam 2Ukraine 3India 4China 5Philippines 6Thailand 7South Africa 8Russia 9Colombia 9Argentina 11Malaysia 12Turkey 13Brazil 14Mexico 15Chile

Advice to Manager Outsourcing a technological product Pick top 5 in Technological Category Outsourcing strictly for processing. Vietnam, China, or the Philippines Cheap Labor

Limitations Data statistics form the same source Finding Data from all the same years.

Sources Bhagwati, J. In Defense of Globalization. Oxford, New York: Oxford University Press, Boudreaux, Donald J. Globalization (Greenwood Guides to Business and Economics). New York: Greenwood P, Chamberland, D. (2003) Is it core strategic? Outsourcing as a strategic management tool. Ivey Business Journal Online, (Jul/Aug), 1-5. Craumer, M. (2002) How to Think Strategically About Outsourcing. Harvard Management Update, (May), 4-5. “Data & Research.” The World Bank Group. 02 Feb < "Economy | Change.gov: The Obama-Biden Transition Team." 03 Mar "DDP Quick Query." The World Bank Group. 23 Mar Goldsmith, N. M. Outsourcing Trends. New York: The Conference Board, "Governance & Anti-Corruption." The World Bank Group. 06 Jan "Human Development Report 2007/ High-technology exports (% of manufactured exports)." Human Development Reports (HDR). United Nations Development Programme (UNDP). 08 Jan Industrial Statistics. United Nations Industrial Development Organization. 29 Feb "International Comparisons of Hourly Compensation Costs for All Employees in Manufacturing." U.S. Bureau of Labor Statistics. 18 Jan Jain, S. C. Emerging Economies and the Transformation of International Buisness Brazil, Russia, India And China (New Horizons in International Business). Grand Rapids: Edward Elgar, “Global Infrastructure Ratings and the Knowledge Economy.” M Squared Consulting - Delivering expertise and results. March & April 2009.Global Infrastructure Ratings and the Knowledge Economy "Outsourcing growth to reach 62%." Business World (2007). Lexisnexis. University of Rhode Island, Kingston. March & April 2009 < "Private Infrastructure Projects" The World Bank Group. 02 Feb "Rankings - Doing Business - The World Bank Group." Doing Business. The World Bank Group. 03 Mar Schniederjans, M. J., Ashlyn M. Schniederjans, and Dara G. Schniederjans. Outsourcing and Insourcing in an International Context. Armonk: M.E.Sharpe, Inc., "Tax Rates Around the World." The Complete Worldwide Tax & Finance Site. 07 Mar The World Factbook. Central Intelligence Agency. 08 Feb Weinstein, M. M., ed. Globalization what's new? New York: Columbia UP, U.S. Census Bureau. Foreign Trade Division, Data Dissemination Branch. Washington, D.C