The New Offshoring of Jobs in the Global Economy Gary Gereffi Duke University ggere@soc.duke.edu “Globalización, Conocimiento y Desarrollo desde la perspectiva mexicana” Universidad Nacional Autónoma de México (UNAM), México, DF, México 15-17 de marzo, 2006

Main Topics Offshore outsourcing: new & old trends Contemporary global labor market: a typology of jobs Shifts in labor-intensive jobs: apparel Shifts in knowledge-intensive jobs: engineering Development dilemmas: winners & losers We focus on three variables: 1. How complexes the information transfer between firms required to sustain a transaction? This information could be about the product, processes, or the services associated with the product. Complexity refers to the amount of information needed to handle the specific requirements of a transaction. In other words, it refers to the extent to which the relationship between buyer and supplier has to be customised in order to meet coordination requirements. 2. How easy is to codify this knowledge? Knowledge may be complex and transaction-specific, but systems may be in place to handle this complexity of a relatively easily. These include technical standards, process standards and grading systems. 3. Supply competence in relation to the requirements of the transaction. In other words, how confident as the buyer that the supplier will meet the requirements of the transaction.

Starting Point Outsourcing – corporate control move supply of goods and services from “in house” to external supplier Offshoring – geographic location move activities from domestic to overseas location Offshore outsourcing – What’s new? Types of jobs New “drivers” of job shifts in global industries Where jobs are going

Global Outsourcing of U.S. Jobs Trends 1960s & 1970s – basic factory jobs Shoes, clothes, electronics, toys, appliances 1980s – routine service work Call centers, back office jobs (credit cards, banks) 1990s – advanced business services Finance, accounting, medical records, software 2000s – design, brands, innovation

An Unprecedented Expansion in Global Capitalism In 1985, the global economy consisted of 2.5 billion people (N. and S. America, W. Europe, Japan, E. Asian NIEs, Africa) In 2000 as a result of the collapse of the Soviet Union, India’s turn from autarky, China’s shift toward a market economy, global capitalism consisted of 6 billion people

The Global Force Has Doubled since 1990 Source: Richard Freeman, “The real effect of globalization on labor,” Harvard University and NBER.

4 Types of Jobs in Global Economy Assembly jobs in export industries (EPZs) “Full package” (or OEM) production jobs, associated with buyer-oriented upgrading Advanced production jobs that require design (ODM) and marketing (OBM) capabilities, associated with supplier-oriented upgrading Knowledge-intensive jobs in offshore services

and the Consolidation of the 2005 Phase Out of Quotas and the Consolidation of the Apparel Value Chain

In 2005, Multi-Fiber Agreement Ends Quota Abolition from 2005 MFA (1974 – 1994) ATC (1995 – 2004) Jan. 1, 1995 16% Integration Jan. 1, 1998 Another 17% Integration Jan. 1, 2002 Another 18% Integration Jan. 1, 2005 100% Integration Source: World Trade Organization.

Figure 1 Source: Financial Times, July 19, 2004, p. 11.

Figure 2 Source: Financial Times, July 19, 2004, p. 11.

Central America and the Caribbean Europe and the Middle East Figure 3: Shifts in the Regional Structure of US Apparel Imports from 1996 to 20041 Northeast Asia Southeast Asia Central America and the Caribbean Europe and the Middle East China 1 2 3 4 5 Hong Kong South Korea Taiwan Thailand Indonesia India Turkey Italy Macau North America South Asia Pakistan Bangladesh Sri Lanka Malaysia Philippines Canada Mexico Guatemala El Salvador Costa Rica Honduras Dominican Republic Cambodia Vietnam Jordan Jamaica The rings indicate the share of total U.S. imports in U.S. dollars by partner country: 1. 10% + 2. 6.0% - 9.9% 3. 4.0% - 5.9% 4. 2.0% - 3.9% 5. 1.0% - 1.9% Total value of U.S. clothing imports was $41.6 billion in 1996 and $72.3 billion in 2004. 1The 2004 position corresponds to the ring where the country’s name is located; the 1996 position, if different, is indicated by a small circle. The arrows represent the magnitude and direction of change over time. Source: Compiled from official statistics of the U.S. Department of Commerce, U.S. imports for consumption, customs value.

Figure 4: Shifts in the Regional Structure of Japanese Apparel Imports from 1996 to 20041 Hong Kong 5 Europe Northeast Asia France 4 United Kingdom 3 Italy 2 South Korea 1 China Indonesia Thailand North America Southeast Asia USA Vietnam Philippines The rings indicate the share of total Japanese imports in U.S. dollars by partner country: 1. 25% + 2. 10.0% - 24.9% 3. 4.0% - 9.9% 4. 2.0% - 3.9% 5. 1.0% - 1.9% Total value of Japanese clothing imports was $19.7 billion in 1996 and $21.7 billion in 2004. 1The 2004 position corresponds to the ring where the country’s name is located; the 1996 position, if different, is indicated by a small circle. The arrows represent the magnitude and direction of change over time. N.B.: From 1996 to 2004, China’s import share of the Japanese apparel market grew from 59.4% to 80.9%. Source: UN Comtrade, SITC 84 (“Articles of apparel and clothing accessories”).

Top 7 Apparel Exporters to the United States, 2000-2005* Table 1 Top 7 Apparel Exporters to the United States, 2000-2005*

Table 2

MAJOR TRENDS IN THE POST-QUOTA WORLD China will benefit most from the end of MFA quotas Consolidation is likely to accelerate More mega-factories will emerge post-2005 Retailers will cut down on the number of sourcing countries Remaining factories will have to provide higher level services (logistics, customs clearance, and product design) Time to market considerations will allow regional producers to maintain a role in apparel sourcing Pressures for “ethical sourcing,” corporate codes of conduct, independent monitoring and labor standards will grow

The Rise of Engineering Outsourcing in India and China Economic growth Massive labor forces Low labor costs / specific labor polices A new emphasis on knowledge-intensive jobs India: IT expertise China: manufacturing expertise Additional points: Stable environment

In the Media “Last year more than 600,000 engineers graduated from institutions of higher education in China. In India, the figure was 350,000. In America, it was about 70,000” The National Academies, Press Release: “Broad Federal Effort Urgently Needed to Create New, High-Quality Jobs for All Americans in the 21st Century”, 10/12/2005 “Last year China's schools graduated more than 600,000 engineers and India's schools produced 350,000, compared with 70,000 in America” The U.S. Department of Education, Press Release: “In Case You Missed It: Let's Get Serious”, 2/7/2006

Engineering, Computer Science and Information Technology Degrees Awarded in 2004

2004 Engineering, CS and IT Degrees Awarded Per Capita

A Breakdown of the 2004 Economic Structure of the United States, China and India Conclusions: The majority of outsourced activity in India will be service related, in China it will be industry/manufacturing related

Thank you for your attention!