June 15, 2004 5:53 PM PDT
Consulting group: Send more jobs offshore
That, in a nutshell, is the conclusion of a report released Tuesday by The Boston Consulting Group, the latest organization to weigh in on the controversial topic of shipping work abroad.
Critics blame so-called offshoring for taking jobs from Americans, while defenders laud it as healthy for the U.S. economy. The management consulting firm's report considers the benefits to industrial businesses of shifting tasks to low-cost countries and argues for taking action sooner rather than later.
"Despite the challenges, the real question now is not whether to go global but how much and how fast you can move," the report said. "The largest competitive advantage will lie with those companies that move soonest and make the strongest commitments."
The exact scale of the offshoring phenomenon remains elusive. A recent government report found that a tiny fraction of workers hit by mass layoffs in the first quarter lost their jobs because of overseas relocations. But the study was limited in scope. In May, Forrester Research essentially affirmed its earlier, oft-quoted projection on the topic, saying 3.4 million U.S. service jobs will head offshore by 2015.
The BCG report suggests that a significant proportion of services jobs at industrial companies could be subject to offshoring. "We have found that anywhere from 30 (percent) to 40 percent of nonmanufacturing roles can potentially be performed by company employees or vendors in LCCs (low-cost countries)," it said.
The report also argues that lower costs and other advantages in countries such as India won't tail off for at least the next two decades--and may widen. Even if labor rates jump more quickly in low-cost countries, it argued, the gap in real wages could increase because of the countries' very low base wages. For example, a 100 percent increase in a factory worker's $1-an-hour wage still only raises the company's costs by $1 per hour, while a 10 percent hike for a $30-an-hour factory worker in the West costs a company $3 per hour.
Another benefit to locating operations offshore, according to the report, is that it provides easy access to vast new markets.
Among the activities ripe for sending abroad are research and development tasks, the report suggested. "One of the most intriguing advantages we have come across is faster (and lower-cost) R&D," it said. "Because companies that are established in LCCs eliminate a lot of automation and tooling requirements from their operations, they can be much more responsive to R&D requests."
Weaker R&D efforts in the United States raise concerns for some observers, who argue that the United States could lose its technological edge.
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