HBR2004dec_BeyondOffshoring

HBR2004dec_BeyondOffshoring - BEYOND OFFSHORINC Your...

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BEYOND OFFSHORIN C Your Company's Global Potential How global an industry becomes depends on the interaction of production, regulatory, and organizational factors. by Diana Farrell Companies that read the landscape correctly will capture dramatic revenue growth. I N THE PAST FEW YEARS, most Companies have become aware that they can reduce their costs significantly through offshoring-moving jobs to lower-wage locations. But this practice is just the tip of the ice- berg in terms of how globalization can transform industries, according to a recent comprehensive study by the McKinsey Global Institute. By streamlining their production processes and supply chains globally, rather than just nationally or regionally, companies can dramatically lower their costs and drop their prices to increase demand for their products, attract new customers, and even enter new markets. To date, however, few businesses have recognized the full scope of per- formance improvements that globalization makes possible, much less de- veloped proactive strategies for capturing these opportunities. Indeed, or- ganizations' narrow focus on offshoring is obscuring the bigger picture-that this trend is just the latest in the evolution toward a truly global economy. More than lOO years ago, the prospect of reaching huge pools of new cus- tomers in foreign markets lured large trading companies out of their home territories. In the 1980s, manufacturers based in North America, Europe, and Japan built plants and hired workers in low-wage countries, then ex- ported the finished goods back home. In the 1990s, companies in a handful 82
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Beyond Offshoring: Assess Your Company's Global Potential of industries, such as consumer electronics, pushed glob- alization even further by relocating their component pro- duction and final assembly to countries with the strongest cost advantages. Now, globalization is beginning to trans- form the service industries. Thanks to plummeting telecommunications costs and the digitization of some paper-based business processes, many service jobs and back-office functions are now being performed remotely. Data entry, transaction pro- cessing, and call-center customer support have been the obvious candidates, but even high-skill jobs in software development, manufacturing design, and pharmaceutical research are being migrated to low-wage countries. Service businesses currently employ 83% of all U.S. workers and represent a similar share of the GDP. By contrast, manufacturing now accounts for less than 11% of all U.S. jobs. The situation is similar in other developed countries. The IT research firm Forrester projects that by 2015, U.S. companies will move 3.3 million service jobs to low-cost countries, including 8% of IT jobs. This all sounds ominous-until you consider that in the U.S. services sec- tor, more than a million people change jobs every month.
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This note was uploaded on 06/05/2011 for the course BUAD 2080 taught by Professor Zarb during the Spring '08 term at Toledo.

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HBR2004dec_BeyondOffshoring - BEYOND OFFSHORINC Your...

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