Outsourcing United States Jobs to Foreign Countries

1. Outsourcing United States Jobs to Foreign Countries Jessica Kline & Shea Patterson 11.26.2012

2. Determine the relationship between outsourcing United States jobs into foreign countries • Countries Being Tested Included • United States • Brazil • China • Colombia • India • Jordan • Mexico • Philippines • Russia • South Africa Purpose of the Study

3. Testing several variables with a variety countries • Determinants of outsourcing United States jobs • Human development Index (Human Development Reports) • GDP per Capita (The World Data Bank) • Imports of Goods and Services (The World Data Bank) • Exports of Goods and Services (The World Data Bank) • Outward Foreign Direct Investment (UNCTAD, World Investment Report ) Papers Contribution

4. Outsourcing of jobs from the United States to foreign countries can provide a competitive advantage if the job/labor being outsourced is not a core competency of the firm. Hypothesis

5. Advantages • Costs—cost of living/wage rates are significantly lower in most other countries • Tax incentives by foreign governments • Access to foreign markets • 24/7 production capabilities • Lack of capacity • The need for access to technology and innovation • The Supporters • Increase a company’s productivity and profits • Drive developing markets to open further • Enable developed nations to use profits to expand their economies Previous Literature

6. Disadvantages • Decrease in US jobs • Giving away knowledge and technology in the home country • Middle class workers losing good pay and benefits • Company cannot hide behind poor quality • Start-up, training, and oversight costs • Addressing safety and reliability expectations • Critics • Fear it will weaken developed nations • There will be a loss of irreplaceable jobs • Developing nations will be further exploited • Labor costs may be relatively high in the US, but they are increasing in other countries quickly • US companies will have trouble building new high-tech factories in high skill countries due to shrinking workforces • When the economy is bad, outsourcing of jobs becomes a major political/economical issue Previous Literature Cont.

7. Modularity-Maturity Matrix determines the relationship between innovation and manufacturing. • High modularity • product does not determine the production processes so the two functions can be performed in different locations • Low Modularity • Design choices influence manufacturing choices so the R&D and manufacturing facilities should be kept relatively close to each other • Matrix Quadrants • Pure-Product Innovation • Pure-Process Innovation • Process-embedded Innovation • Process-driven innovation. Previous Literature Cont.

8. Cross Sectional from the year 2011 • Why are United States jobs continually being outsourced to foreign countries? DataResearch Question

10. Model Summary

13. HDI= 314443384 + 5.6072E-06 GDP - .006777611LNPOP – 2.14062E-05IMP + 5.03202E-05EXP – 2.03045E-07FDI • HDI= Human Development Index • GDP= GDP Per Capita • LNPOP= Log Population • IMP= Imports of Goods & Services (% of GDP) • EXP= Exports of Goods & Services (% of GDP) • FDI= Outward FDI Flows Estimation Equation

19. HDI is a good overall indicator of how well the United States ranks as compared to other countries. Shows that other countries have the capability to support jobs that have high costs associated with them in the States. • Outsourcing has a positive linear relationship with the Human Development Index of each country, GDP per Capita, Percent of Imports/Exports, and the Outward FDI Flows • Population of country positively relates but does not have a significant impact on outsourcing Conclusions

20. Business’s need to decide what are their core competences and not outsource them. • Outsource jobs that are not deemed to be core competencies to countries that can provide a better cost/quality advantage (ex. Manufacturing Jobs) • The public needs to be better informed of the benefits of outsourcing, as the news media tends to portray outsourcing in a negative manner. Policy Recommendations

21. Find more variables that help describe how outsourcing can be explained • Larger Sample Size • Multiple years of data Next Steps in Research Process

22. References • Anderson, S., Cavanagh, J., Madrick, J., & Henwood, D. (2004). Toward a Progressive View on Outsourcing. Nation, 278(11), 22-26. • Drezner, D. W. (2004). The Outsourcing Bogeyman. Foreign Affairs, 83(3), 22-34. • BRYSON J. A Renaissance in American Manufacturing. Vital Speeches Of The Day[serial online]. May 2012;78(5):155-157. Available from: Academic Search Complete, Ipswich, MA. Accessed September 30, 2012. • Gordon E. The Global Talent Crisis. Futurist [serial online]. September 2009;43(5):34-39. Available from: Academic Search Complete, Ipswich, MA. Accessed September 30, 2012. • Hira R. White Collar Jobs Move Overseas: Implications for States. Spectrum: Journal Of State Government [serial online]. Winter2004 2004;77(1):12-18. Available from: Academic Search Complete, Ipswich, MA. Accessed September 30, 2012. • Lewin, Arie Y., Silvia Massini, and CarinePeeters. "Why Are Companies Offshoring Innovation? The Emerging Global Race for Talent." Journal of International Business Studies 40.6 (2009): 901-25. Print. • Pisano, Gary P., and Willy C. Shih. "Does America Really Need Manufacturing?." Harvard Business Review 90.3 (2012): 94-102. Business Source Premier. Web. 28 Sept. 2012. • Schultz, C. (2006). TO OFFSHORE OR NOT TO OFFSHORE: WHICH NATIONS WILL WIN A DISPROPORTIONATE SHARE OF THE ECONOMIC VALUE GENERATED FROM THE GLOBALIZATION OF WHITE-COLLAR JOBS?. Houston Journal Of International Law, 29(1), 231-269. • VIEWS ON OUTSOURCING ENGINEERING. Advanced Materials & Processes [serial online]. January 2005;163(1):35-39. Available from: Academic Search Complete, Ipswich, MA. Accessed September 30, 2012. References